STAMFORD, Conn. -- Xerox Corp. agreed yesterday to sell its insurance unit to Kohlberg Kravis Roberts & Co. for $2.72 billion as it ends its money-losing foray into financial services.
Xerox will take a $1.5 billion charge in the 1995 fourth quarter to sell Talegen Holdings Inc. to KKR, a buyout firm. The sale will result in a loss in the quarter for Xerox, which reported year-earlier earnings of $236 million, or $2.07 a share.
The company also agreed to sell its money-management group and Talegen subsidiary, First Quadrant Corp., to Boston's Affiliated Managers Group for an undisclosed amount.
The sales are part of Xerox's efforts to drop the financial services and insurance businesses it bought in 1983 so it can better compete in the computerized copier market.
For KKR, buying Talegen -- just its latest insurance investment -- gives the New York firm an insurer that's been an increasingly profitable gem buried in the losses of Xerox's financial services unit.
Investors welcomed the sale, driving Xerox stock $3.25 higher, to $139.875. Overall, financial services has "been a long-term weight on the stock," said Bob Spremulli, investment officer at the College Retirement Equities Fund in New York, which holds about 3.6 million Xerox shares. "It's a plus" that Xerox is committed to leaving financial services, he said.
The KKR group, consisting of managers of KKR and Talegen, will pay for four Talegen insurance units with $1.3 billion in cash, $450 million in preferred stock in a new company and $360 million of assumed debt. The buyout firm paid $150 million in cash and $462 million in other securities for Resolution Group, another unit.
KKR, which investors say plans on raising a new fund this year, has made no secret of its interest in property and casualty insurance.
"The insurance industry -- complicated, regulated and subject to its own accounting system -- is still avoided by most investment firms, and that's one of the reasons we like it," KKR said in its 1994 annual review. "KKR is continuing to pursue additional investments in the insurance field."
KKR bought Talegen because its management has boosted profitability in recent years. Talegen's premiums per employee rose 31 percent, to $588,000 at year-end 1995, from $427,000 at year-end 1992.
As a result, it fit KKR's pattern of buying improving insurers, KKR spokeswoman Ruth Pachman said.
The sale, which is subject to financing and regulatory approval, is expected to close in June 1996.