The Rouse Co. yesterday announced it has reached an agreement to gain complete control over future development of Columbia, the 20-year-old planned community that Rouse conceived and developed.
In what Rouse officials called "one of the most important transactions in the history of the company," Rouse will buy out Cigna Corp., its partner in Columbia, for $120 million, Rouse Chairman Mathias J. DeVito said.
Rouse now owns 20 percent and Cigna 80 percent of Howard Research and Development Corp., the joint venture formed in 1963 to develop a new town between Baltimore and Washington. Howard Research and Development will become a wholly owned subsidiary of Rouse if the transaction is completed on schedule Sept. 30.
DeVito said Rouse is negotiating with banks to borrow the $120 million to pay for the transaction. Rouse is seeking a loan for 10 years or longer, he said.
"This is a very significant announcement for the community of Columbia," DeVito said. With the planned community about half completed, this "gives us the opportunity to go on and continue development" with the "same character and social objectives we had as we started," DeVito added.
"The entire development of Columbia came from the Rouse Co.," noted Warren Fuller, a Cigna officer who also serves as president of HRD. "With this transaction, future development returns in toto to the Rouse Co."
About two years ago, Cigna concluded that it was time to end its investment in Columbia after it determined that it did not fit with the company's long-range strategy of being primarily an insurance and financial-service company, Fuller said.
"It was clearly not a secret that our investment position was available," Cigna Vice President Gavin Arton said yesterday. Cigna received some offers last year, but they were "inadequate," Fuller said.
A few months ago, Rouse decided to make a bid for Cigna's share, eliminating any risk that another buyer would become its partner. Rouse, which recently sold its mortgage financing subsidiary for $50 million, earned $38.6 million on revenue of $199 million last year.
On top of the $120 million Cigna is to receive in the sale, it also will receive $10 million from HRD by the end of the year to cover Cigna's share of the current year's sales and cash flow.
Cigna, which has spent millions of dollars in developing Columbia -- especially in the early years when losses were heavy -- will report a gain of approximately $75 million from the sale, company officials said yesterday.
"We are making a very small total profit on the sale," Arton said.
The sale comes at a good time for Cigna, which, like many other insurance companies, suffered heavy property and casualty losses last year, with an underwriting loss of $1.2 billion. Overall, however, the company made a profit of $102.7 million on revenue of $14.8 billion.
"This is a very good deal for Rouse," noted financial analyst Bruce G. Garrison of Lovett, Mitchell Webb Garrison Inc. With $120 million, the company is purchasing 6,500 acres of land, including 600,000 square feet of office buildings and 865,000 square feet of retail space.
In terms of dollars, Rouse is spending more -- $165 million in all -- to open a new retail and office development near its popular Harborplace in Baltimore, DeVito noted. But in terms of opportunities, "This is the largest transaction we have ever had," he asserted.