The 73.35 percent stake expands Codan's presence in the Baltic states following its purchase of a controlling share of Lithuania's largest insurance company Lietuvos Draudimas in 1999. Codan is part of the Royal and Sun Alliance group.
Under the agreement Codan will buy 3.41 million shares in Balta at a price of 4.5 lats ($7.28).
Balta currently accounts for 20 percent of Latvia's general insurance market. Three companies are selling up: the Development Capital Corporation, which owns 43.65 percent of Balta's shares, Bastions ZS (28.64 percent), and Vista Capital Corporation LLC (1.06 percent). Balta's registered capital stands at 4.65 million lats and it posted unaudited profits of 1.77 million lats in 2000.
Codan Managing Director Poul Mortensen said Codan is building on the success of its recent Lithuanian purchase. Balta will retain its existing management, he says.
"We've invested a lot in Lietuvos Draudimas and we'll be doing the same with Balta," he said. "Moving into Latvia is the next step. We aim to maintain a good market share in Scandinavia and the Baltic states. When you buy a company you're looking at the management and the Balta team have worked well."
Under Latvian law, Codan is obliged to make an offer to the remaining share holders. Janis Abasins, chairman of the Latvian subsidiary of the Finnish financial group Sampo, said Sampo might be interested in selling its 15 percent stake.
To reduce the risk of investing in Balta, Codan hopes to sell a 14 percent stake in the company to the European Bank for Reconstruction and Development and to the Danish financing institution Investment Fund for Central and Eastern Europe. Both institutions hold shares in Lietuvos Draudimas.
"These two funds are very interested in being part of the Baltic states' financial systems, so it would be good to have them as shareholders," said Mortensen. "We hope to have partners we trust and have confidence in. The risk is higher than it would be in Scandinavia."
A move into Estonia will be harder for Codan, said Mortensen. "We'd be open to the possibility, but there are no opportunities right now. The Finns have a strong foothold there."
Codan's entry into the Latvian market follows the recent purchase of Balta's nearest rivals Alterna and Latgarants by the German company Alte Leipziger. The involvement of a second foreign investor in the insurance sector is good news for the Latvian economy, said Roberts Idelsons, managing director of the Riga brokerage house Suprema.
"Codan's purchase of Balta is the natural next step," he said. "Having two major insurance companies owned by foreigners will make buying insurance safer. This will be good for Latvian businesses."