Liberty Mutual Offers $6.2 B for Safeco

123jump.com Staff
23 Apr, 2008
New York City

Safeco agreed to be acquired by Boston based Liberty Mutual at $68.25 per share of $6.2 billion. The deal represents 51% premium from the closing price of Safeco stock on Tuesday. Privately held Liberty Mutual will pay cash for the deal and there are no financial contingencies. Safeco, Seattle based insurer has struggled in the past five years as auto insurance premiums have declined and costs of servicing claims have risen.

[R]2:00PM New York – Safeco agrees to be acquired by Liberty Mutual Group at 51% premium.[/R]

Liberty Mutual Group has agreed to acquire all outstanding shares of Safeco Corporation at $68.25 per share in cash. The proposed transaction values the insurer at $6.2 billion and has been approved by board of directors of both companies.

The deal represents 51% premium from the closing price on Tuesday and not subject to financing contingencies. Safeco ((SAF)) stock jumped $20.67 to $65.90

In 2007, Safeco wrote direct premium of $5.9 billion and Liberty Mutual collected $20.2 billion. Privately owned Liberty near the end of last year acquired Ohio Casualty Corp for $2.7 billion.

Following the transaction, Safeco will become part of Liberty Mutual Group’s Agency Markets business unit which had revenues of $5.6 billion in 2007. Combined, the organization will have about 15,000 independent agencies.

Gary Gregg, president of Liberty Mutual Agency Markets, said, “With revenue approaching $12 billion, Agency Markets will rank third in personal and fifth in commercial property and casualty products distributed through independent agents in the United States.”

Liberty Mutual employs 41,000 people and at the end of 2007 had $94.7 billion in assets and $82.3 billion in liabilities and $25.9 billion in revenue.

Safeco in 2007 reported total revenue of $6.2 billion and net income of $707.8 million and earnings per share of $6.97. Safeco employs 7,000 people and is headquartered in Seattle with the office space of 305,000 square feet.

Safeco in the last few quarters have suffered from the rising costs and claims in its auto insurance division which generated $2.6 billion or 50% of total premium in 2007 has also suffered from claims related to wild fires in California. Combined loss ratio in auto segment rose to 98.8% and exceeded 100% in the fourth quarter of 2007.

Safeco book value hovered around $37 per share for the last five years as the insurance struggled with rising claims cost and slowing premium revenue growth. Combined loss ratio has hovered between 87% and 101% in the last five years.

Lehman Brothers acted as deal advisor to Liberty Mutual and Morgan Stanley advised Safeco for the deal.