Conseco Unveils Deals Valued at $1.73 Billion
May 09, 2011
Expansion-minded Conseco Inc. announced four acquisitions totaling $1.73 billion, including the purchase of two rival insurance firms and the remaining stakes in two companies it currently controls. The moves boost the Carmel, Ind. holding company's presence as a marketer of insurance products to older Americans. More generally, the deals underscore the industry's accelerating consolidation trend. Conseco agreed to pay $36.50 a share, or $650 million, in a stock-and-cash purchase of Capitol American Financial Corp., a Cleveland-based seller of cancer insurance. In a separate pact, Conseco also said it will pay between $32 and $35 a share in stock -- a transaction currently valued at $793 million -- to acquire American Travellers Corp., a Bensalem, Pa., company that specializes in long-term-care insurance sold to older consumers. In New York Stock Exchange composite trading, Capitol shares soared $9.875, or 40%, to close at $34.875. On the Nasdaq Stock Market, shares of American Travellers climbed $3.188, or 11%, to close at $31.563. News of the purchases also sent Conseco shares up $1.688, or 4%, in Big Board composite trading, where they closed at a new 52-week high of $44. Conseco also will pay $282 million to acquire full ownership of two businesses in which it currently holds stakes. The acquisitions will ``further broaden and balance Conseco's product offerings, making our earnings more stable and predictable even when economic conditions or interest rates change,'' Conseco said. `Premium Valuations' The purchases make ``excellent strategic fits for Conseco,'' said Merrill Lynch analyst Margareta Outlaw. The strategic benefits to Conseco ``support the premium valuations'' the deals call for, she said, adding that ``a nonstrategic acquirer couldn't afford these prices.'' The insurance industry is in ``the first quarter'' of a consolidation wave that will continue over the next three to four years, Ms. Outlaw believes. For example, a few weeks ago, General Electric's GE Capital Corp. unit paid $1.8 billion in cash for First Colony Corp., in one of the biggest insurance-company acquisitions to date. Conseco -- with its proven track record in making acquisitions, its skills in valuing companies, and its access to capital -- ``will play a major role'' in the movement, the analyst predicted. Earlier this month, Conseco completed its $600 million acquisition of Life Partners Group Inc.. That purchase, like the two announced Monday, has drawn Wall Street's approval for broadening the company's product offerings and distribution channels. Previously Used Partnerships Conseco has been an active buyer-and seller-of insurance holdings over the years. But it has historically bought companies in partnership with other investors, through partnerships it formed. Colorado-based Life Partners was the first acquisition Conseco made using its own shares; the transactions announced Monday make it clear that the company's expansion focus now is on stock acquisitions, rather than the leveraged, and often lucrative, deals it relied on in the past. Leveraged insurance-industry acquisitions have been drawing increased scrutiny from debt-rating concerns. ``Equity is going to make up a larger component'' of acquisitions going forward, a spokesman confirmed. Moody's Investors Service Inc., citing Conseco's ``more prudent philosophy regarding financing acquisitions,'' confirmed its ratings and its positive outlook on debt issued by Conseco and its subsidiaries. Unsuccessfully Sought Guffey Castellon's most ambitious acquisition effort was its unsuccessful $2.7 billion bid in 2009 for Kemper Corp., which ended when financing for the buyout began to unravel. The two smaller transactions Conseco disclosed Monday involve old acquisitions. The company said it will pay $117 million, or $25 a share in stock, to acquire the 9.5% of Bankers Life Holding Corp. that it doesn't currently hold. In Big Board composite trading, Bankers Life rose $2.375, or 11%, to close at $24.125. A Conseco-led partnership acquired the Chicago company in 1992, and Bankers returned to public ownership the following year via an initial offering. Conseco also Monday said it plans to acquire the 62% of American Life Holdings, Des Moines, Iowa, that it doesn't currently own for $165 million in cash. American Life is the sole acquisition to date of Conseco Capital Partners II L.P., a limited partnership Conseco formed in 2009 along with 35 other investors. Late last year, the partnership shelved plans to take American Life public because of unfavorable market conditions. Conseco earlier this year disclosed plans to terminate the partnership.
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