You’ve already probably heard this through other channels, but in case you’re like me and have been in a cave all day…quoting the Wall Street Journal: (subscriber link)
Liberty Mutual Group said Wednesday it has agreed to acquire Safeco Corp. at a sharp premium in a deal valued at $6.2 billion.[...]
Under the terms of the deal, Boston-based Liberty Mutual will acquire Safeco, an insurer of small- and mid-sized business, for $68.25 a share in cash, a 51% premium to Safeco’s closing price Tuesday of $45.23. Safeco shares were recently trading at $66.12 on the New York Stock Exchange.
Liberty Mutual, which is owned by its policyholders, doesn’t have publicly traded stock.
Safeco would become another piece of Liberty’s Regional Agency Markets division. Apparently the deal will be financed through cash that Liberty has on hand.
I’m not familiar with the internal financial particulars of either Safeco or Liberty, but from the outside that price smells a little high. True, in any outright acquisition, a premium will be offered to increase the odds of acceptance by shareholders of the company being acquired, as well as to discourage competing offers.
Maybe I’m just biased by conventional wisdom which suggests that domestically, insurers are still a bit overpriced, and by waiting for blood to flow from the emerging soft market, better deals will be had.
A mutual having $6.2 billion of underutilized cash lying around is impressive. Indeed, the ratings bureaus seem somewhat cautious about whether that cash really is underutilized, and have put Liberty on credit watch negative. Presumably a few Liberty customer-owners are also wondering why those funds just been accumulating, rather than having been distributed out, in the form of dividends or rate cuts.
Presumably today was a very interesting day in Seattle.
