Liberty Mutual to buy Safeco

Published 7:57 pm Wednesday, April 23, 2008

SEATTLE — Liberty Mutual Group Inc. said Wednesday it has agreed to buy Seattle’s Safeco Corp. for $6.2 billion in cash in a deal to create the nation’s fifth-largest property and casualty insurer.

The boards of Boston-based Liberty Mutual and Safeco approved the deal, which represents a 51 percent premium over Safeco’s closing price Tuesday.

Liberty Mutual, which is owned by its policyholders, said it plans to use its available cash for the purchase. A Safeco spokesman said the company would retain its 85-year-old brand name and continue selling policies through its national network of agents and brokers.

The transaction, which is sub­ject to approval by Safeco shareholders as well as regulators, is expected to close by the end of the third quarter. Liberty Mutual has offered $68.25 per share for Safeco, whose stock soared $20.71, or almost 46 percent, to close at $65.94 Wednesday.

Liberty Mutual ranks as the nation’s No. 6 property and casualty insurer, based on its $20.2 billion in insurance policies sold last year, including automobile and homeowner’s coverage, compared with Safeco’s $5.9 billion.

In addition to providing personal coverage, Liberty Mutual offers commercial insurance to large businesses, some of them overseas. Safeco’s focus is on coverage for individuals and small- to medium-sized businesses, primarily in the West, in contrast to Liberty Mutual’s stronger presence in the East.

“The addition of Safeco significantly expands and strengthens the Liberty Mutual Group,” said Edmund Kelly, Liberty Mutual’s chairman, president and chief executive officer.

Once the transaction is completed, Safeco would become part of Liberty Mutual’s Agency Markets business unit, which posted $5.6 billion in revenue last year.

“This is the opportunity to take West Coast inventiveness and launch it with a global brand at a substantial premium to Safeco shareholders,” said Safeco President and CEO Paula Reynolds.

While noting that the Safeco acquisition could improve Liberty Mutual’s U.S. business and diversify the company, S&P analyst John Iten said in a research note that the deal “will result in a significant decline in Liberty’s capital adequacy.”

Liberty Mutual spokesman John Cusolito and Safeco spokesman David Monfried said it was too early to comment on whether the deal would lead to job cuts in Liberty Mutual’s 41,000-person work force or Safeco’s roughly 7,000 employees.

Such transactions typically lead to cuts to reduce duplication in back-office operations and other areas.