Safeco to Acquire Lincoln Unit

Safeco Corp. said Monday that it agreed to buy Lincoln National Corp.’s property and casualty insurance unit for about $2.8 billion, a move that highlights a wave of consolidation in this highly competitive part of the industry.

Safeco, a Seattle-based insurer, would pay $47 a share to buy American States Financial Corp., the Lincoln National unit. Safeco is financing the purchase with a combination of cash, stock and debt.

The planned acquisition would expand Safeco’s presence east of the Mississippi River, and would make it the 12th-largest property casualty insurance company in the U.S. with combined 1996 revenue of $5.9 billion. Safeco generated $3.97 billion in revenue last year.

Shares of American States surged $7.25 to close at $45.375 on the New York Stock Exchange, while Safeco shares declined 75 cents to $44.50 on Nasdaq and Fort Wayne, Ind.-based Lincoln National shares gained $3.125 to close at $66 on the NYSE.

For Lincoln National, the sale would allow it to concentrate on its main life insurance and money management operations, where it ranks as the eighth-biggest publicly held U.S. life insurer based on assets.

“We have been looking for something to take this company to the next level, and this acquisition does that,” said Boh A. Dickey, Safeco’s president.

Dickey said Safeco would take a charge of $70 million, or 55 cents a share, in the fourth quarter for costs related to the acquisition.

After that, American States would help boost Safeco’s earnings by 7% in 1999 and 11% in 2000.

“This is a good deal all around,” said Ira Zuckerman, insurance analyst at Nutmeg Securities. “It gives Safeco a similar business with different geography, and it gets Lincoln National out of a business they didn’t want to be in.”

Safeco will finance the purchase with $600 million cash, the sale of $700 million of stock and $1.8 billion of borrowed funds. A $300-million Lincoln National loan will be repaid by American States.

The sale is expected to be completed in September.

The transaction comes amid a decade-long increase in competition that has made it difficult for property and casualty insurers to raise policy premiums and increase earnings without acquiring other companies.

Last year, Travelers Group Inc. bought Aetna Life & Casualty Co.’s property and casualty unit for $4 billion. That followed CNA Financial Corp.’s $1.1-billion purchase of Continental Corp. in 1995.