Safeco Agrees to Sell Life and Investment Operations for $1.35 Billion

Strategic Insights -

Safeco Corp., a Seattle-based insurance company, has agreed to sell its life and investment operations to a group of investors led by White Mountains Insurance Group Ltd. and Berkshire Hathaway Inc. for a total of $1.35 billion. The sale includes Safeco Life & Investments' life insurance, group insurance, annuities, and mutual fund businesses, and may also include additional proceeds above the sale price based on June 30 statutory book value. Safeco will incur an after-tax loss of approximately $200 million on the sale, or about $1.50 per share.

Key Takeaways:

  • Safeco has agreed to sell its life and investment operations to a group of investors led by White Mountains Insurance Group Ltd. and Berkshire Hathaway Inc. for $1.35 billion.
  • The sale includes Safeco Life & Investments' life insurance, group insurance, annuities, and mutual fund businesses, and may also include additional proceeds based on June 30 statutory book value.
  • Safeco will incur an after-tax loss of approximately $200 million on the sale, or about $1.50 per share.
  • A newly formed acquisition company will be capitalized with equity of $1 billion, with White Mountains and Berkshire Hathaway each investing $200 million.
  • White Mountains and Berkshire Hathaway will each own approximately 24% of the company.
  • Investors in the group include, among others, Caxton Associates, L.L.C., Highfields Capital Management, Och-Ziff Capital Management, and Vestar Capital Partners.
  • Safeco's proceeds were below expectations, with Morgan Stanley analysts listing the sale price at $1.44 billion, compared to their book value assumption of $1.77 billion.
  • The stock may trade down on this news, according to Morgan Stanley analysts.
  • A.M. Best Co. has stated that Safeco Life will be challenged to establish a new brand, maintain its established positions, and execute a move of over 1,200 employees to new offices within the next 12 to 18 months.
  • The new holding company will have lower debt-service requirements compared to Safeco, enabling the life/health operations to retain earnings and continue building capital.

Statistics:

  • $1.35 billion: Total sale price of Safeco's life and investment operations
  • $200 million: Safeco's after-tax loss on the sale, or about $1.50 per share
  • $1 billion: Equity of the newly formed acquisition company
  • $200 million: Investment of White Mountains and Berkshire Hathaway each in the acquisition company
  • 24%: Ownership of White Mountains and Berkshire Hathaway in the acquisition company
  • $1.44 billion: Sale price listed by Morgan Stanley analysts
  • $1.77 billion: Book value assumption of Morgan Stanley analysts
  • $22.5 billion: Total assets of Safeco Life and Investments as of Dec. 31, 2003
  • $2.57 billion: Book value of Safeco Life and Investments as of Dec. 31, 2003
  • $1.74 billion: Book value of Safeco Life and Investments excluding FAS 115, as of Dec. 31, 2003
  • $42.90: Midday stock price of Safeco on March 16, 2004, down 2.19% from the previous close

Sources:

  • "Safeco to Sell Life Operations for $1.35 Billion" by A. M. Best via COMTEX
  • Source: Safeco Corp. statement on March 16, 2004
  • Source: Christine Mead, chief financial officer of Safeco Corp.
  • Source: Mike McGavick, chairman and chief executive officer of Safeco Corp.
  • Source: A.M. Best Co. rating announcement released March 16, 2004
  • Source: Dale Lauer, president and chief operating officer of Safeco Business Insurance
  • Source: Greg Clarke, vice president, multiline distribution for Safeco Life and Investment