Health Care and Insurance

Standard Life deal on hold: Firm still trying to sell life insurance business

January 17, 2005

Standard Management Corp. ended a difficult 2004 the same way it started the year: trying to seal a deal to sell its life insurance business.

The Indianapolis holding company announced in November a plan to sell Standard Life Insurance Company of Indiana to "an unaffiliated third-party buyer."

That marked the third time in 2004 that Standard entered into such an agreement, according to SEC filings. Company shares jumped 27 percent to close at $3.55 the day of the Nov. 22 announcement.

Standard hoped to finalize the deal by Dec. 31, but New Year's Eve passed quietly and company CEO Ronald Hunter declined to provide an update.

Mergers and acquisitions fall apart all the time. However, experts said, company credibility among investors might start to erode in this case because so many deals have failed to materialize.

Last March, Standard Management revealed in its annual report that it was considering a sale of Standard Life in order to focus on its newer health care services business.

In April, Standard entered a "non-binding letter of intent with an unaffiliated third party" to sell Standard Life and its subsidiary, Dixie National Life, according to the corporation's first-quarter report.

In July, the company stopped negotiations on that deal and signed a new letter of intent with one of the parties involved in it. The company hoped to have an initial closing Sept. 30.

That never happened. Last fall, Hunter called that timetable a rough estimate. He said he expected to have a deal "agreed to if not closed by year-end."

Then the company made its November announcement. Standard anticipated entering "a definitive purchase agreement" by Dec. 31 with the third party, which it identified in a news release only as an equity investor group.

Hunter referred questions about the deal to Lee/Willis Communications. Owner Clyde Lee declined to comment. Steven Faulks, an analyst for New Jersey-based insurance rating agency A.M. Best Co., said he spoke with Standard leaders about the deal.

"All I can say is the company is still working on getting the transaction in place," he said. "I can't go any further than that."

Raghu Rau likens those repeated deal proclamations to the old story about the boy who cried wolf. "Every time they do something like that, they lose a little bit of credibility," said Rau, an associate professor of finance at Purdue University's Krannert School of Management. Rau called Standard's situation "unusual enough to raise eyebrows." He said companies normally wait until they're closer to a deal's completion before announcing it. "It's possible they tried to sell it and didn't get a good price," he said. "It's kind of like selling a house." Best placed its ratings for both Standard Life and Dixie National under

review a day after the November sale announcement. Faulks said they typically do that whenever a company announces a deal.

It's the agency's way of telling the public they know about the possible deal, and they plan to review its effect on the insurance business after it's completed. Best currently rates both companies B, or "vulnerable." That could rise, fall or remain the same if a deal is finalized.

Best reduced Standard Life's rating from B+ to B last July, in the middle of a year filled with plenty of bad news for the company. Standard Management reported a fifth-straight quarterly loss last fall, thanks mostly to its health care services division.

Standard is developing a nationwide network that delivers pharmaceutical, medical and veterinary supplies for that segment.

The parent company also ran into some trouble over the amount of money it has borrowed from its life insurance subsidiary. Standard Management has received $18.4 million from Standard Life, according to third-quarter figures filed with the state Department of Insurance.

That loan prompted Indiana insurance regulators to block a quarterly transfer of $430,000 from Standard Life to Standard Management in September.

The loan also sparked concern in Florida, where Standard Life agreed to stop writing new business in 2003. That agreement lasted through 2004. Standard Life and Dixie National still have not started writing new life policies in the Sunshine State, a spokeswoman for Florida's Department of Financial Services said earlier this month.

Not all of Standard's news was bad last year. In August, the parent company announced two deals-the purchase of Michigan-based SVS Vision Holding Co. and Florida-based iCare Medical Supply Inc.-to bolster its health care services segment.

However, questions linger about both.

Representatives from iCare did not return calls seeking comment on the deal's status. The SVS Vision purchase hasn't closed because the Michigan Office of Financial and Insurance Services has yet to make a decision on it, office spokesman Andy Schor said.

Standard had expected both deals to close in last year's third quarter, subject to regulatory approval.
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