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Safeco to be acquired by Liberty Mutual

April 23, 2008

Liberty Mutual Group said Wednesday it has agreed to acquire publicly traded Safeco Corp. and take it private in an all-cash, $6.2 billion deal to create the nation's fifth-largest property and casualty insurer.

Boston-based Liberty Mutual and Seattle-based Safeco said the boards of both companies approved the deal, which is subject to approval by Safeco shareholders as well as regulators.

Safeco has a major Indianapolis presence. It employs hundreds at offices at 500 N. Meridian St. downtown.

Liberty Mutual, which is owned by its policyholders, offered $68.25 per share for Safeco, a 51 percent premium to Safeco's Tuesday closing price of $45.23 per share.

On Wednesday, Safeco's shares soared $21.02, or more than 46 percent, to $66.25, in morning trading.

The transaction, which Liberty Mutual said is subject to no financing conditions, is expected to close by the end of the third quarter.

Liberty Mutual currently 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 F. 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 Chief Executive Officer Paula Reynolds.

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, and Safeco's roughly 7,000 employees.

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

Monfried said Safeco would retain its 85-year-old brand name and continue selling policies through its national network of agents and brokers.

Safeco said it would postpone its previously scheduled May 7 annual shareholders meeting because of the transaction. The company was advised in the deal by Morgan Stanley & Co. and Skadden, Arps, Slate, Meagher & Flom LLP.

Liberty Mutual, a 96-year-old firm, posted a profit of $1.5 billion last year on $25.9 billion in revenue. Safeco's profit last year was $707.8 million, on revenue of $6.2 billion.

 

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