NU Online News Service, Sept. 29, 9:42 a.m.EDT

Nationwide Mutual Insurance Co. will acquire Harleysville MutualInsurance Co. in a deal valued at around $800 million, thecompanies announced today.

“This combination brings together two best-in-class companiesthat share a mutual heritage and a focus on meeting the long-termneeds of our policyholders,” says Steve Rasmussen, chief executiveofficer of Nationwide. “With Harleysville's expertise in commerciallines and Nationwide's complementary geographic distribution, therewill be a substantial opportunity to increase market share, whilealso providing our combined agents and customers access to abroader portfolio of insurance, financial and bankingproducts.”

Michael Browne, president and CEO of Harleysville says thetransaction “will enable us to expand our business for ourindependent agency partners, and to enter important new marketsfrom a position of even greater strength.”

Under the deal, which is expected to close early next year,Harleysville Mutual will merge with Nationwide Mutual whileHarleysville Group, the publicly traded company, will become anewly formed subsidiary of Nationwide Mutual. Shareholders willreceive $60 per share in cash.

According to Google finance, there are more than 27 millionshares outstanding of Harleysville. A Nationwide company spokesmanexplained that under a complicated scenario the number of publiclyheld shares Nationwide would pay for amounts to somewhere between$760 million to $800 million. The remaining outstanding shares heldby Harleysville Mutual would be acquired by Nationwide andretired.

Under the agreement, Harleysville will join Nationwide'sproperty and casualty independent agency business unit under theHarleysville brand. Its current headquarters in Harleysville, Pa.,will “serve as an integral part of the combined company's national,independent agency-based platform.”

Browne will become the president and chief operating officer ofthe Harleysville company.

The companies say that the combined operations will have anestimated net surplus of more than $13.5 billion and over $16billion in annual direct written premiums.

The agreement between Harleysville and Columbus, Ohio-basedNationwide is still subject to regulatory approval. The companiessay they expect the treansaction to close by early next year

Talks between the two companies were reported earlier this week.

Moody's Investor Service issued a statement affirming thefinancial strength rating of Nationwide Mutual and its P&Caffiliates at “A1.”

Moody's analyst Paul Bauer says in a statement that theacquisition of Harleysville by Nationwide is “to be a modest creditnegative,” but the added risk from the acquisition “is manageablefor Nationwide without affecting the company's current rating.”

On the positive side, he went on to say, the acquisition isexpected to improve the company's “scale and geographicdiversification by adding a strong presence in the mid-Atlantic andNortheastern states.” It will also help strengthen productdiversification by increasing Nationwide's position in smallcommercial lines market.

Late in the day, Moody's placed Harleysville financial strengthrating of “A3″ on review for possible upgrade.

Nationwide has both independent agents and captive agentdistribution. It has a presence in P&C, life insurance andfinancil services markets.

This story was updated at 3:44 p.m. EDT with updatedinformation about the valuation and Moody'sstatements.