American Financial Wants to Buy Out Annuity Subsidiary

NU Online News Service

Cincinnati-based American Financial Group Inc. announced late yesterday that it has proposed to buy out its partially owned subsidiary, Great American Financial Resources Inc.--a writer of life and annuity products--for $215 million.

The proposal for Great American Financial Resources to engage in a merger transaction would increase American Financial Group's ownership in the company from 81 percent to 100 percent.

American Financial, a property-casualty insurer with commercial products and a stake in a transportation carrier, has offered $23.50 per share in cash for all the outstanding shares it does not currently own--putting an aggregate purchase price of $215 million on the deal.

The mechanics of the proposed merger deal would involve having Great American Financial Resources acquire all the shares for cash at the $23.50 price, using excess capital plus borrowings from American Financial Group to fund the transaction.

Prior to the announcement, shares of Great American Financial Resources closed at $21.69.

Through the operations of Great American Insurance Group--a wholly owned subsidiary of American Financial Group that is separate from Great American Financial Resources--American Financial Group is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses such as excess liability and property, executive liability, inland marine, and construction-related products, among others.

Great American Financial Resources sells retirement annuities and supplemental insurance products, among other products in the life-health insurance sector.

American Financial Group also has a large ownership stake in National Interstate Corp., an insurer specializing in writing insurance for the passenger transportation and trucking industries.

Reacting to the unsolicited proposal from American Financial Group, Great American Financial Resources said that its board of directors has formed a special committee comprised of independent directors for the purpose of considering the proposal.

In a separate statement from American Financial, Co-Chief Executive Officers Craig Lindner and Carl Lindner III said: "We believe this transaction is beneficial to American Financial Group and its shareholders while being fair to GAFRI minority shareholders.

"It allows us to use our excess capital to increase our ownership of a specialty-focused business that supports our strategic initiatives. It simplifies the American Financial Group organization and results in immediate expense savings through the elimination of a public company, and allows for other synergies that will provide efficiencies over time," the statement continued.

American Financial Group said it expects this transaction to boosts its earnings by an annualized amount of 7 cents per share, and anticipates that the deal could close in the third quarter