Liberty Mutual Moves To Take Over Ohio Casualty In $2.7 Billion Acquisition

Liberty Mutual Group has arranged to acquire Ohio Casualty Corp. in a deal valued at $2.7 billion, the two insurance companies announced last week, with rating firms and analysts reacting positively to the news.

Privately-owned Liberty Mutual said it agreed to purchase all Ohio Casualty outstanding common stock for $44 per share in cash–a 32 percent premium over the closing price of $33.32 on May 4, the last benchmark before the deal was made public. Ohio Casualty stock trades on the NASDAQ Exchange.

Edmund F. Kelly, Boston-based Liberty Mutual's chairman, president and chief executive officer, said the deal will make his company the nation's largest regional provider of property-casualty products distributed through U.S. independent agents.

Liberty Mutual said it intends to fund the purchase with cash on hand and short-term debt, and the transaction is not subject to any financing contingencies.

The proposed deal has been approved by the boards of both companies, but is subject to approval by Ohio Casualty shareholders and customary regulatory approvals and conditions. The sale is expected to close in the third quarter of 2007.

Ohio Casualty would pay Liberty Mutual a termination fee of $62 million under certain circumstances if the deal fails to go through, the companies said.

Following the acquisition, the companies said Ohio Casualty will be part of Liberty Mutual Group's Agency Markets business unit. The 11 companies currently in that division have more than 6,800 employees and approximately 6,500 appointed agencies, with net written premium of $5.9 billion in 2006.

Ohio Casualty Corp., based in Fairfield, Ohio, is the holding company of The Ohio Casualty Insurance Company and five other p-c insurers, referred to under the marketing brand Ohio Casualty Group.

Ohio Casualty Group–which sells personal, commercial and bond insurance products through independent agents and brokers–ranks 47th among p-c insurance groups based upon 2005 net premiums written of nearly $1.5 billion, according to figures from Highline Data, a National Underwriter affiliate.

Ohio Casualty Group has approximately 2,100 employees and operations in 48 states, writing net written premium of $1.4 billion in 2006 through some 3,400 appointed agencies.

Liberty Mutual Group is currently the ninth-largest p-c insurance group, based on 2005 direct written premium of nearly $14 billion. Liberty Mutual Insurance Company ranked 10th among insurers, with 2005 net premiums written of just over $7 billion.

“Through the addition of Ohio Casualty, our regional-company independent agency business is significantly stronger and our agency relationships are strengthened,” said Mr. Kelly.

Noting that the acquisition will give Liberty Mutual Group's Agency Markets unit a combined net written premium exceeding $7.3 billion, Mr. Kelly said “we will become the largest regional provider of property and casualty products distributed through independent agents in the United States.”

He said Ohio Casualty President and CEO Dan Carmichael had made Ohio Casualty “a premier regional property and casualty company” that is “a great fit with our Agency Markets business.”

Mr. Carmichael said Ohio Casualty looks forward to being “an important component of Liberty Mutual Agency Markets' continuing success.” He said he believed the transaction will benefit “our key constituents and enable our shareholders to realize significant value for their investment in Ohio Casualty.”

Gary Gregg, president of Liberty Mutual Agency Markets, said he would be working with Mr. Carmichael and Ohio Casualty's leadership, “who will play a key role in the joint integration team tasked with combining the best of both organizations to create a stronger Liberty Mutual Agency Markets.”

From public sources, Mr. Gregg said Liberty Mutual determined “the overlap among the two agency forces is not significant.”

He said that because of securities regulatory restrictions, he could not comment on what Mr. Carmichael's eventual role might be, or that of any other individuals with Ohio Casualty.

Mr. Gregg said the combined organization intends to “maintain a significant presence in the Cincinnati area and will continue to support local charities in the communities in which we do business.”

Mr. Gregg said Liberty Mutual approached Ohio Casualty with a purchase offer in the first quarter during “a meeting in the Midwest” and a series of continuing discussions.

Liberty Mutual is best known as a leading carrier of workers' compensation, but offers many other insurance products and services, including personal auto, homeowners, commercial multiple peril, commercial auto, general liability, global specialty, group disability, assumed reinsurance, fire and surety.

Both Liberty Mutual and Ohio Casualty are “members and supporters” of the Trusted Choice independent agent marketing effort, run by the Independent Insurance Agents and Brokers of America, Mr. Gregg noted.