The $2 billion deal by Spain's largest insurer to purchase a Massachusetts-based auto insurer is being investigated by the state's attorney general, the U.S. company has revealed.
In its proxy statement filed with the Securities and Exchange Commission, Commerce Group Inc. said the Massachusetts' attorney general examining whether the proposed merger with MAPFRE SA violates either the state's Antitrust Act or Consumer Protection Act.
Webster, Mass.-based Commerce said in its filing that the attorney general began the civil investigation on Dec. 3.
Under the deal, announced in October, MAPFRE would purchase Commerce for more than $2.2 billion to create a platform for growing its U.S. auto insurance business (see NU Magazine, Nov. 5, page 7).
Commerce is the leading writer of auto insurance in Massachusetts. According to Highline Data, the company writes 32 percent of the market there with $1.35 billion in direct premium written in 2006. Its other major states of business are California, Washington, Oklahoma and Rhode Island, and its business is primarily auto insurance with some homeowners. The company operates in a total of 17 states and is licensed in all 50.
In its filing, Commerce said that because of this action, or any other that could be taken by other states or at the federal level, it was not totally certain if the deal would be completed. However, if no actions are taken, there would be no barrier to the deal's consummation.
Commerce also revealed that if the deal is not completed because of another buyer or failure to schedule and hold a stockholder's vote, the company would be responsible for paying MAPFRE $7.5 million for expenses.
No date for a vote was set in the filing.
Jim Ermilio, general counsel for Commerce, and Randy Becker, chief financial officer, commenting on the attorney general's request said they did not view it as out of the ordinary.
"It did not surprise us at all," said Mr. Ermilio.
They noted that considering the size of the market Commerce represents in the state it appears to be in the state's interest to review the deal.
In Commerce and MAPFRE's favor for concluding the deal, Mr. Ermilio pointed out that both the Federal Trade Commission and the Department of Justice's Antitrust Division gave early termination to the waiting period for going forward with the deal.
This story was updated at 4:56 p.m.
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