|The St. Paul, USF&G announce merger agreement to create nation's eighth largest property-casualty insurer|
|Each USF&G share to be converted into $22 of St. Paul Common Stock|
Combined company to be led by Douglas Leatherdale; headquarters to be in St. Paul
SAINT PAUL, MN and BALTIMORE, MD, January 19, 1998 -- The St. Paul (NYSE:SPC) and USF&G Corporation (NYSE:FG) announced today that their Boards of Directors have unanimously approved a merger agreement which will create the eighth largest property/casualty insurer in the U.S., with net written premiums of $7 billion, total assets of $36 billion and a combined market capitalization of $10 billion. Each USF&G share will be converted into $22 of St. Paul common stock subject to an exchange ratio adjustment. Significant opportunities for both profit growth and value creation are expected to be derived by capitalizing upon the organizations' similar business lines and complementary strengths. The combined company will have a very large market presence in key areas of the specialty insurance business, as well as leading positions in surety, reinsurance and certain niches of commercial insurance.
The transaction is expected to be modestly accretive to earnings per share of the St. Paul in 1998, before a restructuring charge of between $300 million and $500 million that the company expects to take in 1998. The transaction is expected to be significantly accretive in 1999. Substantial cost savings will be realized as a result of the integration of these companies. The company will operate under The St. Paul name and headquarters will be in St. Paul, Minnesota.
The transaction will provide USF&G shareholders with St. Paul common stock having a value determined according to an exchange ratio based on the average price of St. Paul common stock over the twenty day trading period ending three days prior to the USF&G shareholder meeting to approve the merger. At St. Paul common stock prices between $74 and $78 per share, USF&G shareholders will receive $22 per share in St. Paul common stock for each USF&G share. At St. Paul common stock prices above $78 per share, USF&G shareholders will receive .2821 St. Paul shares for each USF&G share. At St. Paul common stock prices below $74 per share, USF&G shareholders will receive .2973 St. Paul shares for each USF&G share. The merger will be a tax-free exchange accounted for on a pooling-of-interests basis. The total value of the transaction is $3.5 billion, which includes $2.8 billion of equity plus the assumption of approximately $400 million in debt and $300 million of capital securities. The transaction is expected to close in mid-1998.
"The merger of The St. Paul and USF&G creates a property/casualty insurer that will have the financial strength, market presence and expertise necessary to enhance and grow shareholder returns in an increasingly competitive marketplace," said Douglas W. Leatherdale, chairman of The St. Paul.
Mr. Leatherdale will continue to serve as Chairman, President and CEO of The St. Paul Companies. Following the completion of the merger, USF&G Chairman Norman P. Blake, Jr. will serve as The St. Paul's Vice Chairman to assist in the integration process. Patrick A. Thiele, Executive Vice President of The St. Paul Companies and CEO of The St. Paul's Worldwide Insurance Underwriting Operations, will lead the combined insurance underwriting organizations. Blake, as well as two other members of the USF&G Board, will be added to The St. Paul Board of Directors.
"The potential for success is increased by our companies' common commitment to underwriting excellence, rigorous investment discipline and superior financial strength," Mr. Leatherdale continued. "The merger of The St. Paul and USF&G is an excellent strategic fit. Since Norm Blake joined USF&G in 1990, he has effected a dramatic transformation which has helped the company become a profitable and solid performer in key segments of the insurance market in which The St. Paul also has a strong presence. As a result of this transaction, our market position will be significantly enhanced."
"We regard The St. Paul as a model of what an insurance company should be," said Mr. Blake. "We believe that this transaction provides greater value and opportunity to all of our constituencies than any other strategic combination. USF&G's skill-based specialty businesses, particularly reinsurance, surety and alternative risk transfer, fit well with The St. Paul's specialty operations. Our shareholders, employees, agents, brokers and customers will all benefit from being associated with a company that is well poised for profitable growth over the long term. We look forward to working with The St. Paul's fine management through the integration process."
In an effort to capitalize upon the efficiencies and cost savings that can be achieved by combining the two companies, a number of positions will be eliminated. The magnitude and locations of these positions will be determined as the integration process moves forward. Over the next two years, attrition and other job opportunities within the combined organization are expected to reduce the number of layoffs. Any affected employees will be eligible for severance and career transition services.
The combined company is expected to continue to be an employer of significance in the Baltimore area. As in other communities in which The St. Paul has a significant presence, the company will dedicate itself to active community involvement.
The transaction is subject to various federal and state regulatory approvals, and votes by USF&G and St. Paul shareholders. Proxy statements will be filed with the Securities and Exchange Commission and will include detailed information related to the transaction.
The St. Paul Companies, headquartered in Saint Paul, Minn., is a group of companies providing property-liability insurance products and services throughout the world.
USF&G Corporation, with total assets of $14.9 billion, is a holding company for property/casualty and life insurance operations. Its principal operating subsidiary is United States Fidelity and Guaranty Company, one of the nation's largest property/casualty insurers, founded in 1896. Headquartered in Baltimore, the corporation is composed of the following portfolio of strategic businesses: the Commercial Insurance Group, the Family and Business Insurance Group, Specialty Businesses, and F&G Life.
Certain statements made by the companies in this release may constitute forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: the frequency and severity of catastrophic events; a change in the demand for, pricing of, or supply of reinsurance or insurance; increased competitive pressure; losses due to foreign currency exchange rate fluctuations; changing rates of inflation; general economic conditions; the pace and effectiveness of the integration of the two companies and other risk factors listed in further detail in the public filings related to the transaction.
|News Media Contact:|
| St. Paul press contacts: |
Senior Vice President-Corporate Affairs
Telephone: (612) 310-8553
Director-Corporate Public Relations
Telephone: (612) 310-3588
St. Paul investor contact:
James L. Boudreau
Vice President and Treasurer
USF&G press contact:
Vice President-Corporate Communications
USF&G investor contact:
Vice President-Investor Relations