Thursday, April 12, 2001

Stock Focus: Insurance Companies

NEW YORK - Insurer American General is in play with American International Group, recently outbidding Britain's Prudential with a $23 billion offer for the company. On April 10, Prudential fired back by announcing an action against AIG for interfering with its plans.

Despite the litigation, analysts say the pace of insurance industry consolidation should increase from here.

"Insurance companies need to develop their brands as consumer financial services organizations," explains Vanessa Wilson, analyst at Deutsche Bank Alex. Brown, "but many just don't have the scale to finance the technology spending and advertising necessary to do that."

One takeover candidate: Jefferson-Pilot (nyse: JP - news - people), a Greensboro, N.C.-based provider of insurance and annuities with $26 billion under management. Andrew Kligerman, analyst at Bear, Stearns, sees Jefferson being acquired by a bank, as opposed to another insurer. "Their management team believes in the bank assurance model, where banks are active in the sale of insurance products," says Kligerman.

Enterprise value--a company's market value plus total debt and the liquidation value of preferred stocks minus cash and equivalents--provides a snapshot of the minimum price for acquiring a company. Jefferson Pilot's enterprise value stands at $8.1 billion.

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