04/23/2008: Liberty Mutual Holding Company, Inc / Safeco Corp.

2008 Deals You Should Know – Liberty Mutual / Safeco

Liberty Mutual Group Inc. agreed to buy Safeco Corp., taking advantage of a 32 percent drop in the insurer’s stock in the past year to strike the industry’s biggest transaction in the U.S. since 2004.

The purchase created the fifth-largest U.S. property and casualty insurer, the biggest deal since St. Paul Cos. and Travelers Property Casualty Corp. combined in a $17.9 billion merger.

“It wasn’t right for Safeco to go it alone any more,” Chief Executive Officer Paula Rosput Reynolds, 51, told employees, according to a regulatory filing. “We, in fact, needed to join up with a global player.”

Liberty Mutual will add automobile, home and business customers in most U.S. states, including those on the West Coast where Safeco has its greatest market share.

“They are a well-known and established brand,” said Liberty Mutual CEO Ted Kelly, 62, in an interview. “They have a significant footprint west of the Mississippi, whereas our agency market is much stronger east of the Mississippi.”

About 65 percent of Safeco’s business involves sales of auto and home coverage, while Liberty Mutual has more of a focus on commercial coverage sold through agents, Kelly said. “It’s very complementary.”

Combined, the two companies would become the fifth-largest insurer of homes and cars in the western U.S. with a 5 percent market share, according to an analysis by SNL Financial.

Investment banks involved:

Lehman Brothers, Morgan Stanley