USF&G reaches accord on sale of Chancellor Insurer is shedding investment business

February 29, 1992|By Thomas Easton | Thomas Easton,New York Bureau

NEW YORK -- Ending a costly attempt to diversify outside of insurance, USF&G Corp. reached a definite agreement yesterday for the sale of New York-based Chancellor Capital Management Inc., a large investment management group acquired in 1988 from Citicorp for $102.5 million.

The sale is to Chancellor's employees. Although details of the transaction remain confidential, analysts said it appears that much of the purchase will be financed by USF&G. USF&G will retain 49 percent of Chancellor initially but, based on statements by the company, will gradually reduce its stake.

"We're getting rid of all non-insurance businesses, and this is the biggest one," company spokeswoman Kerrie Burch-DeLuca said.

USF&G said no gains or losses will be incurred in the transaction. In January, however, the company announced a special $24 million charge for an impending sale of investment management operations.

Analysts said that expense was in addition to routine write-offs taken since the purchase of Chancellor. The company's two smaller investment units, Axe-Houghton Management and Review Management, remain for sale.

A divestiture of all the investment units was announced last fall by USF&G as part of a broad restructuring.

The units were acquired under USF&G's prior management -- for what, at the time, were said by analysts to be extremely high prices -- in an effort to diversify away from the highly cyclical insurance underwriting business.

But investment management never became sufficiently profitable, and security analysts say it became an unnecessary distraction for management.

"Investment management is not a bad business, but as part of USF&G's overall business, at best, it was irrelevant," said A. Michael Frinquelli, an analyst at Salomon Brothers. "Wall Street would look at this move as good because it is one more step in getting the company refocused on its core business -- insurance."

Despite USF&G's lack of success with its subsidiary, Chancellor money management operations performed well in rankings compiled by CDA Investment Technologies and the industry trade publication, Pensions & Investment.

Robert G. Wade, chief executive of Chancellor, said he expected a significant portion of the company to be owned by the company's 75 senior professionals. The size of individual stakes was unclear.

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