NEW YORK -- Wall Street responded with applause yesterday to the weekend announcement that Primerica Corp. had agreed to buy 27 percent of Travelers Corp. Such a deal would give Travelers a wave of new cash, as well as a vote of confidence from an outside investor.
The stock of Travelers, which is based in Hartford, Conn., was up sharply yesterday, rising $3.125, to $20.625.
Analysts said the arrangement would put the giant multiline insurer in a better position to contend with weakness in the commercial real estate market and would reassure rating agencies and wary customers of the company's long-term strength.
Primerica stock rose 25 cents, to $41.125, on the Big Board. Primerica owns the Commercial Credit Corp. in Baltimore.
The two companies announced Sunday that Primerica would buy 38 million shares of Travelers common stock, valued at $19 a share, in exchange for $550 million in cash. The deal would also give Travelers a 50 percent interest in Gulf Insurance Co., a Primerica property-and-casualty subsidiary, as well as a 100 percent interest in a number of Primerica's health insurance operations.
Ratings agencies responded quickly to the announcement. Moody's Investors Service said yesterday that it had placed Travelers and its subsidiaries under review for a possible upgrading of their credit ratings.
Standard & Poor's Corp. affirmed nearly all of Travelers ratings and put the company's preference stock on credit watch, indicating that if the deal goes through, the company's rating would be upgraded.
Analysts said the embracing of Travelers by Primerica's chairman and chief executive, Sanford I. Weill, would back up Travelers' arguments that it has a number of opportunities for growth. Nonetheless, they cautioned, questions remained about Mr. Weill's role in the company's management and how much more pain Travelers would experience as a result of its extensive real estate holdings.
Travelers, which has assets of $52.7 billion and more than 33,000 employees, also announced a restructuring that will eliminate 3,500 jobs.
The deal, if approved by regulators and Travelers shareholders, would raise Travelers' common equity by $722.5 million and bring to $1.4 billion the amount of capital Travelers has raised this year.