Insurance broker to cut dividend

June 07, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

Alexander & Alexander Services Inc. said today that it would slash its dividend and sell $200 million worth of preferred stock to American International Group Inc. of New York in an effort to help the insurance brokerage and consulting firm bounce back from years of sagging profits.

The statement followed a day in which trading in A&A stock was suspended pending an announcement from the board, which had been meeting through the day. Yesterday, Wall Street was filled with rumors that Alexander & Alexander would name a new chief executive, which it did not do, and cut the dividend on its common stock.

The second prediction did come true: Alexander & Alexander said it would cut the quarterly dividend to 2.5 cents a share from 25 cents. The stock rose 87.5 cents to $17.25 a share after the announcements in late morning trading.

A&A, officially based in New York, has all but the top 10 or 15 administrative officers in the company working out of a satellite headquarters near the Owings Mills Town Center mall.

The company employs about 650 people in Owings Mills and at sales and consulting offices in Owings Mills and Baltimore. It is the second-biggest insurance broker in the nation, trailing only Marsh & McLennan Cos. of New York.

Company spokesman Gary Sullivan said the AIG investment would lead to "organizational changes" in its U.S. insurance brokerage business. But he said that layoffs, while they cannot be ruled out, were not a key element of the company's plans.

"At the moment, I don't see a direct impact" on local jobs, Mr. Sullivan said. "I would certainly say the principal thrust will be to invest in information technology. It's far too early to get into the details."

Mr. Sullivan said the company would invest the $200 million in service improvements and would use some money to buy reinsurance against policy losses on a discontinued insurance underwriting division. The company will seek shareholder approval for the sale of stock at a special meeting.

Wall Street liked both moves, at least at first blush, said Alex. Brown Inc. analyst Ira Malis.

"The dividend cut was obviously expected," Mr. Malis said. "Most people expected it to be smaller, but the size of the capital infusion and who the party was is clearly unexpected. AIG is the premier insurance firm in the world. I think A&A is benefiting from that today and will in the short term."

Another analyst said the dividend cut for the common stock was not likely to affect the common stock's price.

"I think it is built into the valuation anyway," said Adam Klauber of Duff & Phelps in Chicago.

Mr. Klauber said the only surprise was the timing of the dividend move. He had expected the company to let its new chief executive decide whether to cut it.

Mr. Malis said the investment makes it possible that Alexander & Alexander's new chief executive will be "someone with some connection to AIG."

His only criticism was that the deal will create millions of potential new shares of common stock without immediately helping earnings.

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