USF&G deflects suitors, seeks buys Insurer's chief plans independent course

May 22, 1997|By Jay Hancock | Jay Hancock,SUN STAFF

USF&G Corp., a Baltimore insurance fixture with 2,500 local employees, has been approached by corporate suitors recently, but Chief Executive Norman P. Blake Jr. told shareholders yesterday that the company wants to remain independent and is scouting out its own acquisitions.

"Overtures have been made in the last year" from companies interested in buying USF&G, Blake said in response to a shareholder query. But the firm prefers to be "masters of our own destiny -- and be the acquirer," he said.

Blake's comments arrive as financial companies continue to merge and as speculation about USF&G's future has grown.

Last month, for example, Bankers Trust New York Corp. agreed to buy Baltimore's Alex. Brown Inc., and yesterday the Clinton administration urged Congress to further dismantle the barriers between banks, insurance companies and securities firms.

Blake has presided over USF&G's recovery from financial trauma in the early 1990s, and some investors have speculated that he'll cap the turnaround by selling for a good price. He declined to identify the recent suitors, but Wall Street analysts said they probably included at least one big property and casualty insurer such as Travelers Corp., St. Paul Cos. or CNA Financial Corp.

Blake's professed distaste for being acquired doesn't close the issue, analysts said.

The insurance business continues to be overpopulated and brutally competitive, with resulting thin profit margins. And if Blake, the company's chairman and chief executive, can't hit his well-publicized earnings goals by next year or the year after, analysts said, he may feel compelled to find a buyer.

"I don't think F&G is for sale right now," said Ronald W. Frank, who follows USF&G for Smith Barney, a New York investment house. "But whether that remains true will depend on events."

If Blake falls short of the ambitious profit targets, "then it's going to be time to stand and deliver, and he's going to have to reconsider restructuring or outright sale of the company," Frank said.

Given that USF&G's fortunes are still improving and that financial consolidation is likely to continue for years, "I don't really think there's an urgency for Norm Blake to make any decisions, near-term," said Michael A. Lewis, an insurance analyst with Dillon, Read in New York. However, he added, "I don't think -- maybe -- the endgame will end with them independent."

USF&G has come a long way since 1990, when it lost $569 million and its stock price began its plunge to under $6 a share. The company has downsized, reorganized, abandoned its signature headquarters downtown and concentrated local workers on a Mount Washington campus that straddles the Baltimore County line.

It earned $261 million last year on revenue of $3.5 billion -- the highest profit since 1987.

To celebrate, USF&G executives told some 300 shareholders and employees gathered in Towson yesterday that the firm will boost its quarterly dividend from a nickel to 7 cents a share, starting with the July 31 payment. The stock rose 37.5 cents yesterday to $21.125.

But USF&G, which has 6,000 employees and recently marked its 100th birthday, doesn't intend to distribute all its cash to shareholders. It wants to continue buying smaller companies, having acquired reinsurer Discover Re, auto insurer Victoria Financial and a Mexican insurer in recent years.

"Acquisition is a critical part of our game," Blake said yesterday. "Our ability to grow will be determined by our ability to responsibly acquire new businesses."

In an interview, Blake declined to say whether USF&G is negotiating to buy somebody or trying to identify acquisition targets. It wants to add to its family and business insurance unit, he said, and it is eyeing a range of small, specialty companies.

Fixing the poorly performing family and business unit, which booked $1 billion in premiums last year, is one of the keys to USF&G's continued financial improvement -- and its continued independence, analysts said. USF&G also must boost results in its life insurance division, they said.

The life unit recently cut costs by shifting claims and computer-services jobs to an outside contractor, and some investors had speculated that the division might be sold.

"It's not the right time to sell it yet," said Diana Wehrly, who follows USF&G for Baltimore investment house Legg Mason. "They're still improving."

Blake has publicly promised a return from operations on equity for USF&G -- a measure of profitability -- of 12 percent to 15 percent by 1998. Last year USF&G's operating return on equity was 10.5 percent.

But even if USF&G attains that goal, it still might feel pressured to merge with a bigger partner, analysts said.

Some financial experts predict that many big financial companies will sell stocks, bonds, insurance, banking services and investment banking services. In such an environment, they said, a company with only insurance to peddle would be at a disadvantage.

Pub Date: 5/22/97

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