USF&G job toll undetermined St. Paul chairman says no decision on where cuts will be made

Buyer meets employees

January 21, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF Sun staff writer Shanon D. Murray contributed to this article.

The chairman of St. Paul Cos. said yesterday that it is undetermined where the heavy job losses will occur after his company acquires USF&G Corp.

The $3.5 billion acquisition, announced Monday night, could result in the elimination of 1,500 to 2,000 jobs. But there has been no decision on where the cuts would be made, Douglas Leatherdale said in two, one-hour meetings with about 2,000 employees at USF&G's 68-acre Mount Washington campus.

"We really don't know, but there is a commitment that there will be an integration of the companies," Kerri Burch-DeLuca, a spokeswoman with USF&G, said. "The positions that are eliminated will not be limited to Baltimore. We heard it over and over again."

After Leatherdale met with employees, Jaclyn Smith, a USF&G secretary, said: "This is going to be good for us. It sounds like St. Paul is a great company. It just would be nice to know people wouldn't lose their jobs."

USF&G employs 6,100 nationwide -- 2,800 in the Baltimore area. The St. Paul Pioneer Press reported yesterday that Leatherdale said that most of the job losses probably would be in Baltimore.

"I think it would be way too premature to speculate on that, quite frankly," Leatherdale told The Sun.

The sale of the 102-year-old insurance company, which in 1990 was on the brink of bankruptcy, surprised virtually no one, despite USF&G recently enjoying a financial recovery.

"Basically, USF&G people did as much as they could do, and it wasn't going to be enough," said Ira L. Zuckerman, an insurance analyst at Nutmeg Securities Ltd., a Westport, Conn.-based brokerage firm. "They were not going to be competitive, they were not going to be able to cut expenses enough."

Even USF&G Chairman Norman P. Blake Jr. acknowledged yesterday that without the sale, the company would have been forced to restructure, selling business units and laying off employees.

"I'd rather not be specific," Blake said. "Going alone in an incredibly soft market would have required us to significantly reduce our work force over time."

Local business leaders also said they were optimistic.

"No community likes to see a headquarters shift locations, but when it's all said and done, I don't think the attrition will be as bad," said Ioanna T. Morfessis, president and CEO of the Greater Baltimore Alliance.

The deal, which is expected to close by mid-year, would create the country's eighth largest property and casualty insurer. Its headquarters would be in St. Paul, and the company would operate under the St. Paul name.

Critics of deal

Some industry experts said that USF&G sold out too cheaply. The deal calls for exchanging each USF&G share for about $22 of St. Paul's common stock.

"I'm kind of surprised that the price was as low as it was," said Paul Schlough, an insurance analyst with Offutt Securities Inc., an institutional research company in Hunt Valley. "My outlook for the company was good."

A money manager also expressed disappointment.

"I think the shareholders had the right to think the directors would secure a better price," said James Hardesty, president of Hardesty Capital Management of Baltimore, who recently bought shares of USF&G at $20.125 for clients. "But to out of the blue throw it over for no premium strikes me as unusual in the world of super-charged takeovers in the financial sector. The fact that St. Paul is up seven points sees them as the victors."

Indeed, the market applauded St. Paul. Its shares soared $7 to close at $85.125, while USF&G's stock rose $1.937 a share to close at $23.375.

'Best they could'

Others, however, argued that USF&G did as well as it could have hoped for.

"I think it is probably the best they could get, but it was not a great premium over current market," Zuckerman said. "I think you are going to see more of these deals at or around market price. The buyers have an edge. At this point, the guys who are going to sell have a gun to their head."

Blake said the gun was pointed in USF&G's direction. Months after the company celebrated its 100th birthday with more than 2,000 employees packing the Balti- more Convention Center in June 1996, he began looking for ways to secure USF&G's future.

The market for insurance products, especially auto and home insurance, was "deteriorating," and the company needed to find someone to acquire it or to be sold, he said. "We needed more financial muscle, greater scale and a stronger market position," Blake added.

One way to grow was by acquiring companies that served niche insurance markets where competition wasn't as stiff. USF&G made several acquisitions, but it was "trying to ride a bicycle and change your clothes at the same time," Blake said.

Last June, USF&G made a bid for Indianapolis-based American States Financial Corp., which had 3,700 employees. It would have fit perfectly with USF&G's unit that writes auto, homeowners and small business insurance. Moreover, it would have given USF&G the size that it needed to move forward, Blake said.

But American was snapped up by Safeco Corp., a Seattle-based property and casualty insurer that agreed to pay $2.82 billion for American.

Blake not only looked for acquisitions, he talked to executives at 12 to 16 companies over the past year and a half about joint ventures, mergers and even selling USF&G.

"I ultimately concluded, after pursuing all of these options simultaneously, that it was best for us to merge with a company that best reflected who we were and what we wanted to become," Blake said in a teleconference with analysts yesterday morning.

Blake defended the price of the sale. He said investors who believe the company should not have sold must "take into context the deteriorating market condition."

"Anybody who is in the business right now will tell you the ceiling is falling," he said.

Pub Date: 1/21/98

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