St. Paul insurance deal may cost jobs

$16 billion Travelers merger to affect Md. workforce

November 18, 2003|By Paul Adams | Paul Adams,SUN STAFF

The St. Paul Cos. Inc., which employed 2,800 people in Baltimore as recently as 1998, announced a $16.2 billion merger yesterday that is expected to lead to further cuts in a Maryland work force that has shrunk to 700 in recent years.

The St. Paul, Minn.-based company is to combine with Travelers Property Casualty Corp. in a stock-for-stock deal that would create the second-largest U.S. commercial insurer with combined assets of $107 billion. The new company would be called The St. Paul Travelers Cos. and have its headquarters in St. Paul.

The agreement calls for much of The St. Paul's small commercial business based in Maryland to be consolidated under the Travelers brand, which would be run out of Travelers' headquarters in Hartford, Conn.

Jay S. Fishman, chairman and chief executive of The St. Paul, said some Baltimore jobs would be moved to Hartford but declined to speculate on the number.

"We will remain as a branch office [in Baltimore]," he said. "There's no question but that that's an area that is likely to be impacted."

Joan Palm, a spokeswoman for the company, said it is too early to say where the company would eliminate jobs to achieve up to $225 million in promised cost savings after the merger is complete.

Palm said Baltimore remains an important market for the company and that the city can expect to have a "significant number of employees there." She said John A. MacColl, vice chairman and general counsel for The St. Paul, would remain in Baltimore after the merger.

"I think that indicates our commitment to the community," she said.

The news comes days after The St. Paul announced it had signed a five-year lease for a 150,000-square-foot warehouse on Schilling Road in Hunt Valley that will be converted to office space for the company's Maryland work force.

The deal ended a search for space that began after the Johns Hopkins University announced that it was buying the sprawling St. Paul Cos. campus that straddles the city-county line in Mount Washington.

Formerly the home of Mount St. Agnes College, the campus was purchased in 1982 by Baltimore insurer USF&G Corp., which planned to put an operations center there. Instead, the financially troubled company surprised city economic development officials by announcing in 1995 that it was abandoning its Inner Harbor building and moving its shrinking work force to the Mount Washington site.

By the time USF&G was purchased by The St. Paul in 1998, it had 2,800 workers remaining in Baltimore. That number has steadily decreased, eliminating the company's need for such a large campus.

Before yesterday's announcement, there were indications that The St. Paul might be gearing up for growth in the Baltimore County location. The new building will provide space for up to 800 workers with room to grow as demand warrants.

"The space they took really was programmed for a head count somewhat larger than their current head count in Mount Washington," said David M. Gillece, president of Collier Pinkard, the real estate firm that brokered the deal for St. Paul.

The Baltimore County Department of Economic Development, which provided $5,000 toward a traffic study to facilitate the move, was unaware of the potential merger before yesterday, according to a spokeswoman for the agency.

Analysts said the merger would strengthen both companies at a time when size is becoming increasingly critical in the pursuit of cost savings and new commercial customers. Travelers has a strong line of commercial and personal insurance products, while St. Paul's strength is specialty commercial lines. Travelers also would help St. Paul expand its geographic reach.

"Customers are looking for strong, financially secure companies. It's a flight to quality," said Michael G. Paisan, an analyst with Legg Mason Inc. in New York.

The merger calls for Travelers shareholders to receive about 0.43 shares of St. Paul stock for each share of Travelers stock, which was worth just under $16 per share as of Friday's close. The companies described the deal as a merger between equals, since neither side received a premium for its shares.

However, analysts said St. Paul is getting the company for a bargain.

"We think Travelers is worth about $21 a share," said Dreyfus Neenan, an analyst with Morningstar. "If you're a St. Paul shareholder, this deal looks quite good."

Fishman would be chief executive of the merged company, and Robert I. Lipp, Travelers' chairman and chief executive, would serve as executive chairman until January 2006. The deal is expected to close in the second quarter of next year, pending approval by shareholders and regulators.

Shares of St. Paul closed up 97 cents, or 2.64 percent, to $37.74 per share, in trading yesterday. Travelers' A shares were unchanged at $16.03.

Hartford Courant staff writer Diane Levick contributed to this article. The Hartford Courant is a Tribune Publishing newspaper.

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