Liberty Mutual to Buy Ohio Casualty for $2.7 Billion in Cash

Auto and home insurer Liberty Mutual Group will buy Ohio Casualty for $2.7 billion, the companies said, boosting the number of independent insurance agencies offering Liberty's products to nearly 10,000 nationwide.

Shareholders of Ohio Casualty will receive $44 a share, a premium of 32% over the company's closing stock price on Friday.

The deal sparked speculation among Wall Street analysts that merger mania is finally reaching the staid insurance industry.

"Liberty Mutual's offer is a strong one but may not beat off another big national property casualty insurer," said Donald Light, an analyst with Celent.

Boston-based Liberty, a mutual insurer, is at a disadvantage to publicly held rivals such as Allstate because it cannot use its own stock in acquisitions, Light said.

Liberty Mutual Chief Executive Ted Kelly said in an interview that deal has protections against a competing offer, including a breakup fee and the right of Liberty to match any competing offer.

Liberty Seeks Expansion

Kelly said the acquisition would create a company with net written premiums exceeding $7.3 billion and make Liberty the largest U.S. provider of property and casualty products distributed through independent insurance agencies.

Liberty has about 6,500 agencies; adding Ohio Casualty's 3,400 will give it a total of nearly 10,000, he said.

"It's a continuation of our strategy to buy regional carriers and support them with a national strategy," Kelly added.

Ohio Casualty, with about 2,100 employees, operates in 48 states but is strongest in the Midwest.

Robert Hartwig, president of the Insurance Information Institute, an industry research group, said, "Markets like Ohio's have been the most profitable but also the most difficult to penetrate."

Ohio Casualty, based in Fairfield, Ohio, is the holding company of Ohio Casualty Insurance Co. and five other property and casualty insurance companies.

Liberty, the nation's No. 6 property and casualty insurer based on direct written premiums, had revenue of $23.5 billion in 2006. In addition to property and casualty, it also handles commercial and international insurance.

The transaction has been approved by the boards of both companies and is subject to approval by Ohio Casualty shareholders.

The deal is expected to close in the third quarter.

Four rating agencies -- Standard and Poor's, A.M. Best & Co., Moody's Investors Service and Fitch Ratings -- all affirmed their investment-grade ratings on Liberty following the announcement.