Liberty Mutual buys Safeco insurance company for $6.2B
Boston insurer to pay $6.2 billion in cash for Seattle icon. Job losses will come, according to Liberty Mutual.
Seattle Times business reporter
Employees: About 7,000
2007 revenues: $6.2 billion
2007 direct written premium: $5.9 billion
Employees: More than 41,000
2007 consolidated revenue: $26 billion
2007 direct written premium: $20.2 billion
The Mariners may keep the name on their state-of-the-art ballpark, but the city of Seattle will lose one of its quiet corporate giants — and more jobs — when the insurance company Safeco is sold later this year to Liberty Mutual Group of Boston.
Liberty Mutual Chief Executive Ted Kelly said Wednesday after the sale agreement was announced that job cuts will follow its planned $6.2 billion all-cash acquisition of Safeco.
"It's premature to know how many and who will be affected," Kelly said. "It won't affect just Safeco employees, but also existing Liberty Mutual employees."
With the sale, Seattle will lose a Fortune 500 company and an 85-year-old icon long known for a headquarters building that towered over the University District. Safeco sold that monolith two years ago in what turned out to be a harbinger of its own ultimate sale.
Kelly did not say where the job cuts will happen, but he indicated that the Northwest will be hit. Liberty Mutual owns Liberty Northwest Insurance in Portland, he said, so "rationalizing that presence will be part of the overall structure." Even Paula Reynolds, Safeco's CEO since early 2006, does not know whether she will stay.
"We have not discussed anything around executive employment for anybody in the company," said Reynolds, one of the highest-paid CEOs in the Pacific Northwest. Last year she received $6 million in total compensation, which includes salary and stock grants.
Safeco investors lauded news of the sale, sending shares up $20.71 to $65.94. The company's stock has traded between $41.09 and $67.32 during the past year.
"Shareholders have spoken very loudly about the quality of the deal," Reynolds said.
Liberty Mutual contacted Safeco about a possible sale last fall, she said in a telephone interview Wednesday afternoon.
"We did not actively solicit people, because the company has not been for sale," Reynolds said. "We are a property that has been coveted for a long time, so people are always asking us if we have had a change of heart."
The change came when "Mr. Kelly brought us a number that became so compelling that ... now was the time to undertake the transaction," she said.
Safeco has about 7,000 employees nationwide, including 2,100 in the Puget Sound area, most of them working in downtown Seattle or remotely from their homes, cars and coffee shops. Employees gathered at the Washington State Convention Center on Wednesday morning to hear the news from Reynolds.
In the last two years, she has cut costs by eliminating several hundred jobs and selling Safeco's headquarters campus. She said it is too early to talk about job losses and declined to discuss how it might affect the local economy.
"I don't know what's going to hurt the economy or help the economy, but the bottom line is we have a buyer here who is very sensitive to the importance of the Safeco brand, the Safeco employees and the Safeco philanthropy in this region," she said.
As evidence, she points to Liberty Mutual's track record of "buying companies and living up to commitments in the areas of brand, employment and philanthropy."
Liberty Mutual has bought more than three companies a year for most of the past decade, its CEO said.
Safeco is by far its largest acquisition, Kelly said. "We will keep the name Safeco. We always keep the name when we buy companies, because part of what one buys is the brand equity."
Liberty Mutual has about 41,000 employees worldwide, including almost 3,600 in Massachusetts, 4,000 in New Hampshire and the rest in 900 offices around the globe.
"Safeco's footprint dovetails well with our business," he said. Its mix of personal versus commercial insurance fits well, as does its large presence on the West Coast.
The acquisition will make Liberty Mutual the fifth-largest property and casualty insurer in the U.S.
The boards of both companies have approved the deal, which is expected to close by the end of the third quarter. It must be approved by regulators and shareholders. Liberty Mutual is a mutually owned company, which means it is owned by its policyholders.
Safeco is publicly traded on the New York Stock Exchange. Its policyholders will not be affected by the sale for now.
Analysts like the deal, particularly considering the rocky ride that financial stocks have taken lately.
Although Safeco focuses on personal and small business insurance, its stock had been punished by investors who lumped it with insurers whose big business insurance lines are suffering, said Paul Latta, an analyst at McAdams Wright Ragen in Seattle who owns Safeco shares.
Safeco's auto insurance sector has shown some weakness, he said.
In the fourth quarter, Safeco's profit fell 33 percent because of claims from wildfires in California and a loss in its auto business.
Latta says it was a good time to sell, rather than wait out the cycle.
"I don't think I'm unique in saying that fear resonates in my heart when I think about the last down cycle," he said.
Jim Ryan, an equity analyst at Morningstar in Chicago, agrees that the $68.25-a-share acquisition price is a good deal for Safeco shareholders.
Besides being 51 percent higher than the company's closing price of $45.23 a share Tuesday, "it's above what we think Safeco is worth," Ryan said. "We thought fair value was $60 a share."
Safeco's annual meeting May 7 has been postponed. The meeting will include a special shareholder vote on the acquisition.
The company will announce first-quarter earnings after the markets close today.
Reynolds said she and her husband, Stephen Reynolds, who is CEO of Puget Sound Energy, plan to stay in the area despite major changes at both companies. PSE is being taken over by Australian and Canadian investors.
Her husband plans to remain CEO, she said. "That's certainly what he's expressed to me."
Whatever the Safeco deal means for her, it "puts to rest the question of Safeco's destiny," Reynolds said. "Safeco is an important force in this community, and that will continue."
Melissa Allison: 206-464-3312 or email@example.com
Copyright © 2008 The Seattle Times Company
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