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Kemper to be Sold to Group Led by Zurich Insurance for $2 Billion

April 11, 1995

CHICAGO (AP) _ Kemper Corp. took itself off the auction block Tuesday by announcing it has agreed to be bought by Zurich Insurance Group of Switzerland and a group of other investors for about $2 billion.

The price tag is 26 percent below that offered by Conseco Inc. last year during a bidding war for Kemper, a financial services company. But analysts say the price reflects the realities of today’s financial markets.

Kemper, an insurance and mutual-fund company, put itself up for sale last year after spurning an offer of $60 a share, or $2.4 billion, from General Electric Co. It subsequently agreed to be acquired by Conseco Inc. for $67 a share, or $3.25 billion, but the deal fell through in November after Conseco failed to obtain financing.

The offer by Zurich Insurance, one of the world’s largest insurance companies, values Kemper at $49.50 a share in cash and securities, well below the previous bids but above the company’s recent stock price.

Kemper’s stock rose $4.37 1/2 to close at $45.75 in trading on the New York Stock Exchange.

Zurich Insurance is Switzerland’s second-largest property and casualty insurer, and has been expanding its presence in the United States. It would own 51 percent of Kemper under the proposed deal.

Insurance Partners, an investment group whose major partners are Zurich Insurance subsidiary Centre Reinsurance Holdings; Robert Bass’ Keystone Inc.; and Chase Manhattan Corp., would own 49 percent.

Kemper Chairman David B. Mathis said the deal was a good match for Kemper, which employs 6,000 and is based in the Chicago suburb of Long Grove.

``The Zurich Insurance Group is a well-established, well-respected and highly rated global company with significant financial resources, which can help us continue to grow,″ he said in a statement.

Rolf Hueppi, president and chief executive of Zurich Insurance, said acquiring Kemper would raise his company’s profile in North America.

Hueppi told reporters at a news conference in Switzerland that the weak U.S. dollar increased Kemper’s appeal. The dollar has fallen about 23 percent against the Swiss franc since January 1994.

Kemper’s value also has been reduced by higher U.S. interest rates since last year, said Larry Brossman, a fixed-income analyst with the investment firm Duff & Phelps Inc. in Chicago.

Higher rates have reduced the price of U.S. government bonds, prompting investors to withdraw from Kemper’s bond mutual funds. Kemper’s total assets under management fell 9.5 percent last year, to $62.7 billion.

The company has had some negative publicity recently from resignations of some senior executives, $19.3 million in losses from Orange County, Calif., bonds, and a Securities and Exchange Commission complaint accusing Kemper’s brokerage arm of fraudulently diverting stock to its profit-sharing plan. Kemper said no mutual funds suffered losses as a result of its actions.

Brossman said the purchase price for Kemper cannot fairly be compared to previous bids. But he added: ``In spite of being battered a bit, I think they’ve managed to hold the core operations up very well.″ The Zurich Insurance bid reflects that, he said.

Kemper common stockholders would receive $47.50 per share in cash plus $2 a share in preferred stock. Prior to closing, Kemper would complete the spin-off to shareholders of its troubled securities brokerage operations, which was announced earlier this month.

As part of the deal, Zurich would purchase the Kemper Financial Services unit, one of the largest asset managers in the country. Kemper Corp., including its life insurance subsidiaries and real estate holdings, would then be majority owned by Zurich.

In response to the announcement, Standard & Poor’s Corp. said it would review its current high ratings of Zurich Insurance’s claims-paying ability with negative implications, saying the price tag for Kemper ``may reduce the financial strength″ of Zurich Insurance.

Moody’s Investors Service Inc. said it changed the direction of its review of the credit ratings of Kemper’s obligations and of the financial strength ratings of its life insurance subsidiaries from possible downgrade to direction uncertain.

A definitive agreement is expected early next month and would be subject to approval from Kemper’s board and stockholders, as well as Zurich’s board and government regulators.

Kemper Corp. has about $98 billion in life insurance in force, and also claims the nation’s 11th largest mutual fund family with $42 billion in assets. It also manages $21 billion in assets for Kemper’s life insurance companies and other customers.

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