Cendant, AIG in Bidding War for Insurance Company

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The desirability of selling insurance directly to consumers is evident from the bidding war to acquire American Bankers Insurance Group, a direct marketer of credit and other specialty insurance.


American International Group Inc. (AIG) and Cendant Corp. have sent the stock of American Bankers, Miami, soaring as they continue to vie for control of the company, which insures credit-card holders from default and backs product warranties. Trading in the mid-$40s three months ago, American Bankers' stock closed at $64.75 March 18.


AIG, New York, the nation's third largest insurer, announced an agreement in December to acquire American Bankers for $2.2 billion, or $47 per share. Cendant, Stamford, CT, countered with a $2.7 billion, or $58-per-share, offer in January, which AIG subsequently matched in early March. Cendant upped the ante to $3.1 billion, or $67 per share, March 16.


"The highest bid here wins,'' said insurance analyst Gloria Vogel of Advest.


American Bankers' board of directors had given unanimous approval to AIG's $58-per-share bid and scheduled shareholder votes, but it has since deemed Cendant's latest offer superior and has begun merger talks with the membership, travel and real estate conglomerate formed in 1997 by the merger of CUC International and HFS Inc.


AIG CEO Maurice Greenberg said March 18 that he has agreed to allow Cendant six days to work out a merger agreement. Should Cendant and American Bankers execute an agreement, AIG will receive a termination fee of $100 million from American Bankers and $10 million from Cendant.


Both proposals were scrutinized last week by the Florida insurance department to determine whether the companies were capable of managing American Bankers, and both could receive regulatory approval in the coming weeks.


Cendant does not count insurance among its $30 billion in consumer and business services.


"We are a network in need of things to sell,'' said Elliot Bloom, vice president of public relations at Cendant. "[Insurance is] certainly something needed by consumers. It's a perfect strategic fit in our offering of products and services.''


One of the products that banks keep asking for is credit insurance. By acquiring American Bankers, Cendant would gain access to that lucrative business market. Insurer AIG, meanwhile, has the resources and expertise to build a direct operation from scratch, but acquiring American Bankers would be a much quicker solution.


"It's pretty clear that more companies are attempting to get closer to the customer to speed the process along,'' Vogel said. "With the use of the Internet and more telemarketing, companies are exploring more of the direct approach.''


Respondents in an industry survey earlier this year indicated that by 2002 they plan to shift policy distribution away from agents to direct channels and that those channels will shift primarily to the Web.


Scrambling to keep AIG's bid alive, chief financial officer Howard Smith said in insurance hearings last week that his company would keep American Bankers intact and move some its data processing, telemarketing and printing functions to Miami. AIG also hoped to double American Bankers' work force within the next five years.
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