“You want to join the party?” asked a jubilant Richard P. Griebel, spokesman for Fireman’s Fund at company headquarters in the Marin County town of Novato.
The celebration Wednesday stemmed from the gung-ho response of investors to a public offering of 32 million shares--a 49% stake--in Fireman’s Fund.
The offering, at $25.75 a share, represented the largest initial public stock offering in U.S. history, raising a total of $824 million. Fireman’s Fund was the most active stock traded Wednesday on the New York Stock Exchange and closed at $27.75.
“It’s an exciting day for Fireman’s Fund,” said John J. Byrne, chairman and chief executive of Fireman’s Fund Corp., the new holding company created by the offering. “This was an independent company for more than 100 years, and we’re independent once again.”
Fireman’s Fund was founded 122 years ago to protect firefighters in fire-prone 19th-Century San Francisco.
American Express, which bought Fireman’s Fund in 1968, announced plans for the stock sale in June. Industry analysts viewed the move as an attempt by American Express to reduce its vulnerability to the sharp earnings swings of the cyclical property-casualty insurance business in which Fireman’s Fund competes.
Bolstered Balance Sheet
With Wednesday’s public offering, Fireman’s Fund thus bolstered its balance sheet and regained a separate corporate identity after 17 years as a wholly owned subsidiary of American Express. American Express will retain a 45% stake, with the additional 6% being held by Fireman’s Fund employees through the firm’s stock ownership plan. American Express also granted the offering’s underwriters an option to buy up to 3.2 million additional shares. The lead underwriter for the sale was another American Express unit, the investment firm Shearson Lehman Bros.
About $195 million of the offering--or 8 million shares--came from newly issued stock in Fireman’s Fund’s own name. The remaning 24 million shares were sold by American Express. The $195-million cash infusion boosts the insurer’s surplus above the $1-billion mark, Griebel said. This will significantly increase its capacity to write new insurance at a time when rates are rapidly rising after nearly six years that represented the worst slump in the history of the property-casualty insurance business.
Fireman’s Fund’s prices on commercial insurance rose 60% during the last year, Griebel said. Partly as a result, Fireman’s Fund contributed a $20-million operating profit to American Express’ third quarter.
Some analysts speculated that Wall Street’s enthusiasm for the offering was in response to the prospect of higher earnings stemming from price increases in the insurance industry in general. Stock prices for a number of insurers have been on the rise, the analysts told Associated Press.
At Fireman’s Fund headquarters, William M. McCormick, chairman and chief executive of the new holding company’s insurance subsidiaries, called the offering “a new era” for Fireman’s Fund.
“Over the past 20 months we’ve made a major effort to improve our operating results, and it’s starting to pay off. We’ve also restructured our investment portfolio, strengthened our reserves and increased our surplus--partly through the public offering. These actions give us a much stronger balance sheet.”
American Express encountered the dark side of the insurance business at the close of 1983, when it was forced to slash its earnings 10% in order to cover losses generated by Fireman’s Fund. The parent company responded by shaking up management, including bringing in McCormick from its travel-card business.
American Express sold off Fireman’s Fund’s profitable life insurance subsidiary last summer.
Offering Broke Record
The Fireman’s Fund sale eclipsed last month’s initial offering by Rockefeller Center Properties, which sold 37.5 million shares for $20 a share, or $750 million, the previous record. When Ford Motor went public nearly 30 years ago, it sold $657.9 million worth of stock, the third largest. (In June, 1971, American Telephone & Telegraph raised nearly $1.4 billion in the sale of 27.5 million shares, but that was not an initial offering.)
Among worldwide initial public offerings, however, the record was set last November, when the British government sold a 50.2% share of its British Telecommunications for $4.7 billion.
In connection with its offering, Fireman’s Fund disclosed in a filing with the Securities and Exchange Commission that the SEC’s private investigation into possible accounting violations from 1978 through June, 1984, is nearly complete. The company and its accountant deny the validity of the violations.
If the SEC decides to institute a proceeding against Fireman’s Fund, the company could be required to restate its financial statements. But any such restatements, the company said, would result in shuffling income from one reporting period to another.