Insurer Bids $6.3 Billion for Industry Giant : Takeovers: Analysts say Torchmark’s attempt to buy out much larger American General faces daunting obstacles.

The usually staid insurance business produced what could become the year’s biggest takeover battle Wednesday, as mid-sized insurer Torchmark Corp. launched a $6.34-billion bid for the much larger American General Corp.

The Birmingham, Ala., company offered to buy about half of American General’s 126.7 million outstanding shares of common stock for $50 each and would exchange $50 worth of Torchmark common stock for each of the remaining shares.

The takeover of the fourth-largest publicly held insurance company in the United States would be the largest ever in the insurance business and the biggest buyout of any kind this year.

Torchmark said all aspects of the offer were negotiable, including the possibility of an all-cash deal.

The proposal makes no mention of how Torchmark would finance the $3.2-billion cash portion of the purchase. Torchmark said it was confident that it could finance the bid.

Indicating that the bid was unwelcome, American General pointed to a lack of financing for the cash portion and said its board will consider the offer at its next regularly scheduled board meeting on May 2, ignoring Torchmark’s request that it respond by the close of business Wednesday.

The proposal also suggests no limit on the number of Torchmark shares that could be issued in the stock portion of the transaction.

The unsolicited bid sent American General stock $7.75 higher to $39.75 in heavy trading on the New York Stock Exchange.

Torchmark’s stock dropped $1.25

to $46.75 in NYSE trading as traders decided the cost of such a takeover would hamper its profit picture.

The acquisition would top the $5.2-billion BAT Industries buyout of California’s Farmers Group as the biggest in the industry, if it succeeds. But some are skeptical.

“Unfriendly takeovers are almost unheard of in the insurance business because the management or board of a company can put up roadblocks in every state,” Fred Hill of Firemark Insurance Research said.

Regulators can prohibit a takeover if they think that it would jeopardize policyholders’ security, said Thomas Richter of the Robinson Humphrey brokerage firm.

Torchmark also faces a difficult financial task, Richter said. The climate for buyouts is not good and the company, if successful, would be substantially leveraged.

“This is a good price based on other acquisitions in the insurance industry,” said Richter.

While its stock has languished and its results have been lackluster, American General in recent years has shed some of its less profitable operations in a restructuring that should boost its profits.

Emphasizing its consumer-oriented businesses instead of underwriting services, American General also has a large consumer finance division.

But Torchmark, a fast-growing insurance concern, has been viewed as one of the better-performing insurance companies, even though it is only about one-quarter the size of American General.

“Torchmark is very, very highly regarded” because of its consistently strong earnings, said Hill.

American General, while not a star performer, “has a core business that is mature and generates cash well in excess of its own needs,” said Ronald Frank of Dean Witter.

American General, a Houston-based company with units in 50 states and Canada, said its assets at year’s end were $32.1 billion, while Torchmark’s were $4.9 billion.