Insurer Bids $3.25 Billion for Kemper : Mergers: Surprising offer by little-known Conseco could spur consolidation in insurance industry. GE withdraws its bid.

A little-known Indiana-based insurance company on Thursday bid $3.25 billion for Kemper Corp., forcing General Electric Co. to withdraw its rival offer for the insurance and mutual funds company.

The surprising $67-a-share takeover offer by Conseco Inc., a fast-growing life and health insurance company that has grown primarily through acquisitions, could stimulate consolidation in the insurance industry as other insurers feel pressure to cut costs and get bigger.

A combination of Conseco and Kemper would create an insurance and financial powerhouse with $85 billion in assets. Besides selling insurance, Kemper owns the nation’s seventh-largest group of mutual funds, a brokerage company and other money management operations.

“This is the right strategic step for Conseco,” said Stephen Hilbert, founder and chairman of the Carmel, Ind.-based company. “Kemper not only meshes well with our existing business mix, it brings us a significant new presence in mutual funds, variable annuities, brokerage and money management activities.”

Kemper--which put itself up for sale in May after receiving an unwanted bid from GE’s financial unit, GE Capital Corp.--would not comment on Conseco’s offer, saying only that its board will consider the proposal along with any other bids.

Conseco said Kemper must respond to the offer by Sunday. The short deadline is meant to put pressure on Kemper and give other bidders as little time as possible to counter-bid.

Other potential bidders are said to include SunAmerica Inc., a Los Angeles-based financial services company.

GE Capital, which had an outstanding $60-a-share bid for Kemper, wasted no time in terminating its offer.

“We wish both Kemper and Conseco success,” said a statement issued by GE Capital, which has financed some of Conseco’s previous insurance acquisitions.

Some analysts said GE’s decision to pull out shows it is too wrapped up in problems with its Kidder, Peabody & Co. brokerage subsidiary to engage in a bidding war for Kemper. But GE denied that its Kidder problems had any influence on its withdrawal.

Under the Conseco offer, each Kemper share would be exchanged for $56 in cash and $11 worth of Conseco stock. Conseco would also assume Kemper’s debt.

Industry analysts said Conseco’s offer will be hard to top.

On the New York Stock Exchange, Kemper stock soared $3.375 a share to close at $62.625, while Conseco added 50 cents a share to $51. GE also gained 50 cents a share to close at $46.

A takeover of Kemper would be the largest for Conseco, which has amassed $19 billion in assets through the acquisition of 11 insurance companies. In every case, Conseco has increased profits at the newly acquired companies by boosting productivity and cutting costs.

“It’s an aggressive group,” said David Armstrong, vice president at Firemark Research, an insurance industry consulting firm based in Parsippany, N.J. “They are cost cutters.”

In many cases, Conseco has also sold off parts of the insurers to limited partnerships while retaining operational control of the companies. The process allows Conseco to cut takeover debt and pursue other acquisitions.

“For the insurance industry, which can be staid and Old World, Conseco stands out on the cutting edge,” said Adam Klauber, an insurance industry analyst at Duff & Phelps, a financial research firm in Chicago.

Besides merging overlapping operations, a combination of Conseco and Kemper could also result in a wider distribution of each other’s products. Kemper insurance, for example, could be sold through the more than 300 banks that sell Conseco products. Kemper brokers could also offer customers Conseco policies along with other financial services and products.

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A successful merger of the two could speed up a long-awaited industry consolidation.

“There is clearly a lot of expectation of mega-mergers in the financial services industry . . . where companies cross industry lines,” said Don Lewis, a financial services consultant at the accounting firm of Arthur Andersen in Los Angeles. But “the insurance business has been extremely slow to change.”