Kemper Agrees to $3.25-Billion Takeover Bid : Mergers: Deal with Conseco may portend other ‘strategic alliances’ between mutual fund managers and insurers.

Kemper Corp. on Monday accepted a $3.25-billion takeover bid from Indiana-based insurer Conseco Inc. in a deal that highlights the growing movement of insurance companies to offer mutual funds.

Kemper said it signed a merger agreement with Conseco following a meeting of its board Sunday night. Conseco had set a midnight Sunday deadline for Kemper to respond to its offer, made Thursday.

Kemper put itself up for sale in May after General Electric Co.’s financial unit, GE Capital Corp., made an unsolicited offer of $60 per share. Conseco’s offer of $67 per share in cash and stock prompted GE Capital to withdraw its offer.

If approved by regulators and both companies’ shareholders, the merger would create a financial services company with more than $85 billion in assets under management. Net revenue and annual collected premiums would total $4.2 billion.

Analysts said they don’t expect a flurry of insurance industry merger activity following the Kemper-Conseco deal. Rather, they foresee “strategic alliances” between insurance and mutual fund companies.

“You will see brand-name mutual funds offered inside insurance products,” said Wilson Dinielli, a securities analyst for Argus Research in New York. For example, New York-based Equitable Life Assurance Society of the United States, one of the country’s largest life insurers and asset managers, offers between five and 10 Fidelity mutual funds to its customers, he said.

Compared to mergers, “it’s a slightly more inexpensive way for companies to achieve the same objective: having a large enough menu of investments on their plate to attract customers,” Dinielli said.

Conseco said it plans to merge Kemper’s asset management, brokerage and mutual fund businesses into its own business and call the new company Kemper.

Kemper has about $90 billion in life insurance business, which should mesh well with Conseco’s life insurance unit. But analysts said it was Kemper’s $45-billion family of mutual funds--the nation’s seventh-largest--and other asset management services, including a brokerage firm, that made it an attractive partner for Conseco.

“There really is interest in getting asset management divisions for life insurers,” Dinielli said. “I don’t think traditional life insurance is going to be a big part of the picture going forward. Universal life and variable annuity products are what customers want, and companies need to be able to offer a broad range of funds for investors to choose from.”

Kevin Ceurvorst, vice president of Duff & Phelps, a financial research firm in Chicago, said that “GE Capital and Conseco were more interested in the fee service income from (Kemper’s) mutual fund business. This merger wasn’t primarily motivated by the insurance company efficiency that could be had by combining companies, although that was an additional benefit.”

Wall Street’s response to the merger was tepid, in part because of questions about Conseco’s ability to digest Kemper. On the New York Stock Exchange, Kemper stock closed at $61.125 a share, down 25 cents, and Conseco shares fell 62.5 cents to $48.625.

Conseco, with $5.9 billion in assets, is one-third the size of Kemper, which has $14 billion in assets.

Reuters contributed to this report.