Unitrin Plans Buyback to Thwart Bid : Mergers: Move indicates insurer will take a tough stance against hostile suitor American General.

Unitrin Inc. said Friday that its board has authorized the repurchase up to 19.3% of its outstanding common stock, building its defense against American General Corp.’s unfriendly $2.6-billion takeover bid.

The Chicago-based insurance company said it may repurchase up to 10 million of its 51.8 million common shares outstanding, using general corporate funds or bank loans.

Analysts said Unitrin’s buyback signals its determination to mount a stiff response to American General’s bid.

“Unitrin is clearly digging in their heels. They clearly don’t want to be acquired,” Conning & Co. analyst Paul Goulekas said.

“The ball now has bounced back into American General’s court,” Branche Research analyst Robert Branche said.

The insurer said it believes its stock is undervalued and that the buyback will tend to increase the value of the remaining shares outstanding.

The authorization will also provide Unitrin shareholders more liquidity in light of the unsettled market conditions that followed American General’s unsolicited offer, the company said.

The buyback follows Unitrin’s adoption last week of a shareholder rights plan after American General’s disclosure of its $50.375-a-share bid.

Unitrin stock closed Friday at $48.50, down 50 cents on Nasdaq. American General closed up 25 cents at $28.75 on the New York Stock Exchange. Its offer is open through Sept. 16.

American General had no immediate comment on Unitrin’s buyback plan. The home service life insurance and consumer finance company has said it would be willing to consider a higher price after further investigation and negotiations.

Goulekas said the situation appeared to be at a standoff. “It’s going to remain fairly protracted,” he said.

Unitrin said its board may consider other steps to further enhance stockholder value.

Analysts said such steps might include an acquisition. Acquiring a property and casualty company would make Unitrin less attractive to American General, Goulekas said.

Unitrin said none of its directors plan to sell shares during the repurchase program. They own about 23% of the company’s common stock, including unexercised options.

On Wednesday, Unitrin’s largest shareholder, Dr. Henry Singleton, said he was opposed to American General’s bid, which the company rejected last month.

Singleton, a company director, owns roughly 14% of Unitrin stock.

Fayez Sarofim, another director who opposes the bid, beneficially owns about 7% of the company, Unitrin said. About 60% of Sarofim’s shares are held on behalf of clients of his investment advisory firm. He does not personally exercise his right to vote or dispose of such shares, Unitrin said.

Said Robinson-Humphrey analyst David Lewis: “We believe that it will be somewhat of a long shot for American General to get this consummated.”