Centris Group Sold for $171 Million
Centris Group Inc. said Tuesday that it agreed to be purchased by a Houston insurer for about $171 million, nine months after it rejected a higher offer from the same company.
Houston-based HCC Insurance Holdings agreed to pay $12.50 for each Centris share and assume $25 million in debt to beef up its medical insurance business. In January, HCC offered $13.25 a share for Centris, a bid the Costa Mesa-based company rejected as “grossly inadequate.”
The latest buyout price was 21% above Centris’ closing price of $10.31 a share Monday. The shares rose 11.5%, or $1.19 a share, to $11.50 on volume of 1.1 million shares, up from the daily average of 63,056 shares over the last three months. HCC’s stock fell 56 cents a share to $15.38. Both stocks trade on the New York Stock Exchange.
HCC bought 8% of Centris in preparation for making the earlier bid, then sold the stake after being rebuffed by Centris management. It renewed its efforts to purchase the California insurer after Centris’ shares slumped 27%.
“A lot of these small insurance companies are finding that as time goes on, it’s harder and harder to compete,” said Michael E. Dion, an analyst at Hoefer & Arnett, a San Francisco-based securities company. “There weren’t that many suitors out there, and HCC continued to do their homework.”
Mark Lane, an analyst at William Blair & Co. in Chicago, said the purchase will give HCC a 15% to 20% market share of the medical stop-loss insurance business, which covers unexpected medical claims against employers that self-insure their employees’ health care. HCC also sells aviation, marine and accident insurance.
“I think it makes long-term strategic sense and my only thought is that Centris came to the same conclusion,” Lane said. “Centris has struggled the last several quarters in trying to increase prices. I think the company will be able to grow faster within the combined entity. HCC is a better underwriter and they have a stronger balance sheet.”
Last year, Centris posted a loss of $13.4 million, including charges, on revenue of $111.4 million. HCC earned $72.3 million in the same period on revenue of $308 million.
Directors of both companies have approved the deal. HCC said it should begin a cash tender offer for Centris stock within five business days. The company expects to complete the offer by the end of the year.
Centris said it will take a $13.5 million third-quarter charge to bolster reserves in its medical stop-loss business and other specialty insurance lines, and to increase reserves for some discontinued operations.
The insurer said it may take more charges after the acquisition and an independent review of its business.
HCC also said it will take a $5 million charge this year to cover unspecified restructuring expenses.
“We are confident that the savings in 2000 and beyond from this restructuring will far exceed the charge, and we will have created a much more efficient and profitable company,” HCC President and Chief Operating Officer John N. Molbeck Jr. said in a statement.
