Farmers to Acquire Foremost
Farmers Insurance Group of Cos. said Tuesday that its insurance exchanges will pay $812 million for Foremost Corp. of America, the No. 1 U.S. insurer of factory-made homes.
The transaction values Foremost at $29.25 a share, or 22% more than Monday’s closing price. On Tuesday, shares of the company, based in Caledonia Township, Mich., rose $3.75, or 16%, to close at $27.69 on the New York Stock Exchange.
Los Angeles-based Farmers Insurance, one of the largest U.S. property and casualty insurers, consists of a number of so-called reciprocal exchanges, associations in which policyholders share profit and losses, in essence insuring one another.
Farmers Insurance is managed by Farmers Group Inc., a unit of publicly traded Zurich Financial Services Group of Switzerland.
Gaining Foremost’s one-fifth share of the market for insuring prefabricated homes is “a major opportunity,” said Martin D. Feinstein, chairman and chief executive of Farmers. Farmers has about 3% of the manufactured-home insurance market.
Insurance profits have been squeezed by competitive price cuts in recent years, making growth elusive except through acquisitions. Farmers said the transaction, slated for completion in next year’s first quarter, will be its first of a property and casualty insurer.
Zurich Financial, which last year bought Farmers from British American Tobacco, generates half its income in the United States. Zurich said buying Foremost will boost earnings next year.
“Foremost is a big player in an attractive market,” said Thomas Della Putta, an analyst at Pictet & Cie in Geneva. “Its distribution network will help Farmers sell more policies.”
Foremost has links to 20,000 independent agents, while Farmers uses 15,000 agents who represent it on an exclusive basis. Farmers is looking to expand into the Eastern U.S.
As part of the deal, Farmers will inject $367 million in return for surplus notes, a form of publicly issued debt, from mutually owned insurance exchanges.
The money would help keep up liquidity at the insurance exchanges, which is paying for Foremost from existing cash resources, said Jeff Beyer of Farmers.
Foremost, founded in 1952, is a leading insurer of ready-made homes, including motor homes, campers, trailers and caravans. With more than 1 million manufactured home insurance policies, it has an estimated market share of 21%.
