Nov. 21 (Bloomberg) -- William ``Jerry'' Jurgensen, chief executive officer of Nationwide Mutual Insurance Co., is in line for a $23.5 million payout when his firm buys out shareholders of its retirement-savings subsidiary.

Nationwide's customers, who own the company, are picking up the tab.

The nation's fourth-biggest home insurer agreed in August to pay almost $2.5 billion, or $52.25 a share, for the 34 percent of the Nationwide Financial Services Inc. unit that it doesn't own. Jimmy Bhullar, a JPMorgan Chase & Co. analyst, calls the price ``excessive.''

The higher the price, the more the 57-year-old Jurgensen gets, because he is CEO of both companies and holds almost 1 million stock options in Nationwide Financial that convert to cash if a merger goes through.

``The question is, who's getting the best end of the bargain, the company or the CEO?'' said Charles Elson, director of the University of Delaware's John Weinberg Center for Corporate Governance.

Joe Case, a spokesman for Columbus, Ohio-based Nationwide Mutual, called the buyout ``fair and reasonable.'' As a mutual insurance company, Nationwide Mutual is owned collectively by its policyholders. Their approval isn't required for the merger to take place, Case said.

``When we negotiated the terms of the merger agreement earlier this year, we believed this was a good deal for NFS shareholders and for Nationwide Mutual policyholders. We still believe that today,'' Case said in an e-mailed statement. Through Case, Jurgensen declined to comment.

Nationwide Mutual was founded in 1925. Under former CEO Dimon McFerson, the firm took its retirement-savings and life insurance subsidiary public in 1997.

`Excess Capital'

Jurgensen succeeded McFerson in 2000. He boosted annual net income at Nationwide Mutual to $2 billion last year from $330.8 million in 2000.

A former senior executive at Chicago-based Bank One Corp. and its predecessor First Chicago NBD Corp., Jurgensen left the bank shortly after Jamie Dimon, now head of JPMorgan Chase, became CEO. Jurgensen was the second-best golfer among chief executives of the Fortune 1000 companies, according to a 2006 ranking by Golf Digest magazine. James R. Crane, former CEO of EGL Inc., was No. 1.

In March this year, Nationwide Mutual offered $47.20 a share to buy back the subsidiary's outstanding shares because it was looking for ways to deploy ``excess capital,'' Nationwide Financial said in a regulatory filing.

The subsidiary formed a committee of members who weren't affiliated with the parent company to consider the buyback, and Jurgensen recused himself from the discussions.

Life Insurers Decline

Jurgensen participated in Nationwide Mutual's deliberations only when price wasn't under discussion and recused himself from the final decision to merge, Case said. In August, the companies agreed to a buyout at the higher price of $52.25 a share. The move will boost revenue by attracting new customers because the two firms will be able to work more closely together, and will allow for ``more effective deployment of capital across the enterprise,'' Jurgensen said in a statement then. The company hasn't disclosed specific estimates of cost savings or revenue growth.

Since the Aug. 6 agreement, the credit crisis has punished the shares of life insurers, including MetLife Inc., the nation's biggest, and Prudential Financial Inc., No. 2, on concerns the firms will have to compensate annuity customers for stock-market declines, and that the value of assets tied to the U.S. mortgage market will decline further. The seven-member Standard & Poor's 500 Life & Health Insurance Index dropped more than 60 percent.

`Rethink the Deal'

The takeover of Nationwide Financial values the unit at about 12 times analysts' estimates of 2008 profit, and about 1.3 times book value. That's more than twice the current market values of the firm's 10 closest competitors. Nationwide Financial this month reported a record $346 million third- quarter net loss.

``Why not rethink the deal, given current economic conditions?'' said Robert Hunter, a former Texas insurance commissioner who's now insurance director at the Washington, D.C.-based Consumer Federation of America. ``The real owners that are paying for it are the policyholders, and what say have they had in this?''

``The fact that the markets have changed since the merger agreement was signed in August 2008 does not permit us to unilaterally change the price we agreed to pay shareholders,'' said Case.

Regulator Review

A buyout at $52.25 puts the stock at more than the exercise price of most of Jurgensen's Nationwide Financial stock options, yielding him about $17.5 million, according to figures disclosed in two proxy statements filed with the U.S. Securities and Exchange Commission. The merger values his stock and restricted- stock holdings at $6 million. In addition to the $23.5 million cash payout, Jurgensen has a retirement package from Nationwide Financial with a present value of $1.7 million.

If the stock fell back to its $37.93 price on March 7, the last trading day before the buyout offer was made public, Jurgensen's $17.5 million of options would be worth about $9.4 million, according to estimates from Graef Crystal, a former compensation consultant and author of the newsletter graefcrystal.com. He assumed all the options were exercisable and used the company's most recent estimate of volatility.

Ohio Insurance Director Mary Jo Hudson is still reviewing the Nationwide transaction, said spokeswoman Carly Glick.

``We do determine whether or not a deal would be materially adversely affecting policyholders,'' Glick said. ``If we found that something would be an issue, we would have the group in to discuss our concerns and our issues, and we could deny a request based on that.''

Hedge Funds Buy

The buyout is also a boon to hedge funds that bought Nationwide Financial shares after the March offer, betting that the bid would lead to a completed deal. Elliott Management Corp., the New York-based firm run by Paul Singer, has built a 6.6 percent stake since the beginning of the year.

Nationwide Financial shares rose .47 cents to $48.87 at 4:15 p.m. in New York Stock Exchange composite trading.

``We consider there to be negligible risk this deal will not get completed,'' said Colin Devine, a Citigroup Inc. analyst, in an Oct. 10 research note. The $23.5 million payout to Jurgensen is ``ample reason, in our view, to want to see this transaction completed as expeditiously as possible.''

Editors: William Ahearn, Otis Bilodeau

To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net

Last Updated: November 21, 2008 16:39 EST