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Heavyweight Wrestling Over A Flyweight Insurer



That thump may be Hank Greenberg tossing Henry Silverman

Maurice "Hank" Greenberg, the tough-minded CEO of American International Group, the world's largest insurance company, usually gets what he wants. But then, so does Henry R. Silverman, the fast-moving CEO of Cendant Corp. The two seasoned dealmakers have been enmeshed for weeks in a bidding war over American Bankers Insurance Group, a little-known but alluring Miami-based credit insurer. Right now, the bids are matched. But AIG is the favored bidder. Arbs say that Silverman will have to significantly up the ante to win the prize.

For one thing, it has the backing of American Bankers, who approached AIG. It's a much better-known player: Cendant was created only last December, a combination of HFS Inc., a travel and real estate giant, and CUC International Inc., a direct marketer of discount buying clubs. And the fit is better: AIG has the broad international presence American Bankers covets.

Silverman could still win. "This will all be decided on who can make a higher offer," he says. "If we have to bump [our offer up], we have to do it by the end of March"--when shareholders will vote on the AIG offer.

WARY INVESTORS.How much higher is the question. Despite Silverman's stunning track record in creating shareholder value from a melange of brand names from Avis to Century 21, some of American Bankers' investors, and its top management, are wary of the new company. "The board couldn't take a position on Cendant because the company was only six weeks old," says American Bankers CEO Gerald N. Gaston. "It's like looking in a crib and saying, `This guy's going to be a great football player.' He might be, but you don't know." Says one institutional investor: "Bumping it up a little is not going to win. I personally believe AIG can better manage the future of American Bankers than Cendant. I think it's a better fit with AIG."

To match Cendant's bid, AIG was forced to pay $58 a share, or $2.7 billion. Some arbs and analysts say Cendant would have to come back with $60 a share to overcome bias in favor of AIG. Others say a counteroffer could go as high as $64, depending on how badly Silverman wants American Bankers. "At 58, it's already past the value of American Bankers on its own--we're now talking the belief of both AIG and Cendant that they will add additional value to the merger," says one arbitrageur.

Until now, American Bankers has gotten press mostly on its employee amenities, such as the day-care center and school on its grounds, as well as the swift rebuilding of its headquarters after Hurricane Andrew in 1992. So why all this interest in a little-known company? Quite simply because American Bankers is by far the largest player in credit insurance, which pays off balances in the event of job loss, disability, or death. It leads the industry in third-party direct marketing and is among the top insurance direct marketers.

Cendant and AIG have somewhat different aims in going after American Bankers. AIG wants access to new channels of distribution and product lines. Silverman wants new products to sell through his direct-market operations. He sees scale benefits in combining the two companies and wants to push American Bankers' products using Cendant's ties with credit unions and community banks.

But American Bankers may not be quite the prize it seems. Very much a niche player, it has moved in and out of markets over the years as competition intensified. It has been finding it increasingly difficult to cultivate new markets domestically. While it has posted strong revenue and net-income gains over the past five years at compound annual rates of 17.1% and 22.3% respectively, internal projections contained in the Jan. 30 proxy statement show those figures falling to 14.4% and 16.2% through 2001.

That was why American Bankers in May began discussions with AIG. Its main potential is overseas. But the process of expanding overseas has been slowed by the need to obtain foreign regulatory approvals and local partners, executives say, and AIG's global reach would bypass those hurdles.

American Bankers employees seem to be taking the battle in stride and are watching their holdings increase in value. "I like to see it going up," says Elroy Allen, a maintenance manager for 14 years who owns 2,000 shares. If Henry Silverman blinks and decides to up the ante, shareholders like Allen will have even more to smile about.By Gail DeGeorge in Miami, with Amy Barrett in Philadelphia and Susan Jackson in New Haven

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