Liberty Mutual Agency Pulls Biggest U.S. IPO of 2010

Parent Company CEO Edmund Kelly
Edmund Kelly, chief executive officer of the parent company, said, “The delay will not impact our business or our day-to-day operations.” Photographer: Jonathan Fickies/Bloomberg

Liberty Mutual Holding Co., the policyholder-owned insurer, postponed the largest U.S. initial public offering of 2010 as demand was less than the company had projected for a unit that sells policies through agents.

Liberty Mutual Agency Corp. was seeking to raise almost $1.3 billion selling 64.3 million Class A shares at $18 to $20 each, according to filings with the U.S. Securities and Exchange Commission. Citigroup Inc. and Bank of America Corp. were leading the offering.

At least 45 companies have postponed or withdrawn U.S. initial sales this year as concern that the recovery from the longest recession since the Great Depression is deteriorating sent the Standard & Poor’s 500 Index down as much as 16 percent from its 2010 high.

“The stalled economic recovery, volatile stock market and undervalued property-and-casualty insurance stock prices create an unfavorable environment for receiving appropriate value for the business,” Boston-based Liberty Mutual Holding said today in a statement distributed by Business Wire.

U.S. IPOs had started to rebound this month, with offerings from China’s SouFun Holdings Ltd. and Country Style Cooking Restaurant Chain Co. surging at least 47 percent after more than half of 2010’s deals left buyers with losses. Liberty Mutual Agency was seeking to sell almost twice the amount of this year’s largest initial sale at a 16 percent premium to its competitors, data compiled by Bloomberg show.

‘Have to Ask’

Some investors likely shunned the offering because of concern it would benefit the parent company rather than the unit, according to Linda Killian, co-founder of Greenwich, Connecticut-based Renaissance Capital LLC, which has studied IPOs since 1991. About $1.2 billion of proceeds were to be paid to the parent, the prospectus showed.

“If you are investing in the subsidiary, you have to ask why your money is going to the parent,” Killian said. Liberty Mutual Holding would have controlled 82 percent of the shares.

Sales at property-casualty insurers have been pressured since 2007 by the U.S. economy’s downturn. An unemployment rate near 10 percent means builders and manufacturers have less need for workers’ compensation coverage than before the recession, and individuals have scaled back coverage of homes and autos.

‘Adequate Capital’

U.S. property and casualty sales gained for the first time in 13 quarters in the three months ended June 30 as carriers including Northbrook, Illinois-based Allstate Corp. raised rates to counter the slowdown in demand. Second-quarter policy sales rose 1.3 percent to $107.6 billion from the year-earlier period, the Property Casualty Insurers Association of America said Sept. 16 in a statement.

“The delay will not impact our business or our day-to-day operations,” Edmund “Ted” Kelly, chief executive officer of Liberty Mutual Agency’s parent, said in today’s statement. “While we still believe this transaction is a useful step in giving the Group additional capital flexibility, we have more than adequate capital to conduct our business successfully.”

Property-casualty carriers including Travelers Cos., the New York-based insurer added to the Dow Jones Industrial Average last year, and Warren, New Jersey-based Chubb Corp. sidestepped the worst of the financial crisis by investing in municipal bonds and corporate debt rather than holdings tied to the housing market.

‘Risks Remain Elevated’

“The majority of property and casualty carriers do not have sizable exposures to problematic asset classes such as real estate-related investments, where risks remain elevated,” said Bruce Ballentine, a New York-based analyst at Moody’s Investors Service, in an Aug. 30 report. “On average, 25 percent of property and casualty insurers’ investment portfolios are in municipal bonds, and the portfolios generally are of high quality.”

At the IPO’s midpoint price of $19, Liberty Mutual Agency’s shares were valued at 1.3 times tangible book value, according to in Marina del Rey, California. That’s higher than the average ratio of 1.12 for Chubb, Travelers, and three other companies Liberty Mutual Agency cites as competitors in its prospectus, data compiled by Bloomberg show.

Liberty Mutual Agency’s offering would have surpassed the $676 million raised in June by Houston-based Oasis Petroleum Inc. as this year’s biggest U.S. IPO. General Motors Co. of Detroit may seek $8 billion to $10 billion in a November initial sale, two people familiar with the matter said last week.


ChinaCache International Holdings Ltd., the Beijing-based provider of Internet content to businesses and government agencies, delayed its $66 million IPO to tomorrow, according to Bloomberg data. The company is offering 5.5 million American depositary receipts at $10 to $12 each. Charlotte, North Carolina-based Bank of America and Deutsche Bank AG of Frankfurt are arranging the deal, the prospectus shows.

Liberty Mutual is “a symptom that it’s not a perfect environment to be going public in,” said Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $350 billion. “The dynamics surrounding the insurance industry are very different from the dynamics of some of the more successful IPOs that have occurred recently. Company-specific and industry-specific conditions matter to IPO investors, and that appears to be what happened in this case.”

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