Is Steinberg Open To Offers?

Saul Steinberg one of the Street's veteran dealmakers, is busy enhancing shareholder value at Reliance Group Holdings (REL), where he's chairman and CEO. Reliance, the nation's 20th-largest property-casualty insurer, has yet to join the bull market. It's at 12, up only a bit from this year's low of 10.

Steinberg has recently sold noncore assets to reduce debt and strengthen the balance sheet. "We are very focused on our core property-and-casualty-insurance business, and we will grow organically and through acquisitions," he says.

Steinberg notes that consolidation in insurance has just begun, and he says Reliance intends to be one of the "consolidators," or acquisitors. But he admits he may be tempted or forced to sell at the right price at the right time. One company insider says Reliance was approached by a large insurer but that Steinberg wasn't interested. Any deal will have to be friendly, since Steinberg owns 32% of the stock. "Reliance is one of the most undervalued insurance stocks around," he says, pointing out that it trades at 10 times 1998's estimated earnings of $1.20 a share, vs. its peers' price-earnings ratios of 15 to 25. Steinberg thinks Reliance is worth twice its current stock price.

Steinberg reckons that without acquisitions, earnings will grow at an annual clip of 15%. That may be a modest forecast, he thinks, given the potential of Reliance's access to the Internet, which so far has produced $40 million in new business, and its prospects in China. Steinberg sees a huge Chinese property-casualty market. Reliance recently agreed to provide reinsurance and other services to China's Huatai Property Insurance.

Analysts cheer Steinberg's recent moves. In a typical Steinberg deal--to cash in assets without letting them go completely--Reliance in late August sold half of its title-insurance business to Lawyers Title for $478 million,

making Lawyers No.1 in that field. Reliance ends up with 48% of the title company, renamed LandAmerica Financial, with combined yearly revenues of $1.3 billion. Some $125 million of the $238 million cash from the deal will be used to slash Reliance's debt. "The sale is essentially nondilutive, demonstrating Reliance's ability to restructure without compromising earnings," says Oppenheimer's Alice Schroeder.

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