Deal Mania, Sandy Weill-Style

Why are investors being offered a piece of Travelers' property-casualty again? Weill's thinking just might have something to do with asbestos liabilities

Remember the bad, pre-Joe Torre days for the Yankees? George Steinbrenner kept firing his managers. Then, all too often, the Boss would rehire them. It got so bad, not only did Yankee-haters like me feel sorry for the players, some even concluded such compulsive behavior called for psychiatric care.

No, this report does not come to you from spring training. Compulsions leaped to mind the other day as I stepped back to see what Citigroup CEO Sandy Weill has done with Travelers. Citi (C ) is set any day now to sell up to 20% of Travelers' property and casualty unit in a $3.7 billion initial public offering. Except for Citi's expropriating Travelers' familiar umbrella logo, the IPO would not be terribly remarkable--unless you examine the record (table).

As head of Primerica, Weill in 1992 bought part of Travelers, then an independent company. A year later, he took the rest of it. Next, as head of Travelers, he sold part of its property-casualty unit in an IPO, keeping life insurance and other parts close. As CEO of Citi, which merged with Travelers, he bought back the property-casualty interest in 2000. Now, in the latest IPO, Weill is selling another minority stake in the property-casualty biz. Is the boss of the world's most valuable banking franchise crying out for a psychiatrist?

I don't think so. But such compulsive buying and selling does raise a question: Why? Weill's spokeswoman at Citi did not respond to my inquiries. And the official explanations are not entirely credible. It's one thing for Citi to say it's taking the unit public so it "will have greater capital management flexibility," as the securities filing for Travelers Property Casualty explains, or so "compensation of management can be directly aligned with the performance of our common stock." Yet it's another thing to say that less than two years after taking the company private to give Citi "additional flexibility in the management of its capital," as it said back then, or to "reduce costs associated with [Travelers'] obligations and reporting requirements."

So, let's assume that the explicit reasons are not the sole motivations. Some other possibilities:

-- Welfare for investment bankers. Among its many operations, Citi also owns Salomon Smith Barney. It employs legions of investment bankers, who have spent much of the bear market trying to look busy. As lead underwriter on the IPO, plus a simultaneous sale of Travelers notes, SSB stands to take the largest cut of fees that I estimate will top $200 million.

-- Halliburtosis. Oil-services giant Halliburton saw its stock plunge last year as investors grew anxious that victims of asbestosis and other related diseases might reach past a unit it bought and into its own pockets. Travelers' filing vibrates with similar anxiety over asbestos claims. It's also curious that Citi unveiled its Travelers IPO just days after Halliburton shares sank 43%. Coincidence? Maybe, but asbestos so worries Travelers that Citi is offering $800 million in protection against excess claims. That could pinch Citi. But since it plans by yearend to give its own shareholders most of the stock in Travelers it doesn't sell in the IPO, the deal may be one way to distance Citi from any whiff of Halliburtosis.

-- Money ballplayer. Weill hasn't built two Wall Street empires by being oblivious to trends. His Travelers deals show sweet timing. Since Citi bought out Travelers' public investors in 2000, for example, property-casualty stocks returned 40% as the Standard & Poor's 500-stock index lost 22%. The word on property insurers is that, post-September 11, they will get an extra boost in the pricing power they have been enjoying after years of price-cutting. Yet the Street knows this, and smart players are selling. Still wonder what Weill and Steinbrenner have in common? They win.


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