Philadelphia Consolidated Holding to be bought for $4.7B

Japanese insurer Tokio Marine Holdings Inc. said Wednesday it has agreed to acquire property and casualty insurer Philadelphia Consolidated Holding Corp. for $4.7 billion.

It is the second multibillion-dollar sale of a Philadelphia-area company announced this month. On July 10, Dow Chemical said it will buy Philadelphia chemical maker Rohm and Haas Co. for $18 billion.

Tokio Marine will pay $61.50 per share for Philadelphia Consolidated, a 73 percent premium over its closing Tuesday price of $35.55. Philadelphia Consolidated shares closed up 64 percent Wednesday at $58.43.

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Philadelphia Consolidated (NASDAQ:PHLY) of Bala Cynwyd, Pa., has 47 offices and roughly 1,400 employees across the United States. CEO James J. Maguire Jr. said there will be no job cuts at Philadelphia Consolidated, which will keep its name and serve as U.S. headquarters for Tokio.

Philadelphia Consolidated, which does business as Philadelphia Insurance Cos., will become part of Tokio Marine's subsidiary, Tokio Marine & Nichido Fire Insurance Co. Ltd. It is Tokio Marine's first significant expansion into the United States, providing it with an American property and casualty platform.

Philadelphia Consolidated Chairman James J. Maguire, who founded the company in 1962 said he and other executives will make "a substantial investment" in Tokio Marine and that he will be a member of Tokio's international strategic committee. The company has been largely a family enterprise as five Maguires and two spouses hold senior management positions.

James Maguire Jr. will continue in his role, running domestic operations for the company. The CEO said joining Tokio gives his company international reach that will "fuel the next stage of our growth and will provide numerous benefits for our customers, brokers, agents and employees." In return, he said Philadelphia's strong distribution relationships with brokers and agents and local market knowledge will provide Tokio with a substantial platform for domestic and international growth. Tokio Marine's credit quality and financial strength will open up additional avenues of expansion, he said.

James Maguire Jr. said the size and international reach of Tokio Marine will allow Philadelphia Consolidated to reduce the amount of reinsurance it handles. It will also provide more support with catastrophe exposures.

"It was a tough decision on [a sentimental] level but we have to do what's best for the policyholders and shareholders," he said. "This wasn't as much about size as it was opportunity to expand domestically and abroad."

James Maguire Jr. said management felt they had a fiduciary duty to explore merger possibilities and started the process in earnest early this year.

Tokio Marine, considered Japan's largest non-life insurer with $170 billion in assets, bought British insurer Kiln Ltd. for $881 million in cash in March. It is one of several Japanese companies unencumbered by the credit crunch sweeping the United States to complete foreign acquisitions this year.

The companies said that if Philadelphia Consolidated were included in Tokio Marine's 2008 financial statements, earnings for its international business would have increased 95 percent from roughly $300 million to $580 million. The Japanese company will finance about half of the purchase with cash and half with debt

The boards of directors of both companies have unanimously approved the transaction and key family shareholders representing about 18 percent of Philadelphia Consolidated's outstanding shares have agreed to vote in favor of the transaction, which is expected to close in the fourth quarter. The acquisition is subject to the approval of Philadelphia Consolidated stockholders and the approval of various regulatory authorities in Japan and the United States, as well as other customary closing conditions.

Fox-Pitt Kelton Cochran Caronia Waller acted as financial advisers to Tokio Marine and Sullivan & Cromwell of New York provided external legal counsel. Merrill Lynch & Co. acted as financial advisors to Philadelphia Consolidated and Wolf Block of Philadelphia provided external legal counsel.

Philadelphia Consolidated reported its second-quarter earnings Wednesday morning, which fell to $52.9 million, or 73 cents per diluted share, compared to $94.4 million, or $1.27 per share, for the same period of 2007. The company had $4.4 billion in assets and $2.8 billion in liabilities as of June 30. It was ranked as the 50th largest property and casualty insurer in the United States last year based on net premiums written, according to industry data provider A.M. Best.