California Mix: Insurer and Subprime

A specialist in workers' compensation insurance has agreed to buy the subprime lender PacificAmerica Money Center for a big premium to its market price.

Santa Monica-based Fremont General Corp., the holding company for the largest of California's thrift and loans, said Friday that it would pay $55 million, or $10 a share, more than double the $4.875 trading price.

PacificAmerica shares jumped to $7.25 by the close and were trading at $7.625 at midday Monday.

The cash and stock deal is due to close in the first quarter.

Fremont, with $6.3 billion of assets, is the seventh-largest workers' compensation insurer in the country.

It also finances commercial ventures and makes residential and commercial mortgage loans.

It said it is buying PacificAmerica to expand its residential mortgage business and further diversify its portfolio.

PacificAmerica, which also owns a California thrift and loan-a kind of industrial bank-originates loans through a nationwide network of 45 loan offices.

The company made $768 million of loans in 1997 and says it expects to originate over $1 billion this year.

Fremont's chief financial officer, Wayne Bailey, said he expects the deal to bring its mortgage originations to $2 billion next year.

Right now "we're small players in a big market," he said. "There are plenty of opportunities."

The vigorous housing market and the likelihood that mortgage rates will stay low should ensure a booming business, Mr. Bailey said. "Originations are going to continue strong," he said.

Executives from PacificAmerica and Fremont's mortgage division have "known each other for years," so the merger should be smooth, he added.

Fremont will also provide PacificAmerica with plenty of capital, Mr. Bailey said. Subprime lenders have been crippled by capital constraints in recent months, and several have put themselves up for sale.

Fremont's expertise in insurance lending makes buying PacificAmerica a "great idea," said Douglas Christopher, an analyst with Cromwell, Weedo & Co., Los Angeles.

A similar deal under which the insurer Conseco Inc. bought the manufactured housing lender Green Tree Financial Corp. this year was driven by the acquirer's desire to explore cross-selling opportunities.

But that's not Fremont's rationale, Mr. Bailey said.

"We're looking at them as independent businesses," he said. "Yes, we're going to explore utilizing our insurance-agency force to sell other financial products- but that's not why we're in the business."

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