Citibank has agreed to finance an acquisition bid for Kemper Corp., making it a participant in any bidding war that might break out.

Conseco Inc., an insurance company based in Carmel, Ind., yesterday announced a $3.25billion bid for Chicago-based Kemper, and said it has a letter of commitment from Citibank to underwrite $1.22 billion of bank loans for the deal.

Conseco's bid, at $67 a share, topped an earlier - and unsolicited - $60-a-share bid by General Electric Corp.'s GE Capital unit. The Stamford, Conn., company announced Thursday it was dropping out of the bidding for Kemper.

For Citibank, completion of the deal would give it a lead role in one of the largest insurance company and acquisition loans this year.

The deal also may become one of the largest this year to a sub-investment-grade company, since Conseco's senior debt rating is at the bottom rung of investment grade firms, and credit agencies have put it on notice for downgrade if the acquisition goes through.

Citibank Seeks Co-agents

Citibank underwrote the entire bank financing, and will talk to other Conseco relationship banks about joining as coagents. Those banks include Continental Bank and Bankers Trust.

Exact terms of the bank financing couldn't be learned, but sources said the deal would be priced as a leveraged transaction, meaning that the interest rate on the loans would be around 250 basis points over the London Interbank Offered Rate.

Conseco's chairman and founder, Stephen C. Hilbert, said at a press conference he was confident the bid would succeed. He set a deadline of June 26 for Kemper to accept or decline the offer.

He said it would give Conseco a modest boost in per share earnings, by leveraging synergies between the two firms' insurance and investment product marketing operations.

Analysts: Bid Is Fair

"This is a once-in-a-lifetime opportunity to acquire one of the premier financial institutions in the country," he said, If the deal goes through, Conseco will change its name to Kemper, Mr. Hilbert added.

Analysts said Conseco had bid a fair market value for Kemper. They added in light of General Electric's decision to drop out, the bid stood a good chance of succeeding.

"It sounds like a good deal for all parties," said Michael Lewis, a senior insurance analyst with Dean Witter Reynolds in New York.

It was not immediately clear which other companies, if any, will bid for Kemper now that GE has dropped out. Kemper issued a statement saying other firms have looked over its books, but declined to disclose other names.

The bidding for the firm started in March when GE launched an unfriendly $55-a-share takeover attempt. Kemper initially rejected GE's overtures, but when GE sweetened its offer, Kemper invited other firms to bid.

Mr. Hilbert said he plans to keep the company's mutual fund operation, which is the 14th largest in the country, and managed the bulk of the $67 billion of assets Kemper has under management.

But Adam Klauber, an assistant vice president and equity analyst with Duff & Phelps Investment Research, in Chicago, said he thought it was possible Conseco would sell off the mutual fund operation to pare down debt.

The fund unit would be an especially attractive property to sell, since these companies are commanding high premiums, particularly from banks that want to boost scale in their mutual fund operations.

Mr. Hilbert also said he plans to consolidate the two companies' investment product marketing arms.

Kemper's Invest third-party marketing unit is among the four largest marketers of investment products for banks. This unit distributes nearly a quarter of Kemper's mutual funds and annuities.

Conseco's third party marketing unit, MDS/Bankmark, is leader in sales of fixed rate annuities through banks, and has more than 30 bank clients. In vest has 550 bank clients, according to Cerulli Associates, Inc., of Boston.

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