With its blockbuster deal for one of the nation's best-known lenders, Conseco Inc. has signaled a renewed desire to diversify beyond its core insurance business.

And though company executives acknowledge they face some substantial challenges in the deal for manufactured-housing lender Green Tree Financial Corp., they say they are confident it will succeed. Carmel, Ind.-based Conseco said last week that it had agreed to buy Green Tree in a stock transaction valued at $7.6 billion.

"This is not an expense story. This is a growth story," said chief executive officer Stephen Hilbert during a conference call on the deal. "This will further diversify our earnings and cash flow and open up higher- growth markets for us."

The deal-the largest the insurance concern has attempted-would add to the Conseco lineup a highly specialized lender with a distinctive culture, a strong-willed chief executive, and a market capitalization nearly as large as its new parent's.

Conseco, founded in 1979 by Mr. Hilbert, a former encyclopedia salesman, has a solid track record of extracting cost savings. The company has bought eight insurance and two finance companies in this decade.

But though Conseco is known as a savvy acquirer, it stumbled badly in its last multibillion-dollar bid for a property outside its core business.

In 1994, its highly leveraged $3.25 billion deal for mutual fund giant Kemper Corp. came unraveled amid concerns that Conseco had bitten off more than it could chew. When interest rates spiked, undermining the profitability of Kemper's bond mutual fund business and increasing the cost of funding, Conseco walked away from the deal rather than renegotiate the terms of a $1.22 billion loan from Citibank that would have funded the deal.

Conseco officials say the circumstances are far different now. For one thing, Conseco's market capitalization is 15 times as large as in 1994.

The two deals are "like night and day," said James Rosensteele, senior vice president, corporate communications, for Conseco. Conseco walked away from Kemper because it "didn't want to bet the company on the transaction," he said. Conseco is larger and more diversified than it was in 1994 and is funding the deal with stock instead of cash, he said.

Its stock price, however, has not held up as well as the company might have liked since it announced its deal last Tuesday.

Conseco shares have fallen about $9 since then, making its original $7.6 billion bid worth just $6 billion and reducing its market capitalization to $9 billion.

Investors say they are not worried. "This deal will get done," said the manager of a mutual fund that holds a sizable chunk of the company. This manager, who requested anonymity, said shareholders are sure to approve the deal. He noted that 25% of the stock is held by management.

The companies could face some problems melding their management, observers said. Green Tree will keep all its top-level employees, the companies said. Founder and chief executive Lawrence Coss, a former used- car salesman, will run the unit, they said.

Though both Conseco and Green Tree made much of their shared entrepreneurial culture, some observers said they also both have mavericks at the helm.

"I can't imagine Coss working for someone else," said a former Green Tree manager.

Nick Fisken, an analyst who tracks Conseco for Stephens Inc., said he thinks the CEOs can co-exist. "If Mr. Coss is given the option to operate the company as a separate entity, he'll stay," he said. But "if Steve (Hilbert) wants control, Larry's out of there."

Mr. Fisken hailed the deal. "Beyond the 15 cents a share it will add in 1999," Conseco is creating a financial services company that is more likely to attract a bank buyer, he said.

But, following the announcement, PaineWebber's Lygia X. Campbell published a report saying her firm would only buy Conseco if the stock price fell, because today it that commands a risk premium beyond its stated ratings.

"There has been negative reaction from some," admitted Conseco's Mr. Rosensteele. He blamed the downturn on investors unfamiliarity with Green Tree's business. "It's a misnomer to call this company a subprime lender," as some press and analyst reports did, he said.

Fans of the company continue to vehemently defend the deal, citing the recent Travelers-Citicorp announcement as a precedent.

"I don't hear anyone screaming about Sandy Weill," the acquisition- hungry chairman of Travelers Group, the fund manager fumed.

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