CHICAGO -- Conseco Inc. and Kemper Corp. late Sunday signed a merger agreement that may lead to Conseco's paying $3.25 billion for the financial services company, which includes Kemper Securities Inc.

Under the agreement; which was announced yesterday, Kemper's board of directors can terminate the deal and accept a proposal by another party before July 6 upon payment of $25 million and out-of-pocket expenses to Conseco. After July 6, if Kemper receives a bid from another party, the firm can cancel the agreement upon paying $100 million, plus out-of-pocket expenses to Conseco.

Finalization of the merger is subject to several conditions, including the obtaining of financing arrangements and of approvals from Kemper and Conseco stockholders, regulatory agencies, and the boards and shareholders of Kemper mutual funds.

Kemper's annual stockholders meeting is scheduled for Aug. 22. Conseco stockholders also could vote on the proposed purchase by then, according to Joele Frank, a spokeswoman for Conseco.

If the deal goes through, the combined entity would operate under the Kemper name, Frank said. However, the headquarters would be in Cannel, Ind., where Conseco is based, she said.

Kemper's operations in the Chicago area, including its securities, mutual fund, and life insurance operations, would remain in Chicago under the proposed merger, Frank said.

Conseco has "no plans" to lay off Kemper employees or sell any part of Kemper's units, Frank said. Conseco officials believe that Kemper president and chief executive David B. Mathis has a "very strong" business plan, she said; however, some Conseco and Kemper back-office operations could be consolidated in the merger.

Steve Radis, a spokesman for Long Grove, Ill.-based Kemper, said the Conseco bid is the only offer the company has received apart from the one withdrawn by General Electric Capital Corp. last Thursday. Conseco was one of several companies that had been examining Kemper's books since May, Radis said.

General Electric said it dropped its bid for Kemper in light of Conseco's offer, which was $7 a share higher than General Electric's latest offer, and after conducting "significant due diligence." Thomas Lamb, a spokesman for General Electric, said GE's decision to pull its offer was not related to recent problems in its subsidiary Kidder, Peabody & Co.'s government bond operations.

In March, GE bid $55 a share or $2.2 billion for Kemper. Kemper officials rejected the offer and said they would fight any attempt by the company to buy the firm, setting the stage for a possible hostile takeover. But in May, Kemper had a change of heart and put itself up for sale after GE raised its bid to $60 a share, or $2.4 billion.

In exchange for the higher offer, Kemper said it would open its books to the company and all other potential suitors. At that time, Kemper postponed its May shareholders meeting until Aug. 22 to allow General Electric and other potential suitors time to conduct due diligence.

Some analysts said that Kemper Securities is less likely to be affected by a Conseco purchase than one by GE.

Perrin Long, a director of equity research at First of Michigan, said that in order to diversify its interests, Conseco probably would hold onto Kemper Securities.

"They're probably going to keep the brokerage unit and use it to gather assets," Long said.

Stephen C. Hilbert, Conseco's founder and chairman of its board of directors, has called the proposed merger "the right strategic step" that would bring Conseco a "significant new presence" in mutual funds, variable annuities, brokerage, and money market activities. Conseco already has substantial interests in life and health insurance.

Kemper has one of the 10 largest full service brokerage firms in the nation and the seventh largest mutual fund family, with $45 billion of assets. Kemper also manages $22 billion of assets for Kemper's life insurance companies and other institutional customers.

Under the merger, Conseco would control more than $85 billion of assets, total net revenues and annual collected premiums of $4.2 billion, and 9,000 employees.

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