CHICAGO -- Rising interest rates may be to blame for the reduction in Conseco Inc.'s $3.09 billion bid for Kemper Corp., according to market observers.
However, some observers agreed that Conseco could still acquire the securities firm, even at the lower price it is now offering.
Conseco officials disclosed Wednesday that they had presented a revised merger agreement to Kemper officials, lowering the offering price to $60 per share from $65. Of the total $60 per share price, $56 would be tendered in cash and only $4 would be tendered in Conseco stock. The company previously offered $56 in cash and $9 in Conseco stock, but Conseco chairman Stephen C. Hilbert said that by reducing the amount of stock involved, he could sidestep a shareholder vote on the merger.
"This proposal reflects certain changes in circumstances that have led me to doubt that the vote of Conseco shareholders required under the existing terms of the transaction could be achieved," he said in a statement.
Kemper released a statement Wednesday that said its board would review the proposal "in due course."
Kemper has one of the ten largest full-service brokerage firms in the nation and the seventh-largest mutual fund family with $45 billion of assets. The Long Grove, Ill.-based company also manages $22 billion in assets for Kemper's life insurance companies and other institutional customers.
Conseco's ambitious effort to acquire Kemper has been turbulent from the outset. After besting General Electric's $60 a share bid in June, Conseco was notified by Moody's Investor Service that its rating might be downgraded. The Illinois department of insurance, which must approve the deal, has expressed reservations about the Steeply leveraged structure of the deal. And Conseco recently delayed closing the deal until 1995 because financing could not be completed before the yearend target date.
"I would say at this point anything's possible," said Jon Teall of Lipper Analytical Services Inc., including, he said, a new bid from General Electric. Officials at General Electric declined to comment on speculation that they would bid again.
"I don't think it's terribly surprising that Conseco is trying to restructure the deal, given that Kemper stock prices never came close to what Conseco is offering," Teall said. "That's the market telling you they didn't think the deal was worth it."
But some analysts say the deal was reasonable when it was put together in June, and is now the victim of rising interest rates that simultaneously devalued both companies and increased the cost of debt.
"Conseco was going to use its stock as currency for the deal, and [the stock price for] life insurers in general has declined," said Adam Klauber, assistant vice president at Duff & Phelps Investment Research. "And Kemper is more a money manager than an insurance company, and [the value of] money managers has really declined over the past five months."
Observers said the ball is in Kemper's court, but agreed that the company has few enticing options. Klanber said the poor prospects for money managers, coupled with a $100 million dropout clause in the deal, makes Kemper less attractive to possible rivals who could counter Conseco's bid.
Others said Kemper could accept the lower bid and the deal could go ahead as planned. "Certainly, I think there is motivation and desire on both sides of the line to get the deal done," said Brian Walton, a senior equities analyst at NationsBank.
The deadline to close the deal is March 31.
Walton said Kemper could simply sit tight until that date to avoid the dropout payment and remain independent "The latter choices are certainly more difficult," he acknowledged. "But they need to be part of the mosaic the Kemper board is looking at right now."
