Pummeled by rising interest rates and spooked by its own shareholders, Conseco Inc. Wednesday said that it wants to lower its bid for Long Grove-based Kemper Corp. about 4 percent, to $2.96 billion, or $60 a share.
The proposed cut might not doom the deal, but it raises more questions about its completion for an already-jittery Wall Street.
Conseco Chairman Stephen C. Hilbert said in a statement that he believes Conseco’s shareholders won’t approve the merger as it stands and that he wants to halve the number of Conseco shares being offered to Kemper shareholders. That would allow Conseco to buy Kemper without approval from its own shareholders, Hilbert said.
Under the proposed change, Kemper shareholders still would receive $56 a share in cash, but only $4 worth of Conseco shares, for a total $60 a share.
That’s $5 a share less than the $65-a-share, or $3.09 billion, price Conseco officials put on the deal last week. And that price had been lowered from the original $67 a share, a reflection of Conseco’s lower stock price in recent weeks, which was provided for in its agreement with Kemper.
Stripped of its confusing math, Conseco’s proposal puts the bidding for Kemper back to where it was in June, when General Electric Co. walked away from its $60-a-share merger proposal in the face of a higher offer from little-known Conseco of Carmel, Ind.
The next step is Kemper’s to make, under constraints of the agreement it signed in June with Conseco. Conseco was careful to note that the merger agreement remains in effect.
A Kemper spokesman said only that the board would consider the proposed change “in due course.”
If Kemper’s board rejects the lower offer, the deal could fall apart, analysts said.
The proposed cut in price “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,” Hilbert said in a one-page statement.
By cutting the number of new Conseco shares needed for the transaction to 4.3 million from 9.5 million, Conseco skirts a New York Stock Exchange rule that its own shareholders must approve the Kemper merger.
But if the deal fell apart, Kemper officials would have to explain to their shareholders why they let a bidder willing to pay $60 a share walk away.
Kemper shares closed at $50.75 Wednesday on the NYSE, down 75 cents. The shares were trading around $40 a share before takeover fever gripped the company last spring. Conseco shares closed at $37.50, up 62 cents.
Among other options, Kemper could accept the revised price, or try to negotiate.
It is unlikely the board will seek another buyer-whether GE or any other buyer, analysts said.
Conseco’s agreement to buy Kemper includes a clause that would levy a $100 million penalty against Kemper if it accepts an offer from another bidder at this point, a Conseco spokesman said.
A spokesman for GE didn’t return calls.
“The fact that they are trying to do this reflects just how much things have changed in three or four months,” said Brian Walton, an analyst at Nationsbank, which was once a major Kemper shareholder but sold all its shares after the Conseco agreement was reached. “That includes dramatically higher interest rates, which makes consummation of this deal much more difficult.”
Interest rates have continued their climb since June, boosting Conseco’s borrowing costs and lowering the perceived value on Wall Street of all financial-services companies, including Kemper, Conseco and Conseco’s partly owned subsidiaries, which it is trying to sell to help finance the Kemper deal.
The proposed change puts one major Conseco shareholder in an unusual position. That holder is Kemper Financial Services, Kemper Corp.’s mutual fund arm, whose funds own about 2 million Conseco shares, or 8 percent of its stock.
A spokesman for Kemper Financial Services wouldn’t comment on the issue.
But Kemper’s mutual fund managers must wear their fiduciary hats and keep their investors’ interests foremost, which may mean they would support Conseco’s lower bid for Kemper-even if their bosses at Kemper Corp. would like them to hold out for the higher price.
