United Fire to offer more products in Mercer markets

United Fire & Casualty Co. plans to offer life insurance and other products in markets served by Mercer Insurance Group after a merger of the insurers is completed early next year.

Cedar Rapids-based United Fire late Tuesday announced plans to acquire Pennington, N.J.-based Mercer Insurance for $28.25 per share in cash for a total transaction value of about $191 million. The deal must be approved by Mercer Insurance shareholders and insurance regulators in California, New Jersey and Pennsylvania.

Randy Ramlo, president and chief executive officer of United Fire, on Wednesday said the purchase will be financed from $100 million in available cash and a $125 million from existing lines of credit and a loan from the Federal Home Loan Bank of Des Moines with a fixed interest rate of 3.6 percent for 20 years. Approval of the merger by United Fire shareholders is not required.

Shares of Mercer Insurance spiked by nearly 50 percent Wednesday on news that United Fire plans to buy the company. Investors bid shares up to $27.86 from Tuesday's closing price of $18.86 as the market opened, and the price barely changed during morning trading.

United Fire shares also rose 0.36 or 1.74 percent to $21.10 in midday trading.

Mercer Insurance offers commercial and personal lines of insurance to businesses and individuals in New Jersey, Pennsylvania, Arizona, California, Nevada and Oregon through its subsidiaries. Ramlo, addressing questions from analysts Wednesday on a conference call, said Mercer Insurance does not offer life insurance, providing additional revenue opportunities for United Fire in new markets.

"We intend to go into some of those areas with our life insurance, bonding and other niche products that we think will sell very well," Ramlo said.

Mercer Insurance writes 51.6 percent of its insurance premiums in California, 29.6 percent in New Jersey, 9.3 percent in New Jersey, 5.6 percent in Nevada, 2.8 percent in Arizona and 1.1 percent in Oregon.

United Fire plans to keep Mercer Insurance offices open in Pennington, N.J., as well as Lock Haven, Pa., and Rocklin, Calif. Ramlo said no decision has been made regarding what, if any, operations will be moved to United Fire's headquarters in Cedar Rapids.

"It's really too early to tell," Ramlo said. "We really haven't been able to make a lot of contact with Mercer's employees. We'll look over what they have and decide whether to bring anything to Cedar Rapids.

"With no redundancies in the markets served by the two companies, we do not anticipate any broad-based head count reductions or office closings."

After the merger with Mercer Insurance is completed in the first quarter of 2011, United Fire will have more than 870 employees. Ramlo said the company has been looking for potential acquisitions over the last three years.

"We been looking to enter the Mid-Atlantic and West Coast markets for years because of the potential to diversify our risk profile and increase the scale of our operations," he said. "Mercer Insurance has a long track record of operating profitably in these markets."

Ramlo said United Fire had competition for the acquisition of Mercer Insurance. He said the insurer is expected to issue a proxy statement that may detail who the other bidders were for the company.

Should Mercer Insurance decide to terminate the merger agreement with United Fire before shareholders vote on the transaction, it will be required to pay the Cedar Rapids insurer a fee of $6,685,000.

United Fire last acquired an insurer in 1999 when it bought American Indemnity Financial Corp. of Galveston, Texas, for $30.6 million in cash. Prior to that purchase, the company bought State Automobile & Casualty Underwriters of Des Moines and Addison Farmers Insurance Co. of Lombard, Ill., in 1990.