Merchants Group and its prospective new owner have agreed to sell the renewal rights to almost all of its directly written policies to Merchants Mutual Insurance Co. in a deal that will help preserve Mutual's 200 jobs in the Buffalo Niagara region.
"We'll keep all of the Merchants business together under Merchants Mutual and a new company we've created Merchants Preferred," Robert M. Zak, Merchants Mutual's president, said Wednesday. "It's very good for our employees. It's very good for our agents."
American European Group, a New York City-based insurance firm, said on Nov. 1 that it had agreed to buy Merchants Group for $70.8 million, or $33 per share in cash. Once the acquisition is completed, Merchants Mutual has agreed to pay AES between $3.38 million and $3.46 million in license fees for the transfer of the renewal rights on its existing policies.
AEG will retain the state insurance licenses held by Merchants Group's Merchants Insurance Co. of New Hampshire subsidiary, as well as its contracts with independent insurance agencies, Zak said.
AEG also agreed to transfer all rights to the name "Merchants" to Merchants Mutual for $100,000.
Merchants Mutual owns 11.9 percent of Merchants Group's stock and provides all of the facilities and personnel that Merchants Group and its subsidiary, Merchants of New Hampshire, use to operate its insurance business.
For Merchants Group, the sale to AEG capped a process that began early in 2005 in search of strategic alternatives that would boost the value of Merchants Group's shares.
Merchants Mutual in March offered to buy Merchants Group for $29 per share and later increased its bid to $29.50 per share in June. In the meantime, Merchants Group attempted to find other bidders and, by May, had begun talks with AEG officials, who initially made a conditional offer of $35 per share for the firm, according to a Securities and Exchange Commission filing on Wednesday.
After reviewing Merchants' business further, AEG reduced its proposal to $32.50 per share in late September, more than a month after a second, unidentified bidder had expressed a willingness to pay $33 per share in cash for the company.
By Oct. 30, AEG said it would hike its bid to $33 per share, while the second bidder indicated that it was thinking about lowering its offer, the filing said. Merchants' board accepted the AEG bid the next day, the filing said.