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Safeco shares dip as uncertain market reacts to pending sale

Shares of Seattle-based Safeco Corp. lost about 12 cents Friday as analysts and investors tried to gauge the impact of its impending sale to Liberty Mutual Group Inc. for $6.2 billion in cash in a deal to create the nation’s fifth-largest property and casualty insurer.

It’s not yet known if some of the nearly 700 Safeco jobs in the Spokane area will be cut as a result of the deal.

The boards of Boston-based Liberty Mutual and Seattle-based Safeco approved the deal this week, and Safeco’s stock immediately surged 46 percent to $65.94.

With Wall Street nervous amid a credit crunch, Standard & Poor’s placed Liberty Mutual’s credit ratings on watch for a possible cut.

“Honestly, when we talk about expense synergies, that means job loss,” said David Monfried, a Safeco spokesman.

“That having been said, we have no idea the number of jobs or what jobs. The jobs at risk are not just Safeco jobs – they’re jobs in the existing Liberty organization.”

Safeco will spend the next five to six months assessing whether and where cuts will be made, Monfried said.

Paul Hollie, vice president of public relations for Safeco, said the company now has about 7,000 workers in Washington state. Safeco has 690 workers at a customer claims and service center in Liberty Lake. It has none in North Idaho.

“We are operating for now on a business-as-usual basis,” Hollie said.

The transaction, which is subject to approval by Safeco shareholders as well as regulators, is expected to close by the end of the third quarter.

Liberty Mutual has offered $68.25 per share for Safeco.

Liberty Mutual ranks as the nation’s No. 6 property and casualty insurer, based on its $20.2 billion in insurance policies sold last year including automobile and homeowner’s coverage, compared with Safeco’s $5.9 billion.

In addition to providing personal coverage, Liberty Mutual offers commercial insurance to large businesses, some of them overseas.

Safeco’s focus is on coverage for individuals and small- to medium-size businesses, primarily in the West, in contrast to Liberty Mutual’s stronger presence in the East.

“The addition of Safeco significantly expands and strengthens the Liberty Mutual Group,” said Edmund F. Kelly, Liberty Mutual’s chairman, president and chief executive officer.

Once the transaction is completed, Safeco would become part of Liberty Mutual’s Agency Markets business unit, which posted $5.6 billion in revenue last year.

“This is the opportunity to take West Coast inventiveness and launch it with a global brand at a substantial premium to Safeco shareholders,” Safeco President and Chief Executive Officer Paula Reynolds said.

Liberty Mutual said it intended to fund the transaction with available cash, but would also issue up to $1.5 billion in debt.

“Absent this issuance, Liberty has adequate liquidity to fund the entire transaction with existing cash and using bridge financing to permit an orderly liquidation of investments,” a company statement said.

But S&P put its investment-grade ratings for Liberty Mutual’s credit on watch “with negative implications,” signaling that the ratings will either remain the same or be cut after the ratings agency conducts a review.

While noting that the Safeco acquisition could improve Liberty Mutual’s U.S. business and diversify the company, S&P analyst John Iten said in a research note that the deal “will result in a significant decline in Liberty’s capital adequacy.”

Liberty Mutual spokesman John Cusolito and Safeco spokesman David Monfried said it was too early to comment on whether the deal would lead to job cuts in Liberty Mutual’s 41,000-person work force or at Safeco.

Such transactions typically lead to cuts to reduce duplication in back-office operations and other areas.

Monfried said Safeco would retain its 85-year-old brand name and continue selling policies through its national network of agents and brokers.