NEW YORK — Primerica Corp. said Wednesday that it is negotiating to acquire The Travelers Corp. in a stock deal valued at more than $5 billion, creating one of the biggest financial services companies in the United States.
Primerica, which mushroomed with its recent $1.1-billion acquisition of the Shearson Lehman Bros. retail brokerage operation, would be renamed The Travelers. Primerica already owns 27% of the Hartford, Conn.-based insurance and financial services company.
The proposed merger could represent another victory for Sanford I. Weill, Primerica's dynamic chairman, known as a "Mr. Fix-It" of ailing firms.
The announcement also marked yet another dramatic step in the transformation of New York-based Primerica, which had specialized in can manufacturing for most of this century. After diversifying into fields such as chemicals and Sam Goody record stores, the firm has emerged in the last few years as a financial services powerhouse.
The new company's businesses would include life, health and property/casualty insurance; commercial lending; consumer finance, and the huge Wall Street brokerage operation known as Smith Barney Shearson.
Analysts said the deal appears likely to go through and that the companies would probably complement each other.
"You have the potential combination of a huge sales force to sell each other's products," said Ray Miller, a director at Standard & Poor's Corp.
The proposed merger would value Travelers at $37 a share, or $5.4 billion, Wall Street traders said, and be one of the biggest mergers in U.S. insurance industry history.
Wall Street responded enthusiastically. On the New York Stock Exchange, Primerica's stock was up 3%, or $1.375, closing at $47.375, while Travelers' rose 62.5 cents to $36.625.
In addition, major rating agencies indicated they might upgrade the companies' stocks if the merger goes through.
Zuckerman and other analysts wondered if Primerica could manage such a large expansion after buying Shearson last March from American Express Co. They said Primerica, with a small group of top managers, would be stretched thin in trying to absorb and improve Travelers so soon after the Shearson deal.
The two companies refused to say who would run the combined firm, although analysts speculated it would be Weill.
"He's running the show now," said Ira L. Zuckerman, vice president of SBS Financial Group in Westport, Conn.
"He's got two Augean stables to clean out," Zuckerman said of Weill. "I just hope he hasn't bitten off more than he can chew."
Travelers, the nation's 10th-largest life insurer, has been suffering from about $4.3 billion in problem real estate investments and losses from Hurricane Andrew.
The combined companies would have assets of about $95 billion if the merger were approved. That would make it the fifth-largest U.S. financial services firm, behind such giants as American Express and Merrill Lynch, according to Fortune magazine's list of top 500 service companies.
Analysts said the deal is probably being discussed now because Primerica's stock has doubled in price in the last year, giving it the financial clout for the acquisition.
In addition, Travelers is cleaning up its problem commercial real estate. Earlier this month, it announced that $634 million of foreclosed real estate and bad commercial loans would be sold.
Weill, known as a fierce cost cutter, arrives on the scene as Travelers is already shedding employees. The company announced plans last year to eliminate 3,500 jobs--about 10% of its work force--over two years.
But some analysts said the big challenge is not cost cutting but finding new business in the fiercely competitive property/casualty insurance business. Analysts differed over whether Travelers would benefit from the proposed Clinton health plan.
Primerica is already heavily involved in the insurance business, with about one-third of its operating income coming from its insurance services, led by the Primerica Financial Services unit.