Clal Insurance Sells U.S. Unit to Buffett

Nebraska-based National Indemnity Co., will pay just $221 million for Guard, far less than the valuation of $250 million to $315 million Clal had hoped to get.

Clal Insurance Enterprises, the insurance arm of Nochi Dankner's IDB group, finally reached an agreement over the weekend to sell its U.S. insurance unit, the Guard Financial Group, to a marquee buyer.

But Nebraska-based National Indemnity Co., a unit of Warren Buffett's Berkshire Hathaway, will be paying just $221 million for Guard, far less than the valuation of $250 million to $315 million Clal had hoped to get. The price agreed on by the two sides is about equal to Guard's book value.

Pricing in the fact that Clal is now freed of $48 million in bank-loan guarantees it had given to Guard, the transaction assigns a value of $269 million to the company. The dollar price is much lower than the $312 million Employers Holdings Inc. had tentatively offered a year ago for Guard, but in shekel terms the difference is less since the dollar has appreciated in value in the meantime.

Shares of Clal Insurance, one of Israel's two biggest insurers, rose 3.7% to NSI 35.83 in Tel Aviv Stock Exchange trading yesterday. IDB Development, which holds 55% of Clal, ended up 4.4% to 97 agorot.

If the sale is completed, sources said IDB Development will get a cash dividend of between NIS 300 million and NIS 400 million, cash it badly needs to meet debt repayments. As part of the fundraising efforts for its parent, last year Clal Insurance sold Lloyd's of London insurer Broadgate Underwriting to Torus Insurance Holdings of Bermuda. IDB itself sold its stake in Clal Industries, a sister company to the insurers, to American entrepreneur Len Blavatnik 's Access Industries for NIS 1.3 billion.

Bank Hapoalim will also enjoy a dividend in the tens of millions of shekels for its 10% stake in Clal.

Clal acquired Guard, which specializes in workmen's compensation insurance and operates in 28 U.S. states, five years ago for $107 million. Its premium income last year reached $309 million, up from $242 million in 2010. "We saw the interest on the [part of a well-known buyer like Berkshire] as proof of our successful management of Guard," said Clal CEO Shy Talmon. "Clal will continue to focus on building our Israeli business from now on." Clal Insurance said it would record a loss of NIS 13 million in the second quarter to cover costs associated with the sale. Once the sale is completed it would book a gain of NIS 72 million. All told, Clal expects to enjoy NIS 221 million in cash flow from the sale, including NIS 114 million in profits from past year already booked.

The sale, which is subject to approvals, is scheduled to be completed by December 15.

Ancho Gosh