Government Employees Insurance Co. is seking to acquire all shares in three of its affilated firms now owned by American Financial Corp., a Cincinnati-based insurance, investment-based insurance, investment and financial combibe.
Gelco, a Washington-based car insurance firm, announced last night that an option agreement had been reached to acquire American Financial holdings of Government Employees Life Insurance Co., Criterion Insurance Co., and Government Employees Financial Corp. Geico has experienced a dramatic recovery from its near-insolvent position at this time last year.
The proposed transactions, which must be approved by D.C. Insurance Superintendent Maximilian Wallach and other regulators, would involve a casy outlay by Gelco, the option may be exercised at any time between next Nov. 1 and Nov. 30. The purchase is to be handled by Salomon Brothers, an investment banking firm in New York.
In an interview last night, Gieco chairman John J. Byrne said there is "a certain awkwardness" when another company owns a signigicant bloc of the Washington firm'saffiliates. "We're much more comfortable owing the blocs ourselves," he added.
Byrne also forecast that the acquisition of stock, if consummated, would be beneficial toGeico's current stock holers by improving reported profits.
He revealed that Geico is planning to issue up to $15 million on nonconvertible senior preferred stock "in order to make it crystal clear that this in no way" reduces the surplus of funds available to protect policy holder claims.
Involved in the proposed acquisition are 1,082,274 shares of Government Employees Life (24.1 per cent of shares outstanding), 292,800 share of Criterion (20 per cnet of outstanding) an 223,000 shares of Government Employees Financial preferred stock (1.8 per cent of outstanding).
Although thethree separate companies were establsihed under the shadow of Geico and have had a close working relationship, Geico never has owned a single share of the three firms as its own investment.
Geico currently has about $600 million of available funds for investment purposes, mostly concentrated in government issues.
A "clear objective" of the purchases, said Byrne,is to boost Geico's surplus funds by $8 to 10 million. Byrne's statement raised the possibiltiy that Geico may buy further shares of the companiesin the future.
One possible path for Geico to follow in the future, according to informed sources, would be establishment of a holding company and acquisitions of all shares in the three companies, each with different chiefs executive.
Criterion sells auto policies to drivers considered greater risks than those accepted by Geico. Governme Employees Financial is a consumer finance firm and Govenment Employees Life specializes in life insurance.