A story in Wednesday's Business section concerning Fireman's Fund Corp. misstated the potential value of warrants purchased by Chairman John J. Byrne. Their value will depend on the price of the shares at the time the warrants are exercised.
A revived Fireman's Fund Corp. -- led by John J. Byrne, the man who rescued Geico Corp. from the verge of bankruptcy -- goes to market today with 32 million shares of common stock, in what may be the largest initial public offering in American history.
The offering is the final step by the American Express Co. to restructure its operations by selling its property and casualty insurance business in a public offering.
The issue -- expected to raise $824 million -- was priced last night by the underwriter at $25.75 a share, in the middle of the $24 to $27 per share offering range. Demand was reported heavy as today's start of trading neared. American Express, which has owned Fireman's since 1968, will hold 45 percent of the stock in Fireman's Fund.
Byrne, who announced in July that he was leaving Chevy Chase-based Geico to become chairman of the troubled Fireman's Fund, goes to his new job with a rich salary and benefits package. Byrne, the prospectus revealed, will pay $2.275 million to buy 1.7 million warrants -- at $1.34 each -- which he can convert to shares of stock after a waiting period of several years. At the offering price of $25.75, the warrants would be worth about $41.5 million, after deducting his cost.
On stock options, Byrne will be permitted to buy 700,000 shares at the offering price and 100,000 shares at 20 percent above the offering price.
Byrne's salary at Fireman's Fund is $400,000 a year plus an unspecified payment equal to the value of the stock options Byrne will give up when he officially leaves Geico.
Byrne, the prospectus noted, continues on the Geico payroll until Jan. 2 and continues his services to Geico on request, so long as they do not interfere with his activities at Fireman's Fund.
Byrne's pension at Fireman's Fund will be adjusted so that it will be equivalent to what he would have received if he had worked at Fireman's Fund since 1976, the year he began working at Geico.
Byrne could not be reached yesterday for comment.
One of the main attractions of the Fireman's Fund issue was the participation of Warren E. Buffett of Omaha, who has developed a legendary reputation as an astute investor.
Buffett, working through National Indemnity Insurance Corp., has agreed to take a 7 percent reinsurance role with Fireman's Fund. The chairman of Berkshire Hathaway Inc., Buffett also agreed to help formulate general business strategy for Fireman's Fund.
Buffett was an early and highly successful investor in Geico and has worked closely in the past with Byrne.
One of the sensitive issues confronting Fireman's Fund, industry sources said, was that the fact that Fireman's Fund is controlled by American Express, which also controls Shearson Lehman Bros. Inc., the lead underwriter.
This raised questions in the minds of some professional investors as to how objectively the new issue would be priced.
The pricing, the sources said, went through a series of delicate adjustments as Shearson Lehman tried to set a price that would hold up in the days following the initial trading.
Shearson Lehman has been embarrassed, they said, by soft trading in the shares of Rockefeller Center Properties, a recent deal co-managed by Shearson Lehman. The Rockefeller Center shares went public at $20, but declined in the following weeks and were trading yesterday at $18.25.
One source reported that some brokers who sold the Rockefeller Center shares were reluctant to handle the Fireman's Fund offering because they felt they had been "burned a little" in the Rockefeller Center deal.
As it turned out, the major interest in that issue was from institutional investors.
Several factors appeared to have helped boost the Fireman's Fund offering price, including reports of heavy demand for the shares.
A Shearson Lehman spokesman said, that on the basis of indications of interest, the issue had been oversubscribed. The shares, however, do not actually go on sale until today.
American Express, the parent company of Fireman's Fund, closed up 63 cents, at $44.38.
Insurance industry analysts reported they expected an upward climb in Fireman's Fund earnings and profits in the next several years. James B. Stradtner, managing director at Alex Brown & Sons in Baltimore, said he thought the company's prospects were "excellent," because of a general recovery in the property-casualty industry and actions taken by the Fireman's Fund to improve its profitability.
Stradtner foresaw, he said, a loss in 1985, a small profit in 1986 and larger profits in the following years.
The company said that its business had deteriorated in recent years as a result of intense price competition and unanticipated losses, especially in commercial lines.
But, it noted, the company had taken corrective actions, including substantial price increases, withdrawal of certain products, using more selective underwriting criteria and better management controls.