Zurich Financial to buy Foremost Corp. for 1.78 times revenue

Weekly Corporate Growth Report, Nov 1, 1999

The Deal: Farmers Insurance Group of Cos. announced that its has agreed to acquired Foremost Corp. of America, the top insurer of factory-made homes, for $812 million. When the agreement was announced, the shares of Foremost soared 22% over the previous day's closing price, and shares of Farmers Insurance closed 16% over the previous day's closing price.

Discussion: Foremost Corporation of America is the holding company for Foremost Insurance and other subsidiaries that sell property and casualty insurance for mobile homes and recreational vehicles, as well as personal, auto and homeowners insurance. Policies are sold nationwide through company agencies, by independent agents and mobile-home and RV dealers. They are marketed directly to consumers through affiliation endorsements. Foremost has agreements with the American Association of Retired Persons, for mobile home insurance, and with Amway and Old Kent Bank, for personal lines of insurance.

Farmers Insurance is based in Los Angeles and is one of the largest U.S. property and casualty insurers. It consists of a number of so-called reciprocal exchanges, which are associations in which policy holders share profit and losses. In essence they "insure" one another. Farmers Insurance is managed by Farmers Group Inc., a unit of publicly traded Zurich Financial Services Group of Switzerland.

Currently, Farmers has 3% of the manufactured-home insurance market. Gaining Foremost's 20% share of the market will greatly strengthen Farmers' position in this area.