NU Online News Service, June 1, 6:25 p.m. – The New York State Insurance Department says Phoenix Home Life Mutual Insurance Company, Hartford, can demutualize and go public, if it will be selling enough shares to the public at a high enough price.

“The reorganization of Phoenix from a mutual insurance company to a stock life insurance company, as set forth in the [demutualization] plan, is in the best interests of Phoenix and its policyholders,” Gregory Serio, the New York department?fs new superintendent, writes in an 80-page opinion on the Phoenix demutualization. “The provisions of the plan are fair and equitable to the policyholders.”

But Phoenix must provide a certification letter from its general counsel and seven separate fairness opinions on the day of the conversion before the department can give the company final approval, Serio writes in the opinion.

Phoenix also must get Serio?fs approval of the price and number of shares to be offered through the initial public offering.

The New York department has posted Serio?fs opinion on its Web site, at http://www.ins.state.ny.us/news1.htm

Phoenix, a policyholder-owned mutual insurer, was founded as a stock company, American Temperance Life Insurance Company, in 1851. American Temperance adopted a mutual charter in 1889. The company merged with Home Life Insurance Company and took its present name in 1992.

Phoenix now wants to return to its stock company roots by forming a publicly traded holding company, The Phoenix Companies Inc., that would trade on the New York Stock Exchange under the symbol PNX.

The company would go public later this year by distributing the entire actuarial value of the company to the policyholders, in the form of policy credits, cash and 58 million shares of stock. It would also hold an IPO. The IPO might raise $836 million through the sale of 56 million shares at a price of about $15.75, according to figures Phoenix has filed with the U.S. Securities and Exchange Commission.

Although Phoenix now has its corporate offices in Hartford, the demutualization falls under the jurisdiction of New York regulators because the statutory home office is in East Greenbush, N.Y.

Serio notes in his opinion that Phoenix and its investment bankers are worried about the effects of the recent stock market slump on the planned IPO.

The company has revised the projected IPO proceeds given in its SEC filings at least three times. Last week, the company changed the IPO structure again to reduce the projected number of shares while increasing the minimum projected offering price to $14.50 per share, from $9.

Phoenix and the investment bank managing the offering, Morgan Stanley & Company Inc., New York, told state regulators they were worried investors might think Phoenix had a “distressed offering” if the IPO price turned out to be less than $10 per share.

Phoenix also told regulators it has lined up a $100 million credit arrangement with FleetBoston Financial Corp., Boston. Phoenix can borrow the money two days after it reorganizes itself as a public company if it needs the cash to cover the reorganization costs, the company told regulators.

Phoenix is also getting support from a business partner, State Farm Mutual Automobile Insurance Company, Bloomington, Ill. State Farm has made an informal agreement to buy about 10% of the Phoenix IPO stock, if IPO stock is available, and hold the stock at least two years before selling it, according to Serio’s opinion.

Federal securities laws prohibit Phoenix and its investment bankers from promising State Farm an IPO stock allocation, Serio says.

Serio also discusses several policyholder complaints and public comments about the demutualization.

Some policyholders complained about Phoenix getting a fairness opinion on the deal from Morgan Stanley, the firm managing the IPO.

But the New York department will be getting fairness opinions from six other sources, and Phoenix disclosed the potential conflict of interest in policyholder information materials, Serio writes.

Besides, Serio argues, it is customary “for investment banking firms to act as underwriters and, at the same time, provide financial advice and services, such as rendering fairness opinions, to financial institutions, including insurance companies, reorganizing from mutual to stock form.”