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Investment Firm Seeks Larger Stake In Conseco

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Investment firm Steel Partners II L.P. has declared it wants to increase its holdings in Conseco Inc., Carmel, Ind., and have a bigger say in the insurer’s operations.

Among other goals, Steel Partners says it wants Conseco to unload its closed block of long term care insurance.

In a filing with the Securities and Exchange Commission, Steel Partners, New York, said it has formally asked Conseco’s board of directors to support its bid for increased ownership.

In its filing, it said it wanted to increase its stake in Conseco from its current 9.8% to as much as 22%.

Conseco’s Web site lists Columbia Wanger Asset Management L.P., Chicago, as its largest shareholder, at 10.1%, with Steel Partners second.

In a letter to the board, Steel Partners said it wanted to acquire more Conseco shares beyond the 18.1 million it now owns, using a modified Dutch auction.

A Dutch auction opens bidding for a security at a specified price and drops gradually until a buyer bids the amount asked.

“We continue to believe that the shares are undervalued at the current price levels and are interested in purchasing additional shares,” Steel Partners stated in its letter, which was signed by company president Jack Howard.

Steel Partners said it would tender an offer of $12.50 to $14 per share. It also said it would seek to buy more shares in the open market later. Conseco closed at $11.20 a share on May 21.

The investment firm noted it is not permitted under regulations to acquire 10% or more of Conseco shares without first complying with insurance holding company filing requirements. It asked Conseco to advise insurance regulators it would not object to Steel Partners increasing its ownership.

Steel Partners also depicted Conseco’s board as slow in carrying out a strategic review of operations and that the insurance group’s return on equity needs to be improved. Among other items, the company said it thinks the board “needs to find a way to remove the long term care block exposure” from the company’s books.

“We believe these issues will continue to erode shareholder value until they are resolved by the company, and we would be pleased to work with you and assist the company in successfully resolving these issues,” the letter to the board stated.

A Conseco spokesman said it was still pondering Steel Partner’s request “and is giving due consideration to the level of stock ownership” suggested in the letter.

In March, both Howard and Steel Partner’s chief executive, Warren Lichtenstein, asked to be placed on Conseco’s board. The company declined to do so.

Andrew Kligerman, an insurance analyst at UBS Investment Research, New York, said he agreed that Conseco was “clearly undervalued.”

“If a company such as Steel Partners wants to increase its stake, that would make sense because there does seem to be much value there to be unlocked,” Kligerman added.

At current prices, Conseco stock is less than 50% of book value, the analyst observed.

“I think Conseco’s current management is good and has the skills to unlock its value, but it’s good to see one of big shareholders step up and demand more of a return,” Kligerman said.


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