White Mountains unit IPO price is set

White Mountains Insurance Group plans to sell off about a fifth of its largest subsidiary, OneBeacon Insurance, with an initial public offering of between $24 and $26 per share, the company has revealed in filings with the Security and Exchange Commission.

OneBeacon would sell some 20 million shares on the New York Stock Exchange under the symbol OB, but it would save some 80 million shares for White Mountain. This does not take into account some 7.5 million shares reserved for various directors, officers and employee benefit plans. In addition, the underwriters, led by Lehman Brothers, will have the option to buy another 3 million shares to cover over-allotments.

With a smaller stock price thanks to a 100 to 1 split, the offering invites a smaller investor into the White Mountains fold. The firm heretofore has focused on those willing to spend more than $500 a share – White Mountains’ shares closed at $549 at the close of trading Oct. 23.

But these new investors will have very little control over OneBeacon. White Mountains initially will not only start out with at least 80 percent of the equity but some 97.6 percent of the voting power. That’s because stocks held by White Mountains will be valued at 10 times the amount of those held by outside OB investors.

While White Mountains could sell off more stock, “it expects to maintain a significant interest” in OneBeacon going forward, said the prospectus. The proceeds of the IPO would go to White Mountain, not One Beacon.

In addition, officers with White Mountains ties will make up nine of the 11-seat board of directors. Indeed, when listing the board – headed by Lowndes A. Smith, a member of White Mountains’ board since 2003 – the prospectus didn’t mention any independent board members. Two will be named later, the minimum required for a “controlled company” like White Mountains. Further, OB’s bylaws provide that certain conflicts of interest would be resolved in favor of controlling shareholders.

The filings also make it clear that the companies could be in direct competition at times.

OneBeacon will continue to be headed by T. Michael Miller as CEO and president. Miller, who has been CEO of the subsidiary since 2005, earned a nonstock compensation of $1.1 million last year. He also will receive a one-time grant of nonqualified options of 277,826 shares, with an exercise price of $30 share, to be exercised over the next five years. That’s in addition to performance grants that would pay out more than $1.4 million a year over the next three years, should OneBeacon reach its target goals.

OneBeacon’s equity was $1.1 billion as of Sept. 30, according to the financial statement. Its total assets top $10 billion.

While, the filing does not indicated the date of the IPO, it seems to indicate that it will take place before the end of the year, since OneBeacon announced that it plans to pay quarterly cash dividends at an initial rate of 21 cents a share in the first quarter of 2007.

White Mountains is officially based in Bermuda, recently moved its U.S. headquarters to New Jersey from Hanover, N.H. But several top officers still have Granite State ties, including chairman Jack Byrne, who lives in Etna. OneBeacon also will be officially based in Bermuda, with U.S. headquarters remaining in Boston.

A spokesperson for the company said that White Mountains wouldn’t answer any questions about the offering. – BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW