White Mts. to keep IPO unit on short leash

Family ties

When White Mountains Insurance announced on August 4 that it was putting up OneBeacon Insurance in a $500 million public offering – complete with the ticker symbol OB – most investors would imagine it as a huge spin-off.

After all, OneBeacon amounts to half of White Mountains’ insurance business both in sales and assets.

But if the Boston-based OneBeacon is being spun off, it won’t be going very far. OneBeacon – at least in the short term — will effectively be controlled by, and financially connected to, White Mountains.

“We like OneBeacon very much, but we could use the cash for corporate purposes,” said Jack Byrne, White Mountains’ chairman, from his Hanover home. “We’ll keep 75 percent [of OneBeacon], and let the public have the other 25 percent.”

Byrne would not comment on what White Mountains plans to do with the cash.

Besides keeping most of common stock, White Mountains officials expects to dominate the OneBeacon board and owe all of the preferred stock shares, each which would have 10 times the voting power of common stock.

“White Mountains also will have effective control over the adoption or amendment of previsions in our memorandum of association or bye-laws (sic) and the approval of mergers and other significant corporate transactions,” according to OneBeacon’s filing with the Securities and Exchange Commission.

In addition, OneBeacon would be financially entwined with its controlling company, forced to use several of its subsidiaries, taking on some or all of the risks.

White Mountains is a holding company with nearly $19 billion in assets, primarily large reinsurers. While officially based in Bermuda, and with its U.S. headquarters officially moved to New Jersey, the company retains a strong New Hampshire focus, due to the strong pull of Byrne, who returned as board chairman in May.

His friend and neighbor, former CEO Ray Barrette, rejoined the board Aug. 7, after the company agreed to pay him $3 million for stepping down as White Mountains’ CEO earlier this year.

It was Barette and Byrne who decided that White Mountains purchase OneBeacon from Aviva, a British company, in June 2001. Byrne described the $2.6 billion deal as White Mountains’ “biggest move,” outbidding Liberty Mutual and Travelers Group, thanks partly to the financial banking of Warren Buffett’s Berkshire Hathaway.

Despite subsequent acquisitions, OneBeacon remained the company’s largest — and most profitable — asset. The company – which dates back to 1831 and the Potomac Fire Insurance Company — pulled in some $585 million in revenue last quarter, nearly half of the White Mountains’ $1.2 billion, according to a quarterly statement filed with the SEC at the end of July.

While White Mountains had to bail out its other subsidiaries last year after Hurricane Katrina — taking a hit of some $201 million – OneBeacon was left relatively unscathed. It made $113 million in pretax income last quarter, offsetting losses by White Mountains’ other subsidiaries by some $40 million.

In 2005, OneBeacon’s net written premiums totaled $2.1 billion, with total assets of $10.3 billion and total equity of approximately $1.6 billion at the end of the year, according to OneBeacon’s filing.

So it is no surprise that OneBeacon won’t be straying far from the nest, though it will move its headquarters from Boston to a 284,000-square-foot facility in Canton, Mass. The company bought the property for $23 million, but took out a $40 million mortgage to cover renovations. It expects to move there at the end of the year.

In other recent news, White Mountains sold off the U.S. division of Sirius International (Sirius America Insurance Company) to some private investors, led by Lightyear Capital LLC for $139 million. White Mountains acquired an equity interest of 18 percent in the acquiring entity, and it will keep the Swiss reinsurer.

The company also announced it settled a $185 million lawsuit filed by Robert Plan Corp. for an undisclosed amount. Plan had charged that White Mountains allegedly misappropriated confidential information to compete against it in the New York automobile assigned-risk business.

White Mountains also announced a quarterly net income of $115.8 million ($10.72 per diluted share), $30 million, and $2.92 per diluted share, less than the company made during the third quarter of last year.

The company emphasized that its tangible book value of share $355.16 was up 1.5 percent for the quarter and 4.9 percent during the first six months of 2006. Total revenues also were up 3 percent for the quarter, but down 6 percent for the half.

In addition to Barrette rejoining the board, the company made some other management changes. Chuck Chokel, who was the main auditor at White Mountain, became the CFO at it’s subsidiary White Mountains Re. Mike Tyburski, a managing director at White Mountains Re, will now be president. — BOB SANDERS

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