Buffett Boosts Flowers, Berkowitz Pricing Symetra IPO

By Michael Tsang, Jamie McGee and Nikolaj Gammeltoft

Jan. 21 (Bloomberg) -- Billionaire Warren Buffett is helping two of the world’s most successful investors increase their profits by forgoing instant earnings for himself in the first initial public offering of a U.S. life insurer since 2004.

Symetra Financial Corp., 53 percent owned by Buffett’s Berkshire Hathaway Inc. and White Mountains Insurance Group Ltd., is raising $378 million selling shares at $12 to $14 each today, the busiest day for U.S. offerings since September. The IPO values the Bellevue, Washington-based company at about 85 cents for each dollar of net assets, a 21 percent premium to the median book value for 24 U.S. life and health insurers.

The premium will boost proceeds for J. Christopher Flowers and Bruce Berkowitz by $9 million to $51 million, according to filings with the Securities and Exchange Commission and Bloomberg data. IPOs by private-equity investors helped turn the end of 2009 into the busiest period for new sales in almost two years and six deals were pulled in November and December.

"The fact that Buffett is holding on will help the funds get cash because it will make the deal more likely to get done," enriching Flowers and Berkowitz, according to Nick Einhorn, an analyst at Greenwich, Connecticut-based Renaissance Capital LLC, which has followed IPOs since 1991.

Great Depression

The offering, along with sales by Terreno Realty Corp., Cellu Tissue Holdings Inc. and Chesapeake Lodging Trust, are the first U.S. deals of 2010 and make today the busiest day for IPOs since Sept. 23. American companies may raise as much as $50 billion through initial offers this year, more than triple the amount in 2009, when deals recovered during the biggest stock- market rally since the Great Depression, estimates from London- based Barclays Plc and Bloomberg show.

Symetra, which sells group medical insurance that covers employees’ prescriptions and doctor visits, as well as annuities and life insurance, plans to offer a stake of about 25 percent. The company will receive 64 percent of the proceeds before expenses, with selling shareholders getting the rest.

J.C. Flowers & Co., the New York-based private-equity firm founded by Flowers, 52, will raise $28 million selling all of its 2.175 million shares, based on the midpoint price of $13, a Jan. 15 filing with the SEC showed.

Shinsei Bank

Flowers was part of a group that bought Long-Term Credit Bank of Japan Ltd. for about $1.1 billion in March 2000 in the first acquisition of a Japanese bank by overseas investors, after the company was nationalized in 1998. The $2.2 billion IPO of the lender, which was renamed Shinsei Bank Ltd. in 2004, and a $2.7 billion share sale a year later contributed to profits of as much as $7 billion for investors.

"This may be the most profitable private-equity deal of all time," David Rubenstein, co-founder of Washington-based buyout firm Carlyle Group, said in an interview at an industry conference in Munich in 2004, following Shinsei’s IPO.

Flowers’ purchase of a stake in Munich-based Hypo Real Estate Holding AG was less successful. A group of investors led by J.C. Flowers agreed in June 2008 to buy about 50.1 million shares, representing a 24.9 percent stake, in Germany’s second- biggest commercial property lender for 22.50 euros each, or about 1.1 billion euros ($1.8 billion).

Hypo Real Estate

Hypo Real Estate nearly collapsed as its Dublin-based Depfa Bank Plc unit failed to secure short-term funding after the failure of Lehman Brothers Holdings Inc. in September 2008 and was later taken over by the German government. The shares were delisted after closing at 1.44 euros on Oct. 13, 2009.

Berkowitz, 51, will receive $23 million as his Miami-based Fairholme Capital Management LLC, which runs the $11.2 billion Fairholme Fund, sells 1.74 million shares.

Fairholme Fund returned an average of 13 percent over the past 10 years, while the Standard & Poor’s 500 Index fell by an annual 1 percent, data compiled by Bloomberg show. He was named manager of the past decade in the U.S. stock fund category by Chicago-based Morningstar Inc.

Flowers didn’t respond to telephone and e-mail messages seeking comment. Berkowitz, who is also a director at Hanover, New Hampshire-based White Mountains, declined to comment, according to Hedda Nadler-Hurvich, a spokeswoman for Fairholme.

12-Year Low

The S&P 500’s 65 percent rebound from a 12-year low in March has prompted leveraged-buyout firms to use IPOs to return cash to investors after fundraising shrank to a six-year low. Money raised by private-equity funds worldwide tumbled 78 percent from a year earlier to $35 billion last quarter, according to London-based researcher Preqin Ltd.

Symetra’s IPO will pay Flowers and Berkowitz more than the median valuation for U.S. life and health insurers. At $13 a share, Symetra would have a market capitalization of $1.43 billion, based on its 110 million outstanding shares after the offering.

That’s 0.85 times Symetra’s shareholder equity of $1.69 billion at Sept. 30, based on data compiled by Marina del Rey, California-based IPODesktop.com and Bloomberg. The median for U.S. life and health insurers is 0.70 times book value, or assets minus liabilities, data compiled by Bloomberg show.

Symetra also estimated it would have so-called tangible book value, a measure of shareholder equity that excludes assets that can’t be sold in liquidation, of $12.42 per share after the offering. At the midpoint price, the company would be valued at 1.05 times tangible book value, compared to the median of 0.98 times, Bloomberg data show.

Shelved Plans

Symetra, formed after a group led by Berkshire and White Mountains paid about $1.4 billion, including almost $1.1 billion in cash, for Safeco Corp.’s life insurance unit in 2004, shelved a $790 million IPO in November 2007 as credit markets froze. Back then, Buffett, Flowers and Berkowitz all anticipated selling 37 percent of their holdings. Flowers and Berkowitz planned to retain stakes of 1.5 percent and 1.2 percent, respectively.

Now, Flowers and Berkowitz are benefiting because Buffett will remain Symetra’s largest shareholder, said Jean-Luc Nouzille, founder of Bristlecone Value Partners LLC.

Buffett, 79, built Omaha, Nebraska-based Berkshire over four decades from a failing maker of men’s suit linings into a $162 billion company through stock picks and takeovers. He didn’t return a message left with his assistant, Carrie Kizer.

‘Self-Defeating’

"As an investor I wouldn’t go into an IPO with Buffett selling on the other side, especially not in the insurance industry where he is very knowledgeable," said Los Angeles- based Nouzille, who owns Berkshire shares. "It would be self- defeating for the IPO and its valuation if he had sold."

Symetra is relatively cheap compared with some larger competitors. The company trades at a discount of 17 percent to Newark, New Jersey-based Prudential Financial Inc., the second- biggest U.S. life insurer, which is valued at $1.02 per dollar of its net assets.

Cellu Tissue, the Alpharetta, Georgia-based maker of paper products, plans to raise $132.6 million. Terreno Realty, formed to acquire industrial real estate in coastal markets, today lowered the amount it’s seeking to raise by 33 percent to $200 million. The San Francisco-based company will sell 10 million shares at $20 each, down from 15 million shares.

Chesapeake Lodging plans to raise $150 million after postponing its IPO last month. The Fairfield, New Jersey-based company formed to buy hotel properties has cut the size of its sale to 7.5 million shares from 12.5 million.

IPOs have increased in the past four months from the slowest pace on record after the failure of New York-based Lehman Brothers froze credit markets.

The revival in deals hasn’t coincided with bigger returns for investors. Almost 40 percent of U.S. IPOs in the second half of 2009 fell, while companies from Old Greenwich, Connecticut- based Ellington Financial LLC to National Beef Inc. in Kansas City, Missouri, pulled their sales, Bloomberg data show.