|CNCE..Some Good DD from RB..One to Watch...|
19 Dec 2002, 06:59 AM EST Msg. 43442 of 43444
Conseco's neighbors optimistic about future
Carmel mayor says firm's agreement with debtors and promise of few layoffs bode well.
By James A. Gillaspy and Fred Kelly
December 19, 2002
CARMEL, Ind. -- Hamilton County and Carmel officials are mining the silver lining they say surrounds the bankruptcy of Conseco, the city's largest employer.
Carmel Mayor Jim Brainard says the company still has the opportunity to inspire as it did when it rose from a grass-roots enterprise to a conglomerate.
"This is a good sign of progression of Conseco's working out their problems," he said. "The creditors have agreed that they're going to accept shares in place of some of the debt that they hold, and allow Conseco to continue in business with improved cash flow."
Brainard said the decision of the now-struggling insurance and finance giant to seek bankruptcy protections should signal a renewal. And he said Conseco's assurances that a bankruptcy would not involve significant layoffs is equally encouraging.
To support his view, Brainard pointed to the company's rising fortunes in the stock market. The stock's value had climbed 50 percent by midafternoon.
"That tells us that the market's optimistic," said Brainard. "This should be the beginning of the end of the problems."
The agreement by Conseco's creditor banks to accept conversion of Conseco debt to stock and a time frame that allows the company to more slowly repay lenders offer hope for the company's future. So does the abandonment of Conseco's unprofitable financing arm.
"To be viable, you've got to have a niche, a position in the market that you can be profitable in," said Hamilton County Alliance President Jeff Burt, who partners with local municipalities in a cooperative effort to build Hamilton County's community of major employers.
"My understanding is, the insurance piece of Conseco, which was really the initial building block of the company, remains very viable," said Burt. "If those elements do remain profitable, then the impacts on the company, the people and certainly the community are going to be minimized.
"I guess that is going to have to be one of those New Year's wishes."
Many of the company's employees were reluctant to speak on the record about the corporation's troubles Wednesday.
Those who worked in Conseco's insurance arm said they were told months ago that the company likely would file for bankruptcy but that their jobs were secure.
"Most people here aren't really talking about it," said John Taylor, 25, Indianapolis, who has worked as an insurance claims processor for six months. "I didn't even know about the bankruptcy until today."
Dozens of worried insurance policy-holders called the company with questions, said Nickey Murray, 28, Indianapolis, who has worked in the customer service department since September.
"I probably got like 100 calls," said Murray, who added that workers reassured customers their policies remain valid. "They are very nervous."
Hamilton County Chamber of Commerce Executive Director Mo Merhoff said Conseco's past image as a business role model has paled but not disappeared.
"I certainly hope that this will do what I take it the optimists hope it does -- which is provide the opportunity for some of the companies to survive."
Call James Gillaspy at 1-317-444-2608.
19 Dec 2002, 06:57 AM EST Msg. 43441 of 43444
Finance arm's planned sale unloads albatross for parent
By Chris O'Malley
December 19, 2002
Conseco Finance, in a corporate twist on a Greek tragedy, will be sold to a firm named for the mythological beast who guards the gates of Hades.
The proposed sale of the former Green Tree Financial -- the mobile home lender whose financial problems helped lead to Conseco's bankruptcy -- to New York-based Cerberus Capital Management and two other partners, announced Wednesday, will allow the Carmel company to focus on its core insurance business.
"I think it puts the final capstone on the fact that there certainly was never any particular synergy between the insurance and the finance side of the house," said David Erb, managing partner of Merrion Group LLC in New Jersey.
Conseco bought St. Paul, Minn.-based Green Tree in 1998 for $6 billion, plunging Conseco into debt that culminated in its filing for Chapter 11 bankruptcy reorganization late Tuesday.
"To put that in perspective, (the purchase price) is roughly the magnitude of the debt they owe" now, said Rob Neal, an associate professor of finance at Indiana University's Kelley School of Business.
Pending approval of federal bankruptcy court in Chicago, Conseco Finance will be sold to CFN Investment Holdings. CFN is a joint venture of Cerberus, Fortress Investment Group and J.C. Flowers & Co., headed by former Goldman Sachs partner Christopher Flowers.
Conseco also announced Wednesday that it had received a $125 million line of credit to keep the finance unit running during the reorganization.
Conseco Finance's chief executive, Chuck Cremens, said the sale was positive news for the finance company.
"We believe that the sale of the business will preserve the vast majority of our employees' jobs and enhance our ability to service our customers," Cremens said in a statement.
Rather than pay Conseco Inc. a premium for the finance company, CFN would assume Conseco Finance's secured debt, primarily held by Lehman Brothers and estimated to be $1.2 billion -- about one-fifth of what Conseco paid for the company four years ago.
"Basically they (Conseco) take a huge loss on the sale. But beyond that, it means they'll be refocusing on their insurance operations going forward," said Eric Tutterow, an analyst at KDP Investment Advisors in Chicago.
Green Tree "has really been a nightmare -- probably one of the worst investments. Certainly the worst investment they (Conseco) ever made," he added.
Wall Street punished Conseco's stock when the deal was announced in April 1998 by co-founder and former chief executive Stephen C. Hilbert, saying Conseco paid too much for Green Tree. That started a downward spiral in Conseco's stock, then at nearly $60 a share, to its current level of about 6 cents a share.
Not only did Conseco pay a premium for Green Tree, but the merger failed to exploit cross-selling between the lending and insurance sides of the business, observers said.
It's a problem with many mergers, said Todd Saxton, assistant professor of strategy and entrepreneurship at the Kelley School of Business. "It has to be either cheaper, faster or better in quality. You tell me how this transaction resulted in any one of those three.
"The mistake is just made over and over -- the hubris of the chief executive officer that they can bring anything on board and do anything."
Green Tree wasn't the only problem. For much of its history, Conseco went on a spree of acquisitions -- buying up insurance companies and eliminating redundant operations to reduce costs.
But it didn't fully integrate those businesses, said Mark Foster, chief investment officer at Kirr Marbach and Co. in Columbus, Ind.
"That was going to be a problem at some point," Foster said. "You layer on a risky acquisition that they clearly overpaid for on top of that, then you don't have that strong of an underlying base."
Pressure mounted as Conseco Finance stumbled in a slowing economy that brought loan defaults, especially in its mobile home business.
With Conseco Finance about to be separated and sold off, Conseco will have to address the plague of insurers in trouble, a credit-ratings plunge, fewer agents to write policies and, now, consumer awareness of its failures.
Many of Conseco's customers knew little more about the company than its snappy television commercials. Only now, with its bankruptcy filing, will the scope of the problems be apparent.
"You don't become the third-biggest bankruptcy in corporate America without having some baggage and press that goes along with it," Saxton said. "They will be in the spotlight. . . . There will be a very large and an immediate impact on a constituent who has been unaware of the magnitude of the problems."
A more severe fate might await Conseco Finance upon its sale. The new buyers could do to it what Warren Buffett's Berkshire Hathaway has done at commercial lender Finova Group, which Buffett's company invested in while the lender was in bankruptcy.
Many of Finova's portfolios have been sold off in what effectively is a controlled liquidation, Erb said.
If they proceed with this in similar fashion as with Finova, that "will not mean that Conseco Finance would necessarily survive," he said.
Call Chris O'Malley at 1-317-444-6081.