Insurer St. Paul Plans to Buy USF&G; for $3.5 Billion in Stock

St. Paul Cos. said it will acquire USF&G; Corp. for $3.5 billion in stock, creating the eighth-largest U.S. property-casualty insurance company.

St. Paul said it will pay $22 a share for each share of USF&G; stock, slightly above Friday’s closing price of $21.44. The St. Paul, Minn.-based insurance company also said it will take a restructuring charge of $300 million to $500 million this year for the acquisition. The company expects the purchase of Baltimore-based USF&G; will add to earnings next year.

The acquisition is the latest in a string of many that have hit the insurance industry as companies seek to increase revenue and reduce costs through consolidation. Both St. Paul and USF&G; have acquired other companies as they tried to offer specialized insurance to businesses worldwide.

St. Paul concentrates on insurance for commercial properties, large construction companies and professionals such as doctors--very competitive areas where profit margins have been decreasing.

Last August, St. Paul acquired the remaining equity in Botswana General Insurance it didn’t own to boost its property-casualty business in southern Africa. The insurer also sold portions of its London-based insurance brokerage, the Minet Group, last January to Marsh & McLennan Cos.

USF&G;, whose principal subsidiary is United States Fidelity & Guarantee Co., focuses mostly on insurance for individuals. The company bought San Antonio-based Titan Holdings for about $260 million in August, more than doubling its auto and municipal property-casualty units.

The combined company will continue to operate under the St. Paul name, with headquarters in St. Paul.

St. Paul Chairman Douglas Leatherdale will serve as chairman, president and chief executive of the combined companies, and USF&G; Chairman Norman Blake Jr. will be vice chairman.