Nationwide to Buy Provident Mutual

Nationwide Financial Services Inc., the No. 6 publicly traded U.S. life insurer, agreed to buy Provident Mutual Insurance Co. for $1.56 billion from its policyholders to increase sales of variable annuities.

The acquisition comes as bigger insurers buy smaller rivals to shore up earnings as slumping stocks pare profits. Columbus, Ohio-based Nationwide said the purchase will make it the No. 3 provider of variable life insurance and immediately add to earnings.

The price is about 1.2 times book value, or 14 times last year’s earnings. That’s less than the price of recent similar transactions of two times book value or more and reflects the fact that Nationwide will incur costs in converting Berwyn, Pa.-based Provident Mutual to a stockholder-owned company as part of its purchase, analysts said.

The transaction will increase the number of outstanding Nationwide Financial shares. The company is owned 80% by its parent, Nationwide Mutual Insurance Co., and 20% by the public. After distribution of Nationwide shares to Provident Mutual policyholders, Nationwide Mutual’s stake will be cut to 68%.

Shares of Nationwide rose 48 cents to close at $45.44 on the New York Stock Exchange. The transaction, approved by the boards of both companies, is expected to close in the second quarter of 2002.