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21st Insurance Receives Offer

Jan 25, 2007

By Gregory J. Wilcox, Daily News, Los Angeles

Jan. 26--WOODLAND HILLS -- 21st Century Insurance said Thursday that it received an unsolicited $690 million offer from American International Group Inc. for all of the shares of the auto insurer that it currently does not own.

New York-based AIG is offering $19.75 cents a share for the 38.1 percent of the stock of the Woodland Hills-based company it does not already own and will make it a subsidiary if a deal is completed.

AIG currently owns 61.9 percent of 21st Century.

21st Century's stock jumped 26.16 percent, or $4.34, to $20.93 on Thursday.

Stifel Nicolaus analyst Meyer Shields wrote in a research report the offer is "very generous." Shields said the deal values 21st Century Insurance Group at 19.6 times the insurer's estimated 2007 profit, while similar companies trade at an average of 12.3 times their estimated 2007 profit.

"We're still very surprised by the valuation," Shields wrote. "Given our negative expectations for California auto insurers in 2007, we frankly expected AIG to give the shares a chance to settle down before making a bid."

The company said its board has formed a special committee comprised entirely of independent and outside directors for the purpose of considering AIG's proposal.

After a review, the committee will make a recommendation to the 21st board.

"No decisions whatsoever have been made by the special committee with respect to its response, if any, to the proposal. The special committee will proceed in an orderly and timely manner to consider the proposal and its implications, and there can be no assurance that the proposed transaction or any other transaction will be approved or completed," the company said in a statement.

21st hired Skadden, Arps, Slate, Meagher & Flom LLP as its legal counsel and Lehman Brothers Inc. as its financial advisor to assist in its review and evaluation of the proposal.

AIG sent the letter on Wednesday.

It said that the offer represents a 19 percent premium over that day's closing price and a 25.5 percent premium to the average closing price during the last 12 months.

"Our proposal represents an excellent opportunity for 21st Century's shareholders to monetize their investment at a full and fair value for their shares. For AIG, this is an opportunity to make a substantial additional investment in a business we know well," Martin J. Sullivan, president and chief executive officer of AIG said in a statement.

AIG anticipates that the transaction would be implemented through a merger agreement that would be negotiated and approved by a special committee comprised of directors of 21st Century who are independent of AIG.

AIG has advised 21st Century that its sole interest is in acquiring the remaining shares of 21st Century and that it has no interest in a disposition of its controlling equity stake in the company.

Banc of America Securities LLC and J.P. Morgan Securities Inc. are serving as AIG's financial advisors and Sullivan & Cromwell LLP is serving as AIG's legal advisor in the transaction.

"We ... are confident that our proposal will be attractive to the Company's public shareholders and that the Company's combination with AIG would serve the best long-term interests of the Company and its policyholders," AIG said in its letter.

Founded in 1958, 21st Century Insurance Group is a direct-to-consumer provider of personal auto insurance. With $1.4 billion revenue in 2005, 21st insures over 1.5 million vehicles in 17 states, including California, Florida, New Jersey and Texas.

AIG is one of the world's leaders in insurance and financial services and is a leading international insurance organization with operations in more than 130 countries and jurisdictions.

The Associated Press contributed to this report.

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