Liberty Mutual Holding Company, whose insurance company famously invites customers to only pay for what they need, is paying roughly $1 billion to acquire State Auto Group, a super-regional insurance holding company headquartered in Columbus, Ohio.

Adding State Auto’s network of roughly 3,400 independent agencies across 33 states to Liberty Mutual’s 10,000 agents distributing Liberty Mutual small commercial and Safeco personal lines products, Liberty Mutual expects the deal to vault it into the position of being the second-largest independent agency carrier and an industry leader in personal lines and small commercial insurance.

On Monday morning, Liberty Mutual Holding Company Inc. (Liberty Mutual), State Automobile Mutual Insurance Company (State Auto Mutual) and State Auto Financial Corporation (State Auto Financial) announced that they have signed a definitive agreement under which Liberty Mutual will acquire State Auto Group, a Columbus, Ohio-based holding company.

Terms of the deal state that State Auto mutual members will become mutual members of Liberty Mutual. In addition, Liberty Mutual will acquire all of the publicly held shares of common stock of State Auto Financial for $52 per share in cash.

At Monday’s closing stock market price of just over $50, the market capitalization of State Auto Financial was roughly $2.2 billion. Liberty is purchasing the publicly held shares (not including those owned by State Auto Mutual), amounting to about $1 billion in cash.

Today, Liberty Mutual ranks as the sixth-largest auto and home insurer in the U.S., the Boston-based company said. Current distribution channels for its Liberty Mutual-branded products include exclusive agents in local sales offices countrywide, licensed telesales counselors and online channels.

According to a ranking of top U.S. property/casualty insurers published by AM Best based on 2020 net premiums written, Liberty Mutual ranks as the fifth-largest P/C insurer with $32.8 billion, while State Auto ranks 46th, with $2.2 billion. (The combination would still leave Liberty Mutual roughly $1 billion shy of a fourth-place spot held by Allstate based on 2020 premiums.)

Liberty Mutual acquired Safeco for $6.2 billion in 2008, and 10 years later, Liberty Mutual’s Safeco acquired personal lines books of business from MAPFRE, Donegal Mutual, EMC and QBE’s North American, among other deals. Last year, AmTrust Financial also transferred its Republic Insurance personal lines business to Safeco. On the commercial side, Liberty Mutual’s biggest acquisition in recent memory was its $3 billion deal for specialty insurer Ironshore announced late in 2016.

Commenting on the State Auto deal, Liberty Mutual Chair and Chief Executive Officer David Long, said, “State Auto Group’s capabilities and product expertise are an ideal complement to Liberty Mutual’s domestic personal lines and small commercial business, and we welcome 2,000 talented associates to our family” in a statement about the deal. “Equally appealing are its values. For almost a century, State Auto has celebrated a culture of caring for people, exceptional service and deep philanthropy, mirroring our purpose to help people embrace today and confidently pursue tomorrow,” Long continued.

State Auto President and CEO Mike LaRocco said, “The opportunity to join the Liberty Mutual organization is a direct result of the incredible work of the State Auto team, beginning with the transformation of our business and culture that began in 2015.”

“We’ve become a digital provider of auto, home and business insurance while remaining fully committed to the independent agency system, as we’ve been since our founding 100 years ago. Our partnership with Liberty Mutual will further that commitment to independent agents and contribute to the collective success of our agents, policyholders, shareholders and associates.”

LaRocco wrote about the cultural change that fueled a digital transformation and the resulting culture of caring, empowerment, celebration and radical transparency in an exclusive article for Carrier Management in 2018, “How We’re Doing It: Defining a New Culture for Digital Transformation at State Auto.” Today’s announcement did not disclose any changes in staffing planned as a result of the deal.

The transaction was approved by the State Auto Financial board of directors (upon the recommendation of a special committee of independent State Auto Financial directors), as well as the State Auto Mutual board of directors (upon the recommendation of a special committee of independent State Auto Mutual directors).

The deal is expected to close in 2022, pending State Auto Mutual member approval, State Auto Financial shareholder approval, receipt of required regulatory approvals and other customary closing conditions.

In connection with the merger of State Auto Financial, State Auto Mutual has entered into a voting agreement with Liberty Mutual under which it has agreed to vote its 58.8 percent interest in State Auto Financial in favor of the merger.

Waller Helms Advisors LLC and Goldman Sachs & Co. LLC acted as financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal advisor to Liberty Mutual in the transaction.

Houlihan Lokey Capital, Inc. acted as financial advisor and Kirkland & Ellis LLP acted as legal advisor to the Special Committee of Independent Directors of State Auto Financial in the transaction.

Keefe, Bruyette & Woods, a Stifel Company, and BofA Securities Inc. acted as financial advisors and Squire Patton Boggs (US) LLP acted as legal advisor to the Special Committee of Independent Directors of State Auto Mutual in the transaction.

Sources: Liberty Mutual Insurance, State Auto Financial Corporation