American Financial Raises Offer Price For National Interstate

American Financial Group, Inc. (NYSE:AFG) has increased its offer price by $2 per share in its final bid to acquire the outstanding common shares of National Interstate Corporation (NASDAQ:NATL) . American Financial has agreed to pay $32 per share in cash as purchase consideration.

The increased offer price would require American Financial to dish out an additional $20 million in cash. However, the transaction is pending approval from Special Committee and shareholders of National Interstate.

The new price represents a 6.5% premium over yesterday’s closing price or 41.5% premium over National Interstate’s closing price on Mar 4, 2016. On Mar 4, the insurer proposed to acquire all of the outstanding common shares of National Interstate that are not currently owned by its wholly owned subsidiary, Great American Insurance Company (GAIC), for $30.00 per share in cash or about $293 million. GAIC has an about 51% stake in National Interstate.

The new consideration translates into 1.8x National Interstate’s book value per share excluding unrealized gains on fixed maturities as of Mar 31, 2016, and 27.6x National Interstate’s 2015 diluted net income from operations per share. The acquirer also stated that this would be its final offer with no room for further increase.

American Financial stated that it will invest in a business that it is well acquainted with. Both companies are engaged in property and casualty insurance. Thus adding National Interstate would expand its capabilities in serving clients better.

American Financial has an impressive growth story that includes strategic acquisitions. The company is actively involved in startups, small-to-medium sized acquisitions, and product launches. Over the past decade, the company has seen success in 11 acquisitions and startups.

Currently, American Financial carries a Zacks Rank #3 (Hold). There was no earnings momentum over the last several weeks. But with optimism over the current acquisition, we expect the Zack Consensus Estimate to move north as analysts are likely to raise their estimates.

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Acquisitions are a well-accepted growth strategy among insurers. Recently, Assurant, Inc. (NYSE:AIZ) acquired American Title, Inc. for a cash consideration of $45 million to strengthen its capabilities in the housing market. Also, Arthur J. Gallagher & Co. (NYSE:AJG) acquired an 85% interest in Brim AB to expand its Scandinavian presence.