October 13, 2009 / 8:32 PM / 10 years ago

UPDATE 3-Hedge fund Paulson to buy Conseco stake

* Paulson to buy stock, warrants for $77.9 mln

* Conseco plan public offering of at least $200 mln

* Conseco to privately offer $293 mln convertible debt

* Shares jump 15 pct in extended trade (Adds details and background, updates share price, byline)

By Paritosh Bansal

NEW YORK, Oct 13 (Reuters) - U.S. insurer Conseco Inc (CNO.N) said on Tuesday hedge fund Paulson & Co agreed to invest $77.9 million, as part of a series of steps aimed to bolster its capital position and retire existing debt.

The hedge fund led by billionaire investor John Paulson agreed to buy 16.4 million common shares and warrants to purchase another 5 million, Conseco said. The warrants will have an exercise price of $6.50 per share.

Conseco shares jumped 15 percent to $5.74 in extended trade on Tuesday, after closing at $4.99 on the New York Stock Exchange.

With the closing of this deal, Paulson will own about 9.9 percent of the company’s shares outstanding, including shares it previously bought in open market transactions.

Conseco also plans to sell at least $200 million worth of common shares in a public offering, it said in a Securities and Exchange Commission filing.

Paulson has been closely watched by investors since it reaped windfall gains betting that U.S. mortgage markets would collapse in 2007. It also correctly forecast that financial services companies would tumble last year.

Paulson was also part of a consortium that purchased failed mortgage lender IndyMac from the Federal Deposit Insurance Corp earlier this year.

Conseco, a Midwestern U.S. life and accident insurer, turned a profit in the first quarter of this year after a string of quarterly losses.

Conseco also said it would privately offer up to $293 million of convertible senior debentures to fund the purchase of its existing convertible debentures in a cash tender offer that it intends to commence in the near future.

Conseco said the New York Stock Exchange had granted it exception under a rule that would have required it to seek stockholder approval before issuing these securities.

The exception is given when the delay involved in securing stockholder approval would seriously jeopardize the financial viability of the company. (Reporting by Paritosh Bansal; Editing by Richard Chang and Steve Orlofsky) (For more M&A news and our DealZone blog, go to www.reuters.com/deals)

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