Lutheran firms to combine, keep headquarters in Minneapolis
Dee DePass
Star Tribune
Thursday, June 28, 2001
Minneapolis-based Lutheran Brotherhood and Appleton, Wis.-based Aid Association for Lutherans (AAL) plan to merge into a $57 billion financial services firm
that will rank in the middle of the Fortune 500.
The deal between the two fraternal organizations, both of which serve only Lutherans, was announced Wednesday after being the subject of rumor in the insurance
industry for several days. The merger is expected to close by December if the two firms can secure regulatory approval.
The combined company will have a new name that has yet to be decided. It will be based in Minneapolis.
Unlike the merger of publicly held companies, this deal will not involve the exchange of cash or stock. Instead, Lutheran Brotherhood will accept AAL's Lutheran
governance and a new company will be formed that evenly divides management duties between the two.
Industry observers called the merger unique, because few fraternal organizations of such size have combined.
The deal should bring the two organizations the same benefits that for-profit firms realize through mergers, such as greater scale and efficiencies.
But the merger also was driven by another issue peculiar to the two firms -- Lutheran congregations haven't been growing, while the two organizations held small
shares of the Lutheran market. AAL and Lutheran Brotherhood often found themselves competing against larger companies, such as American Express Financial
Advisors, State Farm, Prudential, Fidelity and others for Lutherans' business.
Lutheran Brotherhood CEO and President Bruce Nicholson said merger talks between the two organizations have taken place over the past four years but took on new
urgency in the past year as both wrestled with the lack of growth in their member markets. By combining, they hope to better reach the "hearts and wallets" of members
of that faith, said Nicholson.
"By combining the strengths and capabilities of our two societies, we will bring our combined talents, new vision and even greater effectiveness to bear on these
challenges. This combining will enable us to increase our future growth," Nicholson said.
3 million customers
The combined company will have more than $6.5 billion in revenue, 3 million Lutheran customers and $56.5 billion in assets under management. Both provide
financial services, including asset management, insurance and financial planning. Together they will have $143 billion of insurance in force, $12.4 billion in mutual
funds and 3,400 field agents.
The deal will double the size of the 84-year-old, 1.2 million-member Lutheran Brotherhood, which has $25 billion in assets under management, $4.5 billion in mutual
funds and $50 billion in life insurance.
Nicholson said Lutheran Brotherhood gains AAL's larger sales force, its larger, lodge-like branch-system and larger mutual fund arm. AAL gains Lutheran's
higher-net-worth clientele, financial planning expertise and large variable annuity business, which ranks among the top 25 nationwide.
Officials said it was unclear how many employees could lose jobs as a result of the combination. Together, the firms employ 7,100 people nationwide, including 1,580 in
Minnesota and about 2,113 in Wisconsin. No cost savings target was announced.
AAL CEO, Chairman and President John Gilbert will be chairman of the combined firm. Nicholson will be CEO. The combined operations center will be in Appleton.
Having the corporate headquarters in Minneapolis gives the merged company a more convenient travel location than Appleton.
Both organizations operate nationwide and have nearly 100-year histories. They are nonprofits that provide philanthropic support to Lutheran churches, schools and
other organizations, and also are financial powerhouses.
The combined firm will be nearly three times the size of Minnesota Life Insurance Co. in St. Paul, which has about $20 billion in assets under management. They will be
about about a third the size in the United States of Dutch insurance giant ING Group, which bought Minneapolis-based ReliaStar Financial Corp. and two Aetna
divisions last year to reach $163 billion in U.S. assets under management.
Observers surprised
Insurance industry observers said they were surprised by the merger, which they called one of the first of its kind.
"This is a very unusual situation and not a common occurrence," said Minnesota Commerce Department spokesman Bruce Gordon. "The department is still reviewing
the laws that apply."
Al Parsons, CEO and president of The Insurance Federation of Minnesota, called the deal "fairly unusual."
"But this sort of a merger is something that we would [eventually] expect given what is going on in the financial services," Parsons added. "We certainly know that stock
companies are merging and developing economies of scale and I think that is exactly what is going on here. You have two very fine, well-managed organizations with a
very closely aligned mission."
AAL ranks 477 on this year's Fortune 500 list of the nation's largest companies, as measured by revenue. Lutheran Brotherhood ranks 497. The combined organization
is expected to rank about 250th.
The merger must be approved by the Securities and Exchange Commission, the states of Minnesota and Wisconsin and by the governing bodies of both Lutheran
organizations. Their 3 million members will begin receiving notices about the deal next month.
-- Dee DePass is at ddepass@startribune.com .
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