ALLSTATE HEADED TO NEW HANDS?

A third of shareholder value has vanished since May, just as federal lawmakers are poised to broaden the universe of potential acquirers of insurance companies like Allstate. The mix will make the Northbrook, Ill.-based company and its ready-made distribution network a tempting lure, not just for expansion-minded brethren in its own business but for other financial services players previously barred from cross-industry acquisitions. One wild card: Morgan Stanley Dean Witter & Co., whose chief, Philip Purcell, is a former colleague of Allstate Chairman Edward Liddy. Both men worked on Sears Roebuck and Co.'s ill-fated attempt to build a financial supermarket. "I think Allstate will be one of the early picks," predicts George Cochran, managing director of Cochran Caronia & Co., a Chicago investment banking boutique specializing in the insurance industry. Though acknowledging repeal will eventually lead to new alliances, partnerships and business combinations throughout financial services, Allstate officials decline to comment on the company's own prospects. While Allstate's stock (and those of competitors) has been battered by pricing pressures and other industry woes, the company has its home-grown challenges. Chief among them are cost burdens associated with a sprawling network of 15,500 agents, some of them enmeshed in litigation with the company over employment agreements. That negative, however, could readily be turned into a positive by a sophisticated acquirer capable of leveraging -- and pruning -- the network, supplying new products and training agents to cross-sell. "This is a business that's very difficult to get," notes Robert Back, a Chicago-based insurance industry analyst, referring to long-term relationships cemented a customer at a time and reinforced by inertia. "You can't build personal-lines marketshare, so you have to grab it away." Adds Timothy Ghriskey, a senior portfolio manager for Dreyfus Corp. of New York., an Allstate shareholder: "They have the old model. The question is, how do they get to the new model without destroying the old distribution system?" Maybe only through new ownership. "We have been in rumors for a long time now," says Robert Gary, outgoing president of Allstate's property and casualty division. "With the depressed value of the stock, that just fuels them even more." But John J. Harris, an investment banker specializing in commercial banks for Chicago-based ABN Amro Inc., says: "Our sense is, companies like Allstate are not going to be attacked by banks anytime soon." Mr. Cochran's short list of potential Allstate acquirers isn't affected by deregulation: They're insurers like New York-based AIG Inc., Schaumburg, Ill.-based Zurich American Insurance Group and Rhode Island-based Metropolitan Property & Casualty Insurance Co. Among banks, "Chase (Manhattan Corp.) would probably be my best guess." Crain News Service