Lindner Offers a Buyout for Encino Firm

Republic American Corp., an Encino workers compensation company, said Friday that its directors are reviewing an offer by Cincinnati financier Carl H. Lindner to buy the 47.4% stake in the company Lindner doesn’t already control.

Lindner is offering 0.65 of a share of stock in Penn Central Corp., which he controls, for each Republic American share in a deal now valued at about $127 million. Lindner effectively controls Penn Central, a Greenwich, Conn.-based telecommunications and defense firm, through a 31% stake owned by his American Financial Corp. of Cincinnati.

Both Penn Central and American Financial own a combined 9.7 million of Republic American’s 18.4 million shares, or 52.6% of the company. The $127.1 million value of the stock Lindner would pay for the shares he doesn’t control is based on Penn Central’s closing price of $22.375 a share Friday in New York Stock Exchange composite trading.

The deal is Lindner’s second major deal of the week. On Monday, a tentative merger was announced in which television producer Aaron Spelling would yield control of his company to one of Lindner’s firms.

Insurance analysts and executives familiar with Republic American said Lindner probably proposed the buyout because he wants to cut Republic American’s tax bill using some of the $1 billion in tax-loss carryforwards that Penn Central is believed to have accumulated. Tax-loss carryforwards are accounting adjustments that allow a company to use prior losses to reduce taxable income.

In addition, they said, the secretive financier probably considers Republic American a bargain. Republic American’s stock closed Friday at $13.50 a share in over-the-counter trading, up $1. Two years ago, Lindner spun off about two-thirds of the company to the public for $17.50 a share.

Lindner, 69, is chairman and chief executive of Penn Central and Republic American. Republic American said a committee of three outside directors is reviewing Lindner’s offer.

Republic American is the holding company for Republic Indemnity Co. of America, one of California’s largest workers compensation firms.

In the six months ended June 30, Republic American earned $12.2 million, down 14% from the year-earlier period. Net premiums earned, which are similar to revenue, fell 4% in the six months to $111.1 million. For the quarter, Republic American’s earnings fell 1% to $6.8 million while net premiums earned rose 6,1% to $63.6 million.