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Conseco axes Green Tree
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March 31, 2000: 10:23 a.m. ET
In about-face, finance firm to shed mobile home lender after two years
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NEW YORK (CNNfn) - Conseco Inc. disclosed plans Friday to sell its massive consumer finance subsidiary less than two years after it bought the operation for $6 billion, a move it hopes will revive the company's sagging stock price.
The Carmel, Ind.-based financial services company said it has retained Wall Street investment firm Lehman Brothers to identify buyers for the Conseco Financial Corp., formally Green Tree Financial, the nation's No. 1 financier of mobile home loans.
The sale is expected to result in an estimated $350 million non-cash charge against Conseco's previously-announced 1999 earnings to write down the value of interest-only securities held at Conseco Financial. Company officials also said the sale will dilute Conseco's 2000 earnings by an undisclosed amount.
The company did not disclose a price tag for the subsidiary, but estimated shareholder equity in the company at $2.2 billion.
Conseco (CNC: Research, Estimates) bought the St. Paul, Minn.-based operation in 1998 for $6 billion in stock, but has struggled with its goal of cross-selling products between that operation and its other subsidiaries, even as Conseco Financial's receivables grew nearly 44 percent to $46 billion during that time.
 Shareholders, meanwhile, rebelled against the deal, in which Conseco paid a 56 percent premium for Green Tree, devaluing the company's stock by roughly 75 percent during that period.
"It has certainly been a difficult two years for our fellow Conseco shareholders," Conseco's Chairman and CEO Stephen Hilbert said in a conference call with analysts and investors. "From the beginning, this transaction was not well received by our colleagues in the investment community."
Hilbert said proceeds from the subsidiary's sale will be redeployed into Conseco's insurance and investment industry businesses, as well as used to buy back shares and pay down debt.
Conseco shares fell shortly after they opened for trading Friday morning, losing 2-11/16 to 11. The stock closed down 1/16 to 13-11/16 Thursday.
Conseco hurt by refinancing, debt
Despite its rapid growth in receivables, Conseco Financial, which finances about 30 percent of all mobile home mortgages, has suffered under a sweeping refinancing wave the past two years that hurt the company's earnings.
Investors were also leery by signs the deal may have brought too much debt onto the company's balance sheet, forcing several credit agencies to reduce their ratings on Conseco. Last year, Conseco sold about a 7 percent stake in Conseco Financial to the Thomas H. Lee Co. for roughly $500 million, stoking fears the company was short on cash.
Hilbert said some of the sale's proceeds would be used to pay down the company's debt and said he had several "very positive" meetings with credit rating agencies recently to discuss Conseco Financial's probable sale.
He apologized for the "pain" the deal caused shareholder on Wall Street, but he defended the acquisition as a wise one and said the company's stock price was hurt more by perception than reality.
"I don't know what the hell we've been trading on, but it certainly has not been on an earnings multiple," he said "It has been more perception than reality that we couldn't fund the finance side. But the reality is we have been funding it efficiently.
"We think the strategy we laid out in 1998 was a good strategy. But if you want to know the truth the pain threshold for shareholders just got intolerable for management."
Deal frees up $1.1 billion in excess cash
Hilbert said in addition to the $2.2 billion in shareholders equity, Conseco also had roughly $2 billion in outstanding loans used to back the subsidiary's financing activities that could factor into a sale price.
In addition, the potential sale will free up roughly $1.1 billion in cash and securities already on Conseco's balance sheet that was previously earmarked to back the financial subsidiary's activities.
Hilbert would not rule out using some of that excess cash to capitalize on the consolidating insurance industry.
"We are certainly not the only company that is significantly undervalued," he said. "I'm not saying we are going to go start buying a lot of insurance companies. But I am saying . . . we are going to do whatever makes sense to maximize shareholder value in the insurance industry. 
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Conseco Inc.
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