) has been accused of violating the terms of a contract to purchase
online auto insurer Esurance from
White Mountains Insurance Group Ltd.
) in a lawsuit filed by the latter, according to Reuters. The
lawsuit, which was filed in a U.S. district court on September 17,
also accuses the insurance company of failing to meet the deadline
for a post-closing balance sheet audit required in connection with
Allstate completed the acquisition of Esurance in October 2011.
The $1 billion purchase deal also included the takeover of
Esurance's subsidiary - Answer Financial.
The purchase consideration was calculated using the tangible
book value of Esurance. However, the contract contained an
adjustment clause related to the amount, which required adjustment
of the purchase price to account for the differences between the
actual and estimated book value of Esurance.
However, White Mountains alleged that Allstate missed the
deadline for Esurance's post-closing balance sheet audit by 5
months, during which the acquired company incurred litigation
settlement expenses of $5.2 million. Allstate adjusted this expense
against the purchase price.
White Mountains claims that the purchase consideration cannot be
reduced by the amount of litigation settlement since it was
incurred after the audit deadline. It noted that the purchase
agreement has separate provisions for indemnification, designed for
the allocation of such subsequent expenses. Thus, the adjustment is
alleged to be a breach of the contractual provisions.
Allstate had acquired Esurance and Answer Financial in order to
gear up its Property-Liability segment, particularly the online
auto sales where the company has been underperforming since the
past 3 years due to loss of clients. The deal has already started
to boost the company's online auto sales, thereby generating cost
synergies. The acquisition is expected to break-even by the second
full year of ownership and be accretive to earnings in the
Allstate carries a Zacks #3 Rank, implying a short-term Hold
rating. We maintain a long-term 'Neutral' recommendation on the
ALLSTATE CORP (ALL): Free Stock Analysis Report
WHITE MTN INS (WTM): Free Stock Analysis Report
To read this article on Zacks.com click here.