Unum tells shareholders it is considering acquisitions

Unum Corp. is exploring potential mergers and acquisitions, President and CEO Thomas Watjen said Wednesday at a shareholders meeting.

The Chattanooga-based disability insurer has taken steps to bolster its financial position through a $1 billion share buyback this year, as well as a 13.5 percent increase in the common stock dividend announced at the meeting.

Even with the higher dividend and stock repurchases, Unum still will have large cash and investment reserves, officials said.

After-tax operating income in 2010 was $892 million after the company paid out about $6 billion in benefits. However, revenue has been fairly flat in an industry stymied by national unemployment.

"Acquisitions in general are very much an interest, and frankly we're now viewed as one of the few companies that have the ability to do that in the world," Watjen said. "We've been successful despite a weak economy."

Unum previously discussed a deal with Sun Life Financial, a Canada-based company that was interested in purchasing Unum, but negotiations fell apart in January.

"We kiss a lot of frogs, we look a lot, but we haven't really done anything yet," Watjen said. "You have to come back and say, does it make business sense, does it have the financial characteristics to build off of?"

Watjen's tenure at Unum has been marked by a steady but slow increase in profits and stock price. The company has avoided slashing prices on its insurance products to grow market share and had shied away from unprofitable deals, officials say.

When it comes to shareholder return, Unum has outperformed the S&P 500 since 2008 by 15 percent, and has beaten the health insurers index by 32 percent. Since 2006, the S&P Life & Health Insurance Index is down 3.2 percent, while Unum is up 15 percent.

Richard McKenney, Unum's executive vice president and chief financial officer, said the insurer is highly "sought after," but is going to be "very choosy where we deploy our capital."

"It may be a product line, it may be a business here in the U.S., and it may be international," he said, though he didn't have information on when an acquisition or merger could take place.

Market concerns

Part of the reason that Unum has considered looking outside itself for new revenue streams is the meandering path the rickety U.S. recovery has taken, top executives said.

"We've been successful despite a weak economy and soft financial environment," Watjen said. "It's difficult to grow, but it's not hindering our ability to be a successful company."

Both Watjen and McKenney, as well as Unum Group Chairman Jon Fossel, said that it will continue to be difficult to do well in the current economic and regulatory environment.

"The economy is recovering slowly in fits and starts, and unemployment is still high," Fossel said.

Unum, which markets mainly to employers who then offer the plan to individual employees, depends on other companies to hire and retain workers to organically grow its bottom line.

The recession made that more difficult, and hiring still hasn't increased enough to even keep up with population growth.

Additionally, the company has become concerned that lawmakers could perceive the insurer as a health care concern, and be treated accordingly by lawmakers searching for ways to pay for the national health care reforms adopted by Congress last year.

But new taxes and regulations aren't what the company wants right now, Fossel said.

"People need to recognize we're not a health care company," he said. "We work with employers to get people back to work, and getting that through Congress is a challenge."

In fact, Watjen said, companies like Unum actually help people "take responsibility for themselves and their families, and take pressure off the federal programs" in a time of shrinking wages and work forces.

The key element for Unum's future is to stay the course, Watjen said.

"Even if we tread water on top line growth, we don't want to lose the disciplines that got us to where we are," he said.