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PARIS -- Allianz A.G. Holding and Assicurazioni Generali S.p.A. are in negotiations likely to end their contentious battle for control of French insurer Assurances Generales de France.

A proposed deal is expected to give Germany's Allianz control of AGF, while Italy's Generali will withdraw its bid and receive from the two companies shares in other European insurers.

Stock analysts say the proposed solution is a winner for Allianz and Generali, though AGF shareholders may get less than they would have if a bidding war had ensued. One analyst called it a political rather than business solution.

Executives with Allianz and Generali declined to comment on the structure of the deal while they are negotiating.

"There are negotiations, but we still don't know what will happen," said Benito Pagnanelli, deputy managing director of Generali in Trieste, Italy.

An Allianz spokesman in Munich, Germany, said, "We are a good way along to get a decision before Christmas, but nothing is signed yet."

However, an AGF executive in Paris confirmed that the basic elements of the accord had been resolved, though details still were being negotiated.

The main points of the agreement, the executive said, are that Generali will withdraw its hostile bid for AGF, allowing a friendly takeover offer to be submitted to AGF shareholders. In return, Generali will receive a number of AGF's current and potential assets.

According to the AGF executive, under the deal:

Generali will assume Allianz's 5% stake and AGF's 33.5% stake in Aachener & Munchener Beteiligungs A.G., Germany's third-largest insurer.

AGF will keep an AMB subsidiary, Royal Netherlands Life Insurance Co., which the French insurer owns completely, the AGF executive said.

Negotiations also are under way about Allianz's indirect holdings in AMB. Munich Reinsurance Co. holds 8.6% of AMB, while Dresdner Bank holds 14.7% of AMB. Allianz, in turn, holds 25% stakes in both companies.

Ugo Pastori, an insurance analyst at London stockbroker Robert Fleming Securities, said he thinks that after acquiring the Allianz and AGF shares in AMB, Generali eventually will make a bid for 100% of the Aachen, Germany-based insurer. That view was echoed by other analysts late last week.

"Deutsche Bank and Munich Re may sell their shares to Generali. We don't know yet, but Generali will probably bid for 100% if it can," Mr. Pastori said.

Because Allianz would own more than 50% of AMB through its direct and indirect holdings after acquiring AGF, German antitrust rules would force the company to dispose of any shares in excess of a majority stake.

Generali will take control of about one-third of Athena Assurances, a Paris-based multiline insurer, while the remainder of the company will be held by AGF.

AGF, in conjunction with an Italian holding company, this month completed its acquisition of 97.2% of Athena's parent, French financial conglomerate Worms & Cie. The October offer for Worms was seen as the catalyst for the takeover offers that emerged for AGF (BI, Oct. 20; Oct. 13).

The position of political risk and credit insurer Coface, in which AGF has a controlling interest, remains up in the air.

Reports in the French press during the bidding war for AGF have said the French government does not want foreign ownership of Coface. In addition to writing private credit and political risk insurance, Coface acts as an agency for French state guarantees in medium and long-term political risk insurance.

"We don't see why we should sell, but if the government wants us to sell, then we will sell," the AGF executive said.

Mr. Pastori of Robert Fleming Securities speculated that AGF would retain the short-term private sector credit insurance business that accounts for 60% of Coface's premium volume. The medium and long-term business transacted on behalf of the French state probably would be sold to another French company, he said.

Risk manager reaction to the deal was mixed.

"It's an understatement to say this (the takeover) is due to globalization. We have fewer and fewer brokers and fewer and fewer insurers. It's a problem we have less and less choice in insurers and brokers," said Thierry van Santen, director of risk management at Group Danone, a Paris-based food and agribusiness company.

"When you merge two companies, you don't get more capacity. We now have less and less choice in insurers and so maybe we have to go more to find partners in the reinsurance market. In a way, I regret the acquisition of AGF by Allianz. I'm not sure this will improve services in the coming years and I don't see more capacity," said Mr. van Santen, who also is a member of the executive committee of the Assn. pour le Management des Risques et des Assurances de l'Entreprise, the French risk management association.

"There are certain attractions to having a larger capital base and certain skills can be developed in large companies. There are too many insurance companies in France. I wonder how they survive," said Christopher Lajtha, corporate risk manager at Schlumberger Ltd., a Paris-based oil field services multinational.

"There is too much capital chasing too little business. If you take a long-term view, this kind of consolidation was probably well overdue," said Mr. Lajtha, who also serves on the French risk management association's executive committee.

The AGF executive said the insurer realized when Generali launched its hostile bid that AGF would lose its independence.

The insurer is pleased, he said, with the solution offered by Allianz, which will give Allianz 51% of AGF while the AGF board and its executives remain French and autonomous. "This is the best way to lose independence," the executive said.

Although Allianz will have a majority stake in AGF, it will have only a minority representation on the AGF board of directors. The AGF executive said this is because the German company is sensitive to lingering anti-German feelings in France dating from World War II.

Analysts do not expect Allianz to stay on the sideline for long.

"My feeling is that in the long term, Allianz will get a majority on the board," said Mr. Pastori.

"This is the friendly face of Allianz, and they will treat you with kid gloves. It's an ongoing thing, but it is true it will change," said Michael Lindsay, insurance analyst at investment bank Lehman Brothers in London.

Allianz is by far the winner in the whole story, he said.

"Allianz is looking good. They came out of this without having to counterbid. Generali has come out OK. They have always had their eyes on AMB. The AGF shareholders have come out worse, because they didn't get a bidding war" to drive up the purchase price, Mr. Lindsay said.

"Generali and Allianz basically got what they wanted without having to overspend," agreed Mr. Pastori. "This is a very political solution. It's not really a business solution, but it is the best that can be accomplished. In a normal situation, you would see Allianz and Generali bidding again. But this market is not like the U.S."