National Post from Toronto, Ontario, Canada • 7

NEWS The Financial Post WEEKEND June 20-22, 1998 Berkshire snags General Re Buf fett adds one of world's largest reinsurers to empire for Centra rate hike request turned down BY WILLIAM LEWIS Financial Times and General Re of billion. In a statement released after the markets closed Friday, General Re said its shareholders will have the option of taking either 0.0035 of a Berkshire Hathaway class A share or 0.105 of a class share for a total of about billion. Berkshire Haulaway's class A stock (BRKaNYSE), the most expensive on the New York Stock Exchange, rose to General Re shares (grnnyse) jumped to in after-hours trading. Buffett said the takeover will remove the constraints on earnings volatility that have in the past caused General Re to turn down writing reinsurance. Reinsurance is the business of capping the exposure of general insurance companies to high losses, and requires large amounts of capital due to its cyclical nature.

As part of Berkshire, General Re will be encouraged to expand its international business. General Re was advised by Goldman Sachs, the investment bank. Buffett said Berkshire did not use any advisers. with files from Reuters Munger, vice-chairman and I will be very reluctant to issue shares in the future." The General Re deal will be paid for in newly issued Berkshire stock. "Frankly, I don't see any downside whatsoever to the deal, Buffett said Friday.

"We would rather use cash, but most the time the sellers don't let us." Asked whether the stock nature and size of the deal meant he believed the market was at a peak, he said: "It is not a market call whatsoever." Berkshire has considerable insurance operations, including reinsurance, and owns Geico the seventh-largest U.S. auto insurer. General Re will operate independently. "My main contribution will be not getting in their way," Buffett said. Ron Ferguson, chairman of General Re, is to join the board of Berkshire.

Based on the closing share prices of both companies on Thursday, General Re shareholders will receive the equivalent of a share in Berkshire stock, a premium of 23.4. As of Thursday's close, Berkshire had a market capitalization of billion NEW YORK Billionaire investor Warren Buffett stunned Wall Street Friday by announcing Berkshire Hathaway the financial group of which he is chairman and part owner, will buy General Re the largest reinsurance group in the U.S., for billion in stock. The deal, the largest U.S. insurance takeover and fifth-largest financial services deal, will create the second-largest company in the world by net worth, after Royal DutchShell, with a market capitalization of billion. The U.S.

financial services sector is in the midst of a wave of mergers, but analysts were surprised by Buffett's willingness to join the trend and pay for the deal in Berkshire stock. Last month, he told shareholders at the annual meeting: "We have not found anything to speak of in equities in a good many months. If things were 5 or 10 cheaper, it would not change anything materially." In the 1997 annual report, Buffett said: "You can be sure that Charlie to terminate an arrangement with Houston-based Engage Energy another Westcoast subsidiary that markets natural gas and electricity, to which Centra recently outsourced its risk management program. It is also to remove from its 1998 revenue requirements all operating costs associated with Engage. Centra Gas applied for a 3 rate increase last year as part of a general increase so it could recover the trading losses and cover other increased costs.

Centra president and chief executive Otto Lang said recently the losses were incurred for the benefit of consumers. On Friday, he said he needed more time to consider the ruling. The rate increase was opposed by consumer groups such as the Consumers Association of Canada and the Manitoba Society of Seniors. The utility set up a price management program three years ago to reduce natural gas price volatility. Gains from the program were passed on to consumers.

But the program slipped into "dynamic trading" without a plan, which was executed by inexperienced traders with inadequate supervision, the board found. The rigorous controls, checks and balances were lacking, as was the attention paid by Centra's) hedge committee of senior management, which only met quarterly," the board said. BY CLAUDIA CATTANEO Calgary Bureau The Financial Post Manitoba regulators rejected a rate increase Friday requested by Centra Gas Manitoba Inc. to recover $45.5 million in natural gas trading losses, saying they resulted from speculative trading, mismanagement and extreme gas market volatility. "It is regrettable that Centra transformed a price management program based on passive hedging into speculative trading," Manitoba's Public Utilities Board said in a written decision.

"Centra's management was imprudent and unreasonable in its actions, oversight and monitoring. Therefore, the shareholder, not the ratepayer, should bear the consequences of engaging in speculation." The board said shareholders will bear $27.25 million of the losses that are related to speculative activities. Centra's parent, Westcoast Energy estimated the decision will reduce its after-tax earnings for 1998 by $15 million. The rest was attributed to market volatility and will be rolled into Centra's overall gas costs for 1998 It's not expected to result in a rate increase. "We are still looking at what its implications are, in terms of capital expenditures in Manitoba and legal redress," said Paul Clark, Westcoast's communications vice-president.

The board also ordered the utility ANNOUNCEMENT Canadian Association of Management Consultants Association Canadienne des Conseillers en Administration i I II II Zemex warns Inmet it will pull offer if cash is touched rf1 fiV 14 A if iif im i MARK NESBITT, FCMC HEATHER OSLER, CAE HENRY PANKRATZ, FCMC, FCA to fend off the takeover. Lister, however, said he had no hint Inmet was planning any such moves, and described Zemex's conditions as normal in any takeover bid. Inmet has a $125-million series of Vh convertible debentures that mature July 25, 1999. That cash is important to be in the company, and it is perhaps an inappropriate use of the cash to prematurely pay them down," Lister said. "If it happened, we wouldn't go forward with our bid." Zemex has said from the beginning its offer is dependent on In-met successfully selling its 50 share of the Antamina copper-zinc deposit in Peru.

A deal to sell the stake to No-randa Inc. and Teck Corp. is set to close on June 24. Lister said Zemex will mail its bid right after the deal closes. Inmet shares (imntse) closed Friday at $4.80, up IOC.

The shares were trading at $4.40 on May 19. Zemex shares (ZMXnyse) closed at Vi. down BY PAUL BAGNELL Mining Reporter The Financial Post Zemex Corp. warned Friday it will not go ahead with a $5 a share bid for Inmet Mining Corp. if In-met takes steps to reduce its cash position.

Toronto-based Zemex, a little-known maker of industrial mineral products, made a $517-million hostile takeover bid for Inmet on May 19. But it said Friday it will shelve the offer if Inmet prematurely redeems a $125-million debenture series. It also warned it will drop the bid if Inmet makes other "adverse" changes, including dividend distributions, restructurings and debt repayments. Inmet chief executive Bill James said Zemex's fears about the debentures are unfounded. "We're certainly not going to redeem them now, just to scupper their bid," he said.

Zemex president Richard Lister said he has been approached by Inmet shareholders concerned the company may take unusual steps served as Executive Director of the Institutes of Certified Management Consultants of Ontario (ICMCO) and of Canada (ICMCC). ICMCC has been restructured and renamed the Canadian Association of Management Consultants. CAMC is the national body representing individual management consultants and management consulting firms. Its mission is to foster excellence in management consulting. CAMC is the national voice for management consulting in Canada.

The Canadian Association of Management Consultants (CAMC) is pleased to announce the election of Henry Pankratz as Chair of the CAMC Board of Directors for 1998-1999. And the Board takes pleasure in announcing its selection of Heather Osier as CAMC President and Chief Executive Officer. Mr. Pankratz, Deputy Chairman, Ernst Young Canada, assumes this voluntary position from Mark Nesbitt, President, Vertex Consultants Inc. Ms.

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