PMA Capital Corp. buys Oklahoma City company

PMA Capital Corp. bought Midlands Management Corp. in a move that will help the Blue Bell workers' compensation-insurance company expand further into services.

PMA said yesterday that it paid $19.8 million in cash at closing for Midlands, an Oklahoma City company that provides services related to workers' compensation and other insurance, but does not assume the associated risk.

The final price for Midlands will range from $22.8 million to $44.5 million, depending on how much the current management team at Midlands increases profit there over the next four years, said William E. Hitselberger, PMA's chief financial officer.

PMA said it expected the acquisition, which was announced after the stock market closed, to add 7 to 10 cents a share to its 2008 earnings. According to Bloomberg News, four analysts expect the company to earn 43 to 64 cents a share next year.

The additional revenue from services is important to PMA because services provide a "much more predictable earnings stream from year to year," PMA's president and chief executive officer, Vincent T. Donnelly, said in an interview.

PMA said Midlands had $30 million in revenue last year. The Midlands acquisition will double PMA's revenue from services such as third-party administration of workers' compensation claims for companies that insure themselves.

Midlands is the first business PMA has acquired in its 92-year history, Donnelly said. He said PMA had purchased shell companies.

The deal marks a turning point for PMA, which suffered a major blow in 2003, when A.M. Best reduced its credit rating, leading PMA management to put its reinsurance assets under state oversight.

PMA's shares closed yesterday at $9.98, up 48 cents, or 5 percent on the Nasdaq.