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In August 2000 Thomas Kelly of New York-based Debevoise & Plimpton started working on Principal Life Insurance Co.’s demutualization — the conversion of a mutual company to one which is publicly traded. A year later, he was nearing the finish line: the initial public offering that would mark the close of the $7 billion deal. “The lawyers’ work, the hard work, was mostly done,” he says. “We were in that period when the company management and the underwriters are doing the road show and the lawyers have some room to breathe.” But on Sept. 11, as he looked out the living room windows of his Greenwich Village apartment and saw smoke pouring from the World Trade Center, Kelly, 43, knew there wouldn’t be much breathing room in the days ahead. Six weeks later, on Oct. 23, Principal became the first big IPO to close after the terrorist attacks. The $1.85 billion offering was delayed only three weeks, the result of some hard work and quick thinking by Kelly. By the end of September, Kelly had the IPO back on track, after helping to analyze the effect of the attack on Principal’s claim exposure and investment portfolio, revising the “red herring,” or preliminary prospectus, to account for new uncertainties, and reassuring the insurance regulators overseeing the deal that the market conditions were acceptable. During the first week or so after the attack, nobody was thinking much about the IPO. The road show team was in Paris on Sept. 11. Instead of selling the IPO, they spent the next week trying to get home. Other immediate concerns predominated as well, such as the safety of the people working in Principal’s office in One Liberty Plaza, a building adjacent to the World Trade Center that was thought to have sustained structural damage. The lead underwriter — The Goldman Sachs Group Inc. — was exiled from its Wall Street area office. And, of course, the stock markets were closed. Kelly spent a lot of time on the phone, talking to the client, to the bankers and to the insurance regulators. But little work was actually getting done. “The deal was in a state of suspended animation,” says Kelly. “We were all just watching the news. Nobody knew what would happen.” Then the IPO cranked slowly back to life, in part, Kelly says, because “this was not an easy deal to call off.” The IPO was the final step in the long, complicated demutualization process; the entire transaction was contingent on it. Much of that time had been spent dealing with the insurance regulators both in Iowa, where the company is based, and in New York, where demutualizations by all companies licensed in the state are reviewed. Another factor pushing the deal forward was the expected demutualization of the Prudential Insurance Company of America. “We wanted to get out in front of Prudential,” says Alexander Dye of underwriter’s counsel LeBoeuf, Lamb, Greene & MacRae. “We didn’t want to compete for the same investors.” Still, it was hardly an auspicious time to go public. In the weeks after the attacks, the equities markets plunged, and insurance stocks looked particularly vulnerable. But daily conversations with the bankers convinced Principal executives that the market would be receptive to the offering, in part because Principal, which underwrites life, not property, insurance, had escaped the worst of the impact. It wasn’t coincidental that Principal and Prudential, as well as Anthem Insurance Cos., all went public last fall. There’s been a wave of demutualization in recent years, a result of consolidation in the financial services industry. Says Kelly: “In order to succeed, insurers need to grow. And they can’t play in that game without the ability to raise capital.” And they can’t raise capital without demutualizing. Nor was it coincidence that Debevoise & Plimpton handled the Principal deal. “Debevoise has done virtually every major demutualization in the past 10 years,” says Principal senior vice president and general counsel Karen Shaff. The firm’s insurance practice was started in the early ’80s, and hit its stride in 1992, when the firm handled the demutualization of The Equitable Life Assurance Society. The next year, Kelly, who has spent his entire career at Debevoise & Plimpton, became the second partner named to the group. Principal was the fourth demutualization that Kelly has handled — but the first whose prospectus had a section titled “The impact of recent terrorist attacks and possible military and other actions … .”

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