Nationwide Financial Services it will buy Provident Mutual in a sponsored demutualization worth $1.5 billion.

According to Nationwide Financial, it will become the nation's third-largest provider of variable life insurance upon close of the deal. Additionally, eligible Provident Mutual policyholders will receive shares of Nationwide Financial stock. The transaction, which has been approved by the boards of directors of both companies, is expected to close in the second quarter of 2002. The deal is subject to regulatory approval needed to complete the demutualization.

Nationwide Financial says it plans to issue more than 26 million common shares of stock to sponsor Provident Mutual's demutualization. Demutualization is the process whereby an insurance company that is owned by policyholders converts to a stock company held by shareholders.

Nationwide Financial stock has slipped 5.4 percent in 2001. Standard & Poor's Insurance Ratings Services put the company, rated BBB+, on a negative credit watch. According to the ratings firm, "an insurer rated 'BBB' has good financial security characteristics, but is more likely to be affected by adverse business conditions than are higher-rated insurers."