AFG to Merge With Subsidiary

Cincinnati-based American Financial Group Inc. announced today that it has entered into a merger agreement with its subsidiary, American Financial Corporation (AFC), pursuant to previously announced plans to simplify its corporate structure and eliminate AFC’s publicly-traded preferred stock, thus converting minority interest into shareholders’ equity.

AFG owns 100 percent of the common stock and 79 percent of the voting equity securities of AFC. AFC has one series of publicly held voting preferred stock, Series J, which represents the other 21 percent of AFC’s voting securities. Under the merger agreement, AFG and AFC will merge, pursuant to which Series J preferred shareholders will receive $25.00 per share in common stock of AFG.

Negotiations between AFG and a Special Committee of Independent directors on AFC’s Board of Directors subsequent to the April 17, 2003, announcement of the merger plan have resulted in an increase in the amount of consideration to be received by holders of Series J Preferred Stock from $22.00 per share to $25.00 per share. Additionally, in the event that AFG common stock trades above $27.00 per share for a specified period prior to the merger, certain adjustments will be made. Accrued dividends on the Series J Preferred Stock will be paid in common stock of AFG from the last dividend payment date to the date of the merger.

As previously reported, it is expected that (i) the conversion of AFC’s Series J Preferred Stock to AFG common equity and (ii) the elimination of the deferred tax liabilities associated with AFC’s holding of AFG stock, will result in a 12 percent to 15 percent increase in AFG shareholders’ equity.

The transaction is subject to approval by a majority of the outstanding shares of Series J Preferred Stock and a majority of those shares of Series J Preferred Stock voting on the matter which are not held by certain affiliates of AFG, and certain other conditions. The company hopes to complete the merger in the third quarter of 2003.