By Lisa Beilfuss And Leslie Scism
ACE Ltd. agreed to buy Chubb Corp. for $28.3 billion in cash and
stock, the largest-ever deal between two companies in the insurance
industry.
The deal comes as the property-and-casualty sector faces pricing
pressures on top of diminished interest income.
In Chubb, ACE gets one of the most well-known brand names in the
industry, as its Masterpiece homeowners coverage is the choice of
wealthy Americans to protect their houses. ACE also targets high
net worth customers in its personal lines business, while both
companies have large middle-market commercial lines businesses.
Chubb holders will receive $62.93 in cash and 0.6019 shares of
ACE, valuing the company at $124.13 a share. The price tag
represents a 30% premium over Tuesday's close. Chubb shares surged
33% to $126.12 in early trading, while ACE climbed 5.6% to
$107.40.
Amid a booming market for mergers and acquisitions, the tie-up
is one of the largest deals of the year and the biggest ever in the
insurance space, with the exception of the U.S. government's
bailout of American International Group Inc. in 2008.
ACE shareholders will own 70% of the new company, which will
operate under the Chubb name globally. Evan Greenberg, the chief
executive of ACE, will lead the combined company. Chubb CEO John
Finnegan will serve as executive vice chairman for external affairs
of North America and will assist with the integration. Four
independent directors from Chubb's board will be added to the
combined entity's board.
The companies expect to complete the deal during the first
quarter of next year.
"This is a landmark deal that puts two awfully good companies
together and forms a global powerhouse with deep and defensible
U.S. market penetration," said David Havens, a credit analyst with
Imperial Capital LLC.
Mr. Greenberg appears to be following in the footsteps of his
father, Maurice R. "Hank" Greenberg, who built his own insurance
empire as the long-time chairman and chief executive of AIG.
Evan Greenberg abruptly left AIG in 2000 as the heir apparent to
his father after a 25-year career there and joined ACE the
following year. His father, meanwhile, is currently fighting the
government over the terms of AIG's 2008 bailout.
Mr. Finnegan said on a conference call with analysts that the
deal came together in the past few weeks and he didn't shop the
company.
By the third quarter post-closing, ACE said it would realize
annual expense savings of about $650 million pretax. The deal will
immediately add to earnings and book value.
Zurich-based ACE has made a series of smaller deals over the
past year, buying with a local partner most of Thailand-based Siam
Commercial Samaggi Insurance PCL last year, along with a property
and casualty business from Brazil's Itau Unibanco Holding SA and
certain Fireman's Fund operations from Allianz SE.
Last year, Ace earned $2.9 billion on $19.2 billion in
revenue.
For its part, Chubb is one of the biggest personal-lines and
business insurers in the U.S. Its operations in 25 countries will
build on ACE's existing presence in 54 countries. Last year, the
New Jersey company reported a profit of $2.5 billion on $12.6
billion in sales. Its conservative underwriting and investment
approach enabled it to weather the 2008 financial crisis with
little damage to its balance sheet.
But low interest rates are hurting insurers' investment income,
which accounts for a substantial portion of their profit as they
invest premium dollars until claims have to be paid. What's more,
property-casualty insurers are facing pressure from what most
people view as a stroke of great luck: no major hurricanes making
landfall in the U.S. in the past couple years. Insurers' capital
bases are growing in the absence of sending claims checks to
individuals and consumers, and their stepped-up competition with
each other to put the capital to work is depressing prices.
Numerous deals already are in the works involving reinsurers,
the companies that take on some, or all, of the risk of policies
sold by insurers to individuals and businesses, from another
interest-rate driven phenomenon: a huge influx of money into the
reinsurance business from pension funds, family wealth offices and
sovereign wealth funds, among others, as they seek diversification
and higher-yielding alternatives to low interest rates.
Broadly, merger and acquisition activity has been on fire this
year, as companies gain more confidence about the economy, use
stockpiles of cash to reach for future growth and get boosts from
low interest rates and the surging stock market. Ace's bid for
Chubb lands the deal near the top of the heap, adding to the more
than $2 trillion in M&A deals or offers unveiled globally so
far this year.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com and Leslie Scism
at leslie.scism@wsj.com
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