Swiss Re to acquire GE Insurance Solutions for USD 6.8 billion in a value creating transaction
18 November 2005, Zurich
Swiss Re today announced it has agreed to acquire GE Insurance Solutions, the fifth largest reinsurer worldwide, from General Electric Company (GE) in a USD 6.8 billion transaction. This financially attractive acquisition adds a strong franchise to Swiss Re, complementing its own strengths. After the closing of the transaction, Swiss Re would have estimated combined revenues of CHF 46 billion (based on 2004 figures) and assets of CHF 265 billion (as of June 2005) and a highly diversified business globally.
Based in Kansas City, MO, USA, GE Insurance Solutions had net premiums earned of USD 6.2 billion in 2004 and total assets of USD 41.5 billion as of June 2005 (excluding GE Insurance Solutions' US life and health business which will not be part of the transaction). GE Insurance Solutions brings to Swiss Re complementary products and skills and an attractive client base across many geographies.
"This is both strategically and financially a very attractive transaction that creates significant value for our shareholders," said John Coomber, Swiss Re Chief Executive Officer. "The acquisition of GE Insurance Solutions provides a powerful business fit offering tremendous opportunities to strengthen our franchise."
John Coomber continued: "Over the past several months, we and our advisors have undertaken a thorough due diligence review of GE Insurance Solutions, including its reserves. This will enable us to incorporate this business in line with our own reserve standards. Swiss Re expects the transaction to be accretive to earnings per share and return on equity, beginning in 2007, the first full year after closing." (*)
Terms of the transaction
Under the terms of the transaction, Swiss Re will purchase GE Insurance Solutions for USD 6.8 billion, subject to closing adjustments. This represents 76 percent of the approximate USD 8.9 billion US GAAP book value (before reserve strengthening) of the businesses to be acquired. As part of this transaction GE has agreed that GE Insurance Solutions will provide approximately USD 3.4 billion pre-tax in additional reserves to the extent permitted by accounting rules. The consideration to be paid to GE will consist of cash, Swiss Re shares, Mandatory Convertibles and Notes. As a result, GE is expected to hold Swiss Re shares in excess of 10%.
Also under the terms of the agreement, Dennis D. Dammerman, Vice Chairman of the Board of GE, will stand for election to the Board of Directors of Swiss Re at the Extraordinary General Meeting to be held in January 2006.
Jacques Aigrain, who will succeed John Coomber as CEO of Swiss Re on 1 January 2006, added, "This transaction further enhances our client base and our product capabilities in attractive lines of business. Together, Swiss Re and GE Insurance Solutions will offer clients the security of the world's largest and most diversified reinsurance provider. GE's retention of an equity interest in our combined reinsurance business is a strong endorsement of our business expertise and strategy."
"Over the past five years, we have fundamentally repositioned GE Insurance Solutions' business," said Jeffrey R. Immelt, CEO of GE. "We believe that Swiss Re, with its reinsurance focus and its proven track record of successfully integrating acquired businesses, is ideally positioned to develop GE Insurance Solutions' business further for the benefit of clients and GE's shareholders."
In connection with the transaction, Swiss Re plans to raise up to USD 7.5 billion (CHF 9.8 billion) in new capital. This includes up to USD 5.5 billion (CHF 7.2 billion) in shares and Mandatory Convertibles of which GE has agreed to take, based on certain provisions of the acquisition agreement, USD 3.0 to 3.8 billion (CHF 3.9 to 4.9 billion). Swiss Re also plans to raise USD 2.0 billion (CHF 2.6 billion) in hybrid debt securities.
The shares to GE will be issued without subscription rights to existing shareholders. In addition, Swiss Re plans to offer shares through a rights offering and Mandatory Convertibles to the capital markets. The actual mix of these securities will be determined based on market conditions. Exact terms will be announced at the time of these offerings.
Approvals and timing
Both the creation of authorised capital and the increase of conditional capital in connection with this transaction will be subject to shareholder approval at the Extraordinary General Meeting to take place in January 2006.
Closing of the transaction is subject to regulatory approvals and other customary contractual closing conditions. Closing is expected to occur by mid 2006.
Appointment to Swiss Re's US property and casualty business
Separately, Swiss Re also announced today that Pierre Ozendo, currently Head of Swiss Re's client markets in Asia, will succeed Andreas Beerli as Head of Property, Casualty client markets for the Americas. This appointment becomes effective as of 1 January 2006. Pierre Ozendo, a US citizen, has led Swiss Re's successful expansion in Asia and now will be responsible for the effective integration of GE Insurance Solutions and Swiss Re's P&C businesses in the Americas, building on the combined strengths of the two franchises for the future.
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