Swiss Re/GE Solutions Deal ‘On Track’; Less Equity Funding Needed

Swiss Re announced that the acquisition process of GE Insurance Solutions, including regulatory approvals, “is well on track for the expected mid-2006 closing of the transaction.” The soon to be world’s largest reinsurer also said it has enough cash on hand to reduce the amount of a planned equity issue to fund the purchase by CHF 1 billion ($783 million) from $4.7 billion to $3.9 billion. The basic purchase price of $7.6 billion remains unchanged.

The same bulletin also announced that John Fitzpatrick, Head of Financial Services, will leave Swiss Re in order to set up a new investment fund with Swiss Re’s support (See related article).

The bulletin also notes that Swiss Re and GE “have agreed that the portion of the purchase price payable in Swiss Re shares is to be reduced to $2.4 billion. In addition, $500 million of mandatory convertible instruments are expected to be issued to GE, resulting in total ownership in Swiss Re by GE of less than 10 percent.” The decision clarifies the question of how big GE’s stake in Swiss Re will eventually be.

In addition Swiss Re said it “expects to undertake a rights offering of $1.0 billion equivalent to existing shareholders at market, new shares will be offered to existing shareholders without a discount. Swiss Re expects to offer new shares on a 1-for-17 basis (i.e., one new share for each 17 existing shares). Shares not taken up will subsequently be available in a global offering. Hybrid debt securities which are still planned at $2.0 billion equivalent will also be launched in the second quarter of 2006.”

While Swiss Re is anxious to integrate the two operations, at an estimated cost savings of $300 million by 2008, it acknowledged that this “can only begin after the closing of the transaction, which is subject to pending regulatory approvals and other customary contractual closing conditions.”

Plans, however, are progressing; “principally through organizational streamlining in large locations such as Munich, London, New York, Kansas City and Zurich,” the bulletin noted.

Topics Mergers & Acquisitions