Axa Reported in Serious Talks with Credit Suisse to Acquire Winterthur

November 26, 2004

A report from the Financial Times indicates that France’s Axa Group is in serious discussions with Credit Suisse to acquire Winterthur, the banking group’s insurance division.

Credit Suisse had dropped hints earlier this month that it would be interested in selling Winterthur – at the right price – as it moves to concentrate its capital and energy on its core banking activities. The latest reports state that the two financial services giants have concluded a memorandum of understanding, as a first step in serious negotiations.

Winterthur is Switzerland’s largest P/C insurer with an estimated value of around 5 billion euros ($6.5 billion), according to the FT. Acquiring Winterthur would further bolster Axa’s already strong position in the European P/C insurance market, where it is already the second largest group, behind Germany’s Allianz. It would also fit in with Axa’s plans for continued growth in the P/C market, after concentrating most of it energy recently on the life and financial services sectors.

Credit Suisse has long been known to want out of the insurance business. Parts of Winterthur in fact have already been sold off. XL acquired its international specialty operations in July 2001. It sold its Portuguese P/C business to Liberty Mutual in Nov. 2002, and more recently sold is Italian operations to Unipol and its Churchill P/C unit in the U.K. to Royal Bank of Scotland in June 2003.

In the meantime Credit Suisse has been engaged in restructuring its U.S. business [following an earlier probe by NY Attorney general Eliot Spitzer on illegal activities in the financial industry], and shoring up Winterhtur’s finances. It was forced to add some $1.338 billion in additional capital in October 2002.

As Winterthur appears to have turned the corner, it now appears an opportune moment to sell it. The insurer posted Q3 net profits of SwF. 362 million ($316 million). Acquiring Winterthur would fit well with Axa’s current operations in Switzerland, and would strengthen its market share in other EU countries and Turkey.

Credit Suisse is scheduled to make a presentation to investors on December 7, 2004, and will reportedly outline its future plans for Winterthur. By that time there should be a more definitive announcement on whether or not any offer by AXA to acquire the operations is part of the company’s investment strategy.

Most analysts, who have so far commented on the proposed acquisition, seem to concur that it would be a good move for both companies, and is therefore likely to occur.

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