Scor SA, France's largest reinsurer, offered to buy Converium Holding AG for 3.1 billion Swiss francs ($2.5 billion) in a deal that would increase premium income by about half. Converium rejected the bid.
Scor gained control of 32.9 percent of Converium for the equivalent of 21.1 Swiss francs a share, the Paris-based company said today. That's 12 percent higher than Converium's Feb. 16 closing share price of 18.8 francs.
``This deal makes sense, as none of the two companies had the critical size needed in this business,'' said Pierre Flabbee, an analyst at Kepler Equities in Paris. ``This will create a bigger, more solid reinsurance company, which will be able to have better ratings.''
Chief Executive Officer Denis Kessler in November said Scor plans to ``expand by acquisitions,'' after last year buying German rival Revios Ruckversicherung AG for 605 million euros ($796 million) to create the fourth-largest life reinsurer. Converium is losing business as it waits for the U.S. Securities and Exchange Commission to settle a probe, a requirement for it to regain the higher credit rating needed to win new contracts.
Shares of Scor fell 1.33 euros, or 6.3 percent, to 19.78 euros, the biggest drop in eight months. Converium surged 2.2 francs, or 12 percent, to 21 Swiss francs by 11:12 a.m. in Zurich. They have gained 49 percent in the past six months.
Scor's bid follows last year's acquisition by Swiss Re of General Electric Co.'s Insurance Solution unit for $7.4 billion. Axa SA, Europe's second-largest insurer, in June agreed to sell its Axa Re reinsurance unit to a group of investors. Reinsurers help primary insurers like Allianz SE shoulder risks for clients.
`Growth Prospects'
Converium, which last week forecast gross written premiums of as much as $2.2 billion this year, said it rejected Scor's offer because it isn't in the interests of shareholders.
Scor's bid ``fundamentally fails to recognize the value of Converium's franchise and growth prospects,'' Converium said in an e-mailed statement.
Converium in 2004 reported an unexpected $660 million loss triggered by a reserve shortfall in the U.S., prompting Standard & Poor's to cut the reinsurer's rating. The rating company has said it will restore Converium's ``A'' rating from the current ``BBB+'' once SEC investigations are settled.
``Time is running out for Converium,'' said Stefan Schuermann, a Zurich-based analyst at Credit Agricole Cheuvreux. ``Their rating upgrade still hasn't come through, and when it comes, their real growth push won't arrive until 2008.''
Cash, Shares
Scor said it bought 8.3 percent of Converium ``through direct market purchases and 24.6 percent through share purchase agreements.'' The latter were paid for with 20 percent in cash and 80 percent in newly issued shares, it said.
Scor ``regrets the Converium board's initial reaction to the proposal,'' the French reinsurer said.
Patinex AG, the investment company of Swiss financier Martin Ebner, sold ``close to'' 20 percent in Converium in shares and options, said Patinex spokesman Ralph Stadler in a telephone interview.
Scor last week reported an 11 percent gain in full-year revenue, boosted by increased property and casualty reinsurance sales and the Revios acquisition.
Converium said it is being advised by Credit Suisse Group and JPMorgan.
``It sounds like Converium is expecting a higher price,'' said Georg Marti, an analyst at Zuercher Kantonalbank, who has a ``market perform'' rating on Converium shares.
source:www.bloomberg.com
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