After months of rejections and speculation, the Swiss reinsurer Converium AG today announced its board of directors unanimously accepted a revised offer from the French reinsurer SCOR.
Markus Dennler, chairman of Converium's board of directors, cited an adjustment in the offer price to explain the change of heart.
"The increase in the offer price represents a significant improvement in the consideration offered to our shareholders," he said. "The offer price recognizes our remarkable turnaround of the past two years. It further reflects the exceptional quality of our staff, longstanding client relationships and excellent growth prospects supported by a strong capital position."
Converium said its board "therefore recommends that shareholders accept the improved offer," adding that the decision is fully supported by all members of its Global Executive Committee.
Under the terms of SCOR's revised offer, each Converium share may be exchanged for 0.5 new SCOR shares plus CHF 5.5 in cash ($4.51) and further foresees that the consideration will not be reduced by Converium's proposed gross dividend of CHF 0.2 per Converium share.
Previously the offer was 0.5 new SCOR shares plus CHF 4 in cash ($3.28). Based on the closing price of SCOR shares on Euronext Paris on May 9, the offer price valued each Converium share at CHF 23.2 ($19.05).
Converium said its shareholders also will benefit from SCOR's proposed dividend for the business year 2006 of EUR 0.8 per SCOR share, as they will receive for each tendered Converium Share an equivalent amount of CHF 0.66 in cash (54 cents), which equals 50 percent of the amount of the dividend paid (in EUR) per SCOR share.
Converium said it is committed to ensuring a "smooth combination of the two businesses. This includes the desire to maximize the value of synergies and to facilitate the retention of talent and clients."
The reinsurer, however, confirmed that its Chief Executive Inga Beale and Chief Financial Officer Paolo De Martin will step down at this end of this year.
"No decisions re: the future management have been taken yet until the new ownership is formally disclosed," Beat W. Werder,head of Converium's public relationstold National Underwriter in an e-mail. He added that the two resigned because "no adequate jobs in the new constellation were offered."
In August and September 2004 Converium was downgraded by S&P, A.M. Best and Moody's. The actions came when Converium revealed that it needed to boost reserves on U.S. casualty business by $400 billion, and that an independent actuarial study estimated a further reserve deficiency of $213 million. Since then the reinsurer worked to gradually restore its ratings.
Standard & Poor's Ratings Services said today that its ratings on Switzerland-based reinsurer Converium AG of "A-minus" with a stable outlook remain unaffected by SCOR's recommended offer and its guaranteed operating entities are unaffected by the announcement.
S&P also said in another statement that SCOR's "A-minus" ratings are unaffected as well.
"The endorsement of the Converium board and the stated commitment of the Global Executive Committee to retain Converium talent and its clients lessens the potential for Converium's franchise value to be eroded should SCOR's revised bid be successful," S&P said.
S&P cautioned, however, that a negative rating action could still follow for Converium in the case of "a significant loss of key staff and/or support from its key European client base arising from the proposed transaction."
S&P said that any "material defection of key Converium staff (particularly within the front office) or clients could conceivably lead to pressure on the ratings or potentially trigger a revision of the outlook to negative, although this is not expected."
Other causes for a negative rating could be an adverse change in Converium's financial position after completion, or separately, unexpected material legacy costs arising from loss-reserve strengthening or regulatory sanction.
S&P said the risk of damage caused to Converium's franchise has diminished, however, because the bid now has full support of Converium's board.
Moody's Investors Service affirmed its A3 insurance financial strength rating and stable outlook of SCOR and all related ratings.
Moody's noted that the Converium Board's decision is fully supported by all members of Converium's Global Executive Committee, noting that Converium has withdrawn its litigation against SCOR in the US.
The rating agency said that, in its opinion, the fact that SCOR's offer can no longer be considered hostile improves the likelihood that SCOR will succeed in its aim of acquiring 100 percent of Converium.
Moody's said that an acquisition of Converium makes strategic sense for SCOR and would enhance its market position, with the combination of the two businesses resulting in a leading global reinsurer with a particularly strong position in Europe.
There are inherent uncertainties and execution risks associated with such a transaction, Moody's added.
Story updated, May 11, 2007.
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