PartnerRe To Acquire Paris Re

NU Online News Service, July 6, 3:16 p.m. EDT

Pembroke, Bermuda-based PartnerRe said it will acquire French-listed, Swiss-based reinsurer Paris Re in an estimated $2 billion stock-for-stock transaction.

Once the transaction is completed, Paris Re and its operating subsidiaries will be fully integrated into PartnerRe's existing operating structure, according to PartnerRe.

PartnerRe said it will exchange 0.30 of its common shares for each Paris Re common share outstanding in a stock-for-stock transaction. The company added that the acquisition is expected to add $1.7 billion in new shareholders' equity to PartnerRe, and Paris Re is expected to distribute $310 million--net of amount due on existing treasury shares held by Paris Re--in cash as a return of capital to its shareholders.

In the first step of the transaction, PartnerRe said it will acquire an additional 57 percent of Paris Re's outstanding common shares in addition to the 6 percent of common shares PartnerRe had previously purchased. The closing of this block purchase is expected to occur in the fourth quarter of 2009, PartnerRe said, and the company may enter into agreements to purchase additional Paris Re shares from other Paris Re shareholders.

Immediately prior to the closing of the block purchase, Paris Re intends to effect a return of capital equivalent to $310 million, or $3.85 per common share, in cash, to all of its shareholders, PartnerRe said.

Following the closing of the block purchase, PartnerRe said it intends to commence a voluntary exchange offer for all remaining Paris Re common shares at a 0.30 exchange ratio.

Once PartnerRe owns at least 90 percent of Paris Re's outstanding shares, PartnerRe said it intends to acquire any remaining shares through a compulsory merger under Swiss law at the same 0.30 exchange ratio.

In a conference call, PartnerRe President and Chief Executive Officer Patrick Thiele said the acquisition is in response to uncertain and volatile risks in today's market. He said the capital markets, recession, potential inflation, changes in reinsurance buying behavior, uncertainty of loss trends, and chance of increased regulation are just some obstacles facing reinsurers.

The acquisition of Paris Re offers PartnerRe a stronger balance sheet and financial flexibility, he said, calling the transaction "evolutionary" for PartnerRe, and not "transformational."

In response to the announcement, Standard & Poor's ratings services revised its outlook on PartnerRe and related operating entities to negative from stable and affirmed Partner Re's "AA-minus" financial strength rating.

S&P credit analyst Laline Carvalho said, "Although we believe the proposed acquisition will significantly enhance PartnerRe's competitive position in the global reinsurance sector and provide broader client and distribution channel diversification, the negative outlook reflects concerns about potential integration risk, particularly given the large size of the acquisition, which we expect to increase PartnerRe's premium writings by 30 percent and capital base by 37 percent."

S&P also placed Paris Re's "A-minus" long-term counterparty credit and insurer financial strength ratings on CreditWatch with positive implications.

Oldwick, N.J.-based A.M. Best placed Paris Re's "A-minus" financial strength rating under review with positive implications. The rating agency took no action on PartnerRe.