SoftBank seeks to join Swiss Re board

SoftBank CEO Son (left and on screen) is seen as an eternal dealmaker Keystone

SoftBank, the Japanese tech-to-financial conglomerate, is seeking to join Swiss Re’s board to influence how the reinsurer manages its $161billion (CHF149.2 billion) in investments, as talks progress over the acquisition of a large minority stake.

Masayoshi Son, SoftBank’s founder and chief executive, will meet with Swiss Re chairman Walter Kielholz in the coming weeks as the two sides look to come to an agreement that would give the Japanese group a foothold in the global insurance industry. 

Discussions now centre on a deal that would see SoftBank becoming an anchor shareholder in Swiss Re with a 20% to 30% and gaining multiple seats on the company’s board, according to people close to the matter. 

By doing so, Mr Son — a perpetual dealmaker always in search of greater capital to invest with — would bolster his company’s presence in financial services and give it sway in how Swiss Re manages its $161 billion portfolio. 

SoftBank, which is best known for its technology and telecoms holdings, is remaking itself into a powerhouse in financial services.

Last year it assembled a $93 billion Saudi-backed investment fund in which it has invested and manages, plus acquired hedge fund and private equity group Fortress for $3.3 billion. 

Synergies

The Swiss Re deal would not be funded by SoftBank’s investment fund, but by the company itself, which is looking to unlock synergies across its financial holdings. 

Swiss Re has a market value of CHF32.7 billion having climbed 4.5% since it confirmed “preliminary” talks with SoftBank in early February. A deal for 30% of the company would be worth CHF9.81 billion before any premium. 

SoftBank’s initial proposal was to buy up to a third of Swiss Re’s shares — just below the level for a mandatory takeover bid — at a premium to its undisturbed price via a public tender offer, people close to the matter added.

One person described the premium being discussed as “substantial” but declined to elaborate, while another person said it was “small” since SoftBank was not taking control of the company.

UBS and its chief executive Sergio Ermotti are helping SoftBank in the talks, with Mr Ermotti having made the initial approach to Mr Kielholz.

Historical links

Swiss Re is working with Credit Suisse, which has long historical links to Mr Kielholz, who was formerly its chairman. Mr Kielholz and Mr Son have already met at least once to discuss a deal, the people involved said. 

All parties cautioned that there was no guarantee a deal would be reached. SoftBank declined to comment. Swiss Re reiterated that talks were at an early stage, but declined to comment further.

SoftBank’s deal team is being led by Rajeev Misra, a former Deutsche Bank and UBS banker who joined forces with Mr Son in 2014 and now is on the SoftBank board and chief executive of the $93 billion fund.

Munish Varma, a senior credit trader who previously worked at Deutsche Bank and Nomura who joined his former colleague Mr Misra at SoftBank last year, is also working on the deal. 

Swiss Re’s leadership is intrigued by the possibilities to address technological disruption alongside Mr Son, said one person close to the talks.

Critical time

SoftBank’s interest comes at a critical time for the reinsurance industry, which has been beset by years of falling prices — and profits — as a flood of new capital has entered the sector. 

Prices have stabilised after last year’s natural catastrophes but they are not rising by as much as some in the industry hoped. 

At the same time, the threat from tech companies is growing as start-ups and more established tech businesses find new ways to create and sell insurance. 

A SoftBank investment in Swiss Re could ease some pressure on the Zurich-based reinsurer by giving it more customers in the primary insurance world. SoftBank has a wide variety of companies in its portfolio, from UK-based chip designer Arm to stakes in Uber and WeWork, all of which have insurance needs. 

However, there would be limits to the way SoftBank representatives could influence Swiss Re’s portfolio in the event of a deal. Reinsurers, who need to demonstrate their financial safety to their customers, are notoriously conservative investors. They tend to hold most of their money in safe, liquid assets. 

The Swiss company has been open to taking on outside capital in the past. 

Warren Buffett’s Berkshire Hathaway injected CHF3 billion into the company via convertible instruments in 2009. And just last year, Japanese insurer MS & AD agreed to invest £800 million (CHF1.04 billion) in ReAssure, a Swiss Re subsidiary that specialises in buying up old books of business. 

Swiss Re is due to report its full-year results on Friday. The numbers will be hit by $3.6 billion of claims from Hurricanes Harvey, Irma and Maria which affected the US and the Caribbean last autumn. Analysts will be watching for the company’s exposure to December’s wildfires in California, and for its comments on pricing.

Copyright The Financial Times Limited 2018