Converium turns down takeover by Scor
The Swiss Converium reinsurance company has rejected an unsolicited takeover offer of SFr3.1 billion ($2.5 billion) from a French rival, Scor.
Converium, which has been fighting to strengthen its position in the market after almost collapsing in 2004, said a proposed weekend bid of SFr21 per share did not reflect its return to financial health.
Scor said it had already bought a 32.9 per cent stake in Converium and confirmed that the Swiss company had rejected a full offer.
Paris-based Scor said it had paid SFr21.1 per share for the acquisition of its stake, in a mix of 20 per cent cash and 80 per cent newly-issued Scor shares.
The news sent the Converium share price climbing by 18 per cent at the opening of trading in Zurich to SFr22.25. However, stock in Scor fell by about nine per cent.
At the end of trading, Converium shares were up 13.56 per cent to SFr21.35, while stock in Scor was down 7.35 per cent to €19.57.
A statement from Converium from Zug on Monday said directors were "unanimous" in rejecting the proposal, which failed to recognise the value of the company's franchise and growth prospects.
Scor countered with a statement that said it was "fully convinced" that the combination of the two firms was in the best interests of both companies, their shareholders and stakeholders.
It added it remained keen on a full merger between the two groups.
Converium shares, which have increased in value by almost 15 per cent this year, closed at SFr18.80 on Friday. The proposed Scor bid per share is 12 per cent higher.
Analyst René Locher at Bank Sal. Oppenheim said he was not surprised that there had been an offer for the company.
"But what does surprise me is that it's from a European company. I would have though a bid would have come from a Bermuda reinsurer, because you often hear they need to diversify their business."
Converium last week said the premium volume in its January round of contract renewals had risen by three per cent, as existing clients signed more business, signalling it is able to retain clients despite the 2004 problems.
The company's premium income has halved from around $4 billion in 2004 after it discovered a $500 million hole in claims provisions that led to a series of credit-rating downgrades and forced the group to sell its United States business.
For this year, it expects gross written premiums of $2.1- $2.2 billion. It says it is confident it will soon gain an upgrade to the single-A level, which is considered essential for reinsurers to stay in business.
Credit rating agency Standard and Poor's has indicated it might upgrade the group as soon as the US Securities and Exchange Commission has given it the all-clear in a probe into Converium's restatement of its prior-year figures in 2006.
Scor agreed in July to buy German rival Revios Rückversicherung for €605 million (SFr981.3 million) to create the fourth-largest life reinsurance company.
It last week reported an 11 per cent rise in full-year revenue, boosted by increased property and casualty reinsurance sales and the Revios acquisition.
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In 2004, Converium - the former reinsurance business of Zurich Financial Services - was hit for six with problems at its United States subsidiary and had to raise capital to plug a hole in its reserves and stay afloat.
The company made a net profit of $68.7 million in 2005 after a loss of $582.5 million the previous year. It reported a net profit of $124.1 for the first six months of 2006.
Company CEO Inga Beale has said Converium "is working diligently towards meeting Standard & Poor's requirements for an upgrade at the earliest possible date".
Converium employs about 500 people in 15 offices worldwide and is organised into three business segments: Standard Property and Casualty Reinsurance, Specialty Lines, and Life and Health Reinsurance.
Reinsurance is basically insurance coverage for insurance companies.
Insurers buy reinsurance for risks they cannot or do not wish to keep fully themselves.
As with insurance, reinsurance is a promise to pay possible future claims against a premium today.
Reinsurers use sophisticated risk management processes to guarantee that the capital base and risks assumed are aligned.
Switzerland is home to the world's largest reinsurer – Swiss Re.
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