The reinsurance giant Swiss Re is to swallow the bulk of the insurance business of the US giant General Electric for $7.6bn (£4.4bn).
The deal gives the Zurich-based company, which helps insurers shoulder risk, a bigger share of the lucrative European property, health and life market. It should propel annual revenues above those of its rival Munich Re, the world's biggest reinsurer.
Swiss Re is to raise up to $7.5bn to finance the acquisition, which will be made in cash, shares and convertibles, plus the assumption of $1.7bn debt. John Coomber, the outgoing chief executive at Swiss Re, said: "This is both strategically and financially attractive transaction that creates significant value for our shareholders.
"The acquisition provides a powerful business fit offering tremendous opportunities to strengthen our franchise. Swiss Re expects the transaction to be accretive to earnings per share and return on equity, beginning in 2007, the first full year after closing."
Earlier this month, his company warned that profits this year would not meet previous forecasts after calculating that claims against it from Hurricanes Rita and Wilma would cost $731m. It said a target of 10 per cent earnings-per-share growth would not be met in 2005.
Hurricane Rita hit Texas on 24 September, shortly after Hurricane Katrina that devastated the Gulf Coast. Rita is estimated to have caused $9.6bn-worth of claims. Hurricane Wilma triggered claims of up to $11.5bn.
Swiss Re expects one-off restructuring costs to top $250m in the wake of yesterday's deal, on top of the expense of integrating GE's business. But an estimated $300m will be saved each year from combining the two.
The incoming chief executive of Swiss Re, Jacques Aigrain, the former JP Morgan Chase banker who takes the helm in January, said: "Scale does matter in our business. A strong balance sheet and absolute scale allows us to serve the industry and serve the final clients better and with more capital efficiencies, especially in view of major catastrophes."
The acquisition of the Kansas-based GE Insurance Solutions, the world's fifth-biggest reinsurer, should be complete by the middle of next year. Jobs cuts are likely, Mr Aigrain warned.
General Electric said it is paring its reinsurance operations to try to improve overall returns. It is not writing and more life reinsurance business in the US.
The chief executive of GE, Jeffrey Immelt, wants to focus on more quickly expanding areas such as consumer finance.
After completion, GE will own at least one-tenth of Swiss Re, which has more than 70 offices in more than 30 countries. Dennis Dammerman, GE's vice chairman, will seek a seat on the Swiss Re board in January.Reuse content