ACE Buying CIGNA P&C Ops For $3.45 Billion
Hamilton, Bermuda-based ACE Ltd. has agreed to acquire the international and domestic property and casualty insurance businesses of CIGNA Corp. for $3.45 billion in cash, under an agreement announced by both companies. ACE says it will move it's U.S. headquarters from Atlanta to Philadelphia, where CIGNA's P&C operation is based.
The transaction, which is subject to receipt of necessary regulatory approvals and other customary closing conditions, is expected to be completed by the end of the second quarter of calendar 1999.
"The acquisition of one of the very few truly global franchises in our core business of property and casualty insurance represents a quantum leap for ACE," said Brian Duperreault, chairman, president and chief executive officer of ACE. "This transaction significantly strengthens ACE's position as a premier player in each of the world's major insurance markets, including the U.S., with a business that is diversified by industry, market and client type. This is an historic event, one that transforms ACE into one of only a handful of truly international property and casualty insurance concerns, and provides a tremendous platform for future growth," he added.
Under the agreement, ACE will acquire CIGNA's domestic property and casualty insurance operations, including its run-off business. ACE will also purchase CIGNA's international property and casualty insurance companies and branches, including most of the accident and health business written through those companies.
"This transaction further positions CIGNA to capitalize on its strengths in the global employee benefits business. Over the past several years we have been reshaping our company to achieve our strategic goal of becoming the premier, and consistently most profitable, employee benefits company in the United States and internationally," said Wilson H. Taylor, chief executive officer of CIGNA.
Analysts expect Cigna, the nation's sixth largest managed care organization, to use the proceeds to buy a large regional HMO. John Erb, vice president of Gallagher Benefits Services in Boca Raton, FL, told the Associated Press. "In this era of consolidation, those proceeds are pretty likely to go toward acquisitions."
The acquisition includes run-off business CIGNA had placed under a separate subsidiary. ACE'S Duperreault said ACE expects "that there will be in place at the closing of the acquisition significant third-party protection against adverse development with respect to the loss and loss adjustment expense reserves of the run-off operations to be acquired, as well as certain other asbestos and environmental exposures." Mr. Duperreault said.
ACE plans to finance the deal with a combination of available cash and newly issued equity, debt, preferred and mandatorily convertible securities.
Gross written premiums of the businesses being acquired were $4.3 billion in 1997 with operating income for the same period of $198 million. Upon completion of the transaction, ACE will be a company with approximately $30 billion in assets and will employ more than 9,000 people in 47 countries worldwide.
"There are significant benefits and efficiencies to be derived from being a global organization whose primary focus is property and casualty insurance. As we assume CIGNA's business operations, we will seek to capitalize on ACE's strength and focus in property and casualty underwriting to enhance our profitability and growth potential," said Mr. Duperreault.
Standard & Poor's analyst Cathy Siefert told the Philadelphia Inquirer the sale should boost Cigna's stock price. "The property and casualty business was not the core business for Cigna," she said. "It's still an undervalued stock, particularly in light of this transaction, which gets them out of a slower-growth business." Cigna closed at $84.875, up $1.375 yesterday. ACE shares closed at $33.125, up 18.75 cents.