Chubb To Acquire Executive Risk At Premium
Chubb Corp. and Executive Risk announced this morning that they have entered into a definitive merger agreement under which Chubb will acquire Executive Risk. The agreement, which has been approved by the boards of directors of both companies, provides that Executive Risk shareholders will receive 1.235 shares of Chubb common stock for each outstanding common share of Executive Risk.
Based on the closing prices of both companies' shares on Friday, Executive Risk shareholders would receive the equivalent of $71.71 per share. This represents a premium of 63% over Friday's closing price, 44% over Executive Risk's average trading price for the last month and 38% over Executive Risk's three-month average trading price. The total value of the transaction would be approximately $850 million.
"Our partnership with Executive Risk will enable Chubb to solidify leading market positions in numerous, profitable executive protection lines and move to top positions in others," said Dean R. O'Hare, chairman and CEO of Chubb. "By further strengthening our position in specialty lines that offer attractive opportunities for profitable growth, we achieve one of our key strategic acquisition criteria. Moreover, both companies share a commitment to underwriting profitability and a belief that the best way to make good on this commitment is through further expansion in specialty markets."
"This transaction achieves several goals for Executive Risk," said Stephen J. Sills, Executive Risk's president and CEO. "It delivers substantial immediate value to our shareholders. It further strengthens our directors and officers and our errors and omissions businesses by combining them with those of Chubb, long a leader in these markets. We believe our shareholders can benefit further from the merged company's continued growth, and our employees will have new opportunities for reward and career growth in the combined organization. Chubb is the right strategic merger partner for us, and we are delighted to be joining forces with them."
Chubb said that following completion of the merger, it plans to establish a new operation, Chubb-Executive Risk, based in Simsbury, CT, which will manage the combined company's book of executive protection business. This business had combined gross premiums of approximately $1.7 billion in 1998. This new entity will be managed by Sills, chairman and CEO, and Gary J. Tully, president and COO. Tully is currently the head of Chubb's executive protection practice.
"Combining Chubb's top-rated balance sheet and 115-office global network with Executive Risk's fast, innovative product development capability will enable us to better leverage both of our strengths in the marketplace," said Chubb's O'Hare. "In addition, our relationships with 5000 retail independent agents and brokers worldwide and Executive Risk's relationships with more than 2200 wholesale agents, specialty brokers and program administrators offer both companies access to whole new distribution channels."
"While the combination will result in expense savings, the driving force here is the opportunity to accelerate premium growth in attractive specialty markets," said Sills of Executive Risk. "These are markets where we expect to achieve the kind of attractive underwriting profit margins that both companies have consistently achieved."
Chubb expects the transaction to result in modest earnings dilution in 1999 of less than 2%. In the year 2000, Chubb expects the transaction to be slightly accretive. O'Hare said, "The combination of cost savings and the opportunities for significantly enhanced premium growth will minimize the dilutive impact. Moreover, the financial strength of Chubb will allow the company to cede a smaller portion of Executive Risk's business in the future."
The merger agreement contains customary termination provisions including an option for Chubb to acquire 19.9% of Executive Risk's shares. The directors of Executive Risk have all agreed to vote their shares in favor of the merger. Completion of the acquisition is subject to approval by Executive Risk shareholders and various regulatory authorities. Closing is expected in the second quarter of 1999.