Zurich Group and B.A.T. Industries Announce Progress Towards Merger
Current shareholdings in B.A.T Industries will be replaced by shares in two new companies, Allied Zurich PLC, which will own 43 per cent of Zurich Financial Services and British American Tobacco PLC, both listed on the London Stock Exchange. The listing particulars for Allied Zurich PLC have been published and B.A.T Industries' shareholders will be asked to vote on the merger proposal on 12 June. At Zurich's Annual General Meeting of 11 June 1998, the shareholders of Zurich will be invited, amongst other things, to pass resolutions related to the proposed merger.
At media conferences in Zurich and London, Rolf Hüppi, who will be Chairman and Chief Executive Officer of Zurich Financial Services and Lord Cairns, the future Vice Chairman, detailed the development and future strategy of the new company.
Commenting on the merger, Rolf Hüppi, the proposed chairman and CEO of Zurich Financial Services, said, "This merger will create a global powerhouse. What excites me most about it is the combination of Zurich's focus on providing global solutions and the tremendous distribution and production capacity embedded within B.A.T Financial Services. Together with Scudder Kemper Investments, the Zurich Financial Services Group will have in effect three new, efficient production centers. Here economies of scale work to our advantage and a concentration of expertise fuels innovation."
Lord Cairns, the future vice chairman of Zurich Financial Services, said, "The combined company creates tremendous opportunities. For Farmers, it will expand into new states as well as cross-market Zurich products to its existing customers. Furthermore, Farmers agents will have an opportunity to offer products from Scudder Kemper Investments. B.A.T Financial Services operations will be able to benefit from Zurich's global expertise, while Allied Dunbar's prowess in distribution can contribute substantially to Zurich's existing distribution systems."
Zurich Financial Services will combine two powerful and complementary business portfolios to create one of the world's largest insurance and financial services groups, operating in over 50 countries and serving some 30 million customers. It will have a strong presence in each of its three home markets, remaining the largest insurance group of Switzerland, the third largest non-life insurer in the UK and the third largest property and casualty writer in the US. In asset management, Zurich Financial Services will be one of the world's top ten asset managers with some USD 375 billion in assets under management.
The combination of the two businesses is not simply a cost cutting exercise, according to the company. While there will be significant annual savings of up to USD 400 million by the end of the third year after the merger, the main goal is to create additional opportunities for long-term growth through revenue enhancements and cross-selling among the company's four core businesses of non-life insurance, life insurance, reinsurance and asset management.
Joint control of Zurich Financial Services will be ensured by the requirement for a super-majority, of 58 per cent of the votes, on any matter requiring shareholders approval. Zurich Group and B.A.T Industries will be equally represented on the initial board of Zurich Financial Services.
Zurich Allied and Allied Zurich will pay dividends annually in Swiss Francs and Pounds Sterling respectively. The Zurich Financial Services and its subsidiaries are expected to pay dividends to Zurich Allied and Allied Zurich, representing approximately 30 per cent of sustainable profits in USD, thereby retaining an appropriate level of capital to fund future growth. Zurich Allied and Allied Zurich will receive dividends from Zurich Financial Services in proportion to their shareholdings in that company. Zurich Allied and Allied Zurich will dividend substantially all amounts received from the Zurich Financial Services Group, net of expenses.
Zurich Allied AG will apply for a listing of its registered shares on the Swiss Exchange. With a current market capitalization of approximately CHF 42 billion, the present Zurich is among the ten most highly capitalized Swiss public companies. The future market capitalization of Zurich Allied AG is expected to essentially mirror that of the present Zurich; Zurich Allied AG will replace Zurich in the Swiss Market Index (SMI), which represents the 20-25 most important Swiss companies listed on the Swiss Exchange. On the other hand, Allied Zurich PLC is expected to be included in the FTSE-100 index in London, therefore Zurich Financial Services will effectively be a significant factor in both of these equity markets. The dual listing structure will enable Swiss and UK shareholders to hold their interest in Zurich Financial Services through a domestic investment quoted and traded in the local currency, CHF or GBP. It also represents a tax efficient way to merge the two groups for those shareholders.
Key financial data
The tables below show the pro-forma results for the Zurich Group and B.A.T Financial Services for the 3 years ended 31 December 1997, in accordance with International Accounting Standards.
| Zurich Group (restated) |
1995 | 1996 | 1997 |
| (USD millions) | |||
| Gross written premiums, policy fees and life investment product deposits |
22,990 | 24,416 | 25,567 |
| Gross written premiums and policy fees |
22,005 | 22,769 | 21,452 |
| Operating income | 1,236 | 1,332 | 1,664 |
| Net income | 849 | 1,057 | 1,238 |
| (USD billions) | |||
| Assets under management at the year end |
132 | 150 | 296 |
| -- of which third party assets | 56 | 63 | 204 |
| B.A.T Financial Services (restated) |
1995 | 1996 | 1997 |
| (USD millions) | |||
| Gross written premiums, policy fees and life investment product deposits |
7,463 | 7,520 | 8,551 |
| Gross written premiums and policy fees |
5,240 | 4,948 | 5,530 |
| Operating income | 1,360 | 1,464 | 1,545 |
| Net income | 945 | 905 | 1,006 |
| (USD billions) | |||
| Assets under management at the year end |
63 | 72 | 79 |
| -- of which third party assets | 15 | 16 | 18 |
Pro-forma figures for Zurich Financial Services
The table below shows pro-forma figures for the Zurich Financial Services Group as of, and for the year ended, 31 December 1997.
|
Pro-forma 1997 |
|
| (USD millions) | |
|
Gross written premiums, policy fees and life investment product deposits |
34,118 | Gross written premiums and policy fees | 26,982 |
| Operating income | 3,135 |
| Net income | 2,142 |
| Shareholders' equity | 21,412 |
| (USD billions) | |
| Assets under management at the year end | 375 |
| -- of which third party assets | 222 |