PartnerRe to buy rival Paris Re in $2 billion deal

Bermuda-based reinsurer PartnerRe said late on Sunday it will acquire smaller rival Paris Re in a $2 billion deal that catapults the company into the No. 4 spot among global reinsurers. PartnerRe Chief Executive Patrick Thiele said the financial and global economic crisis led the company to pursue the acquisition. "The world is in the process of change and reinsurers and insurers will likely have to change as well. We feel we will be more competitive with a larger amount of capital and diversification," he said in a telephone interview. PartnerRe will exchange 0.30 of its common shares for eachParis Re common share in an exchange offer that currentlyvalues the deal at $1.7 billion. In addition, Paris Re also plans to make a special cashdistribution to shareholders of $310 million, or about $3.85 ashare, prior to PartnerRe securing majority ownership. Paris Re's shares closed on Friday at 12.30 euros ($17.17). PartnerRe, which said it had already acquired about 6% of Paris Re's outstanding shares, intends to acquirefull ownership through a two-part exchange offer, including anagreement with a group of Paris Re's founding private equityshareholders to purchase about 57 percent of outstanding stockthrough a block transaction expected to close in the fourthquarter. The company said it expects to be able to acquire thebalance of outstanding shares by the first quarter of 2010. A final integration plan is not yet hammered out becausethe deal is still six to nine months from closing, said Mr. Thiele. PartnerRe, which was formed in 1993 in response to contraction in the property-catastrophe reinsurance marketafter Hurricane Andrew, bought Paris reinsurer SAFR in 1997, and Winterthur Re, the reinsurance operations of Winterthur Insurance Group, in 1998. The Paris Re acquisition is not expected to affectPartnerRe's financial strength ratings, added Mr. Thiele. PartnerRe, which derives nearly half of its premium volumefrom the European market, has a large operation in Paris. Mr. Thiele said that gives the two companies a "compatibleculture," and minimizes any risks in integrating Paris Re intothe company. He did not rule out job cuts. Paris Re has about 400 employees, and PartnerRe has about 1,000. Paris Re was formed in 2006 by a consortium of investorsled by Trident III, a fund managed by Stone Point Capital, theformer private equity arm of insurance broker Marsh & McLennan. Other investors included Hellman & Friedman, Vestar CapitalPartners and ABN Amro. PartnerRe Chief Financial Officer Albert Benchimol told Reuters the acquisition was expected to be modestly accretiveto PartnerRe's book value, and open up significant opportunities. In December 2006, Paris Re reached an agreement to assumethe reinsurance business of French insurer AXA. AXA still ownssome Paris Re stock and has agreed to the Partner Re exchangeagreement, said Mr. Thiele. In addition, AXA will remain responsible for maintaining reserves for any AXA Re liabilities prior to 2006, cutting therisk of prior-year claims. PartnerRe, based on shareholders' equity, currently ranksas the 8th largest global reinsurer, and expects to land in theNo. 4 spot after the acquisition, said Mr. Benchimol. The world's top three reinsurers are Munich Reinsurance Co., Swiss Reinsurance Co.,and the reinsurance operations of Warren Buffett's BerkshireHathaway.