PartnerRe To Acquire PARIS RE; Best Sees no Rating Change

Bermuda-based PartnerRe announced that it has entered into definitive agreements to acquire PARIS RE, a French-listed, Swiss-based diversified reinsurer. PartnerRe will exchange 0.30 of its common shares for each PARIS RE common share outstanding in a stock-for-stock transaction.

The announcement said the acquisition “is expected to add $1.7 billion in new shareholders’ equity to PartnerRe. Separately, PARIS RE is expected to distribute $310 million (net of amount due on existing treasury shares held by PARIS RE) in cash as a return of capital to its shareholders, leading to a total transaction value of approximately $2 billion.”

A.M. Best commented that the financial strength rating of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of PartnerRe Group and its members “are unchanged. Following the announcement. Best also said that the ICR of “a-” and debt ratings of PartnerRe’s parent, PartnerRe Ltd. are also unchanged by the proposed transaction.. The outlook for all of the ratings is stable.

Paris Re was established in June 2006, when France’s AXA Group concluded a definitive agreement to cede its reinsurance operations – AXA Re and its subsidiaries – to Paris Re Holdings Limited. The newly-created company was established with an initial capitalization of approximately $1.5 billion. It was sponsored by a consortium of international investors led by Trident III, L.P., a fund managed by Stone Point Capital LLC. Trident III was originally established as an investment vehicle by MMC Capital. Other lead investors included Hellman & Friedman, Vestar Capital Partners, Crestview Capital Partners, ABN Amro and New Mountain Capital. AXA took a stake of approximately 4 percent in Paris Re Holdings.

“Upon successful completion of the various steps of this transaction, PARIS RE, together with its operating subsidiaries, will be fully integrated into PartnerRe’s existing operating structure,” the bulletin continued.

PartnerRe President & CEO Patrick Thiele commented: “This is an important acquisition for PartnerRe and provides us the opportunity to enhance our already successful franchise. The greater market presence, risk diversification, capital strength and scale that is created will provide more balance and stability to our Company in the face of uncertain and volatile financial and reinsurance markets.”

He also noted that PARIS RE “has established itself as a premier European reinsurer and has a successful track record as a publicly-traded company. This acquisition strengthens PartnerRe’s balance sheet and financial flexibility and allows us to leverage our infrastructure and capabilities over a broader base for the benefit of key stakeholders of both companies: clients, shareholders and employees. Our history of success in integrating acquired companies and the rigorous analysis completed gives us confidence that this integration process will be a smooth and successful one.”

Best apparently concurred. The rating agency said that it “believes that this transaction will further deepen PartnerRe’s geographic scope and operating scale. Paris Re maintains a strong balance sheet with the majority of its invested asset base held in fixed income securities of solid credit quality. Paris Re’s loss reserves prior to accident year 2006 are guaranteed by its former parent, AXA S.A., which somewhat mitigates the typical risks of acquiring an insurance company’s liabilities.” On a cautionary note Best added that it “does believe that there is integration, operational and treaty overlap risks associated with this transaction; however, given the relative size of Paris Re, these risks should be manageable.”

PartnerRe gave details of the acquisition process, as follows:
In the first step of the transaction, PartnerRe, which recently acquired approximately 6 percent of PARIS RE’s outstanding common shares in a stock-for-stock transaction at the 0.30 exchange ratio, will acquire an additional 57 percent of PARIS RE’s outstanding common shares at the same exchange ratio.

The closing of that block purchase is expected to occur in the fourth quarter of 2009, subject to certain conditions including approval of certain insurance and competition regulatory authorities, PartnerRe shareholder approval and PARIS RE shareholder approval to remove the provisions of its articles of association purporting to require a cash takeover bid for any acquisition of more than one-third of the voting rights of PARIS RE. The sellers in the block purchase have agreed to vote in favor of such removal.

In the coming weeks, PartnerRe may enter into agreements to purchase additional PARIS RE shares from certain other shareholders who were shareholders of PARIS RE prior to its initial public offering and their private transferees. Such purchases, which are expected to be consummated simultaneously with the closing of the block purchase in exchange for PartnerRe common shares at the same 0.30 exchange ratio, will be disclosed in filings with the Securities and Exchange Commission and with the Autorité des Marchés Financiers (the French listing authority).

Immediately prior to the closing of the block purchase, PARIS RE intends to effect a return of capital equivalent to $310 million (net of amount due on existing treasury shares held by PARIS RE), or $3.85 per common share, in cash, to all of its shareholders.

In addition PartnerRe noted that it will conduct a conference call including a question and answer period, on Monday, July 6, 2009 at 8 a.m. Eastern. Investors and analysts are encouraged to call in 15 minutes prior to the commencement of the call. The conference call can be accessed by dialing 888-471-3842 or, from outside the United States, by dialing 719-325-2199 (passcode: 9100384). Interested parties may also listen to the call live over the Internet on the Investor Relations section of PartnerRe’s web site at: www.partnerre.com. To listen to the webcast, please log onto the broadcast at least five minutes prior to the start. For those who cannot listen to the live broadcast, a replay will be available on the Investor Relations section of PartnerRe’s web site, approximately 2 hours after the end of the live call, through Monday, July 13, 2009 at 11 a.m. Eastern. The replay can be accessed by dialing 888-203-1112 or, from outside the United States, by dialing 719-457-0820 (passcode: 9100384).

Source: PartnerRe