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SCOR targets A+ rating with Converium deal

SCOR officially launched its hostile takeover bid for rival Converium last week (4 April) as it provided further details of the rationale behind the proposed deal which it hopes will create a top 5 global reinsurer and yield an A+ rating by 2010.

Meanwhile Converium, which has so far rejected overtures from the French reinsurer and stated its desire to remain independent, urged shareholders to hold back their decision on the official offer until they have been further advised of the board’s position.

It advised shareholders to closely examine its recommendation statement when announced “as it will contain important information which should be considered before any decision is made”.

For its part, SCOR’s confidence in executing the takeover appears undiminished, despite the negative response of Converium management and its target being linked with an alternative “white knight” approach.

As SCOR published its offer prospectus in the Swiss press, outlining terms unchanged from the preannouncement of its public tender in February with Converium shareholders offered half a SCOR share plus SFr4 in cash per share, it also unveiled a “Dynamic Lift 2007-2010” strategic plan, mapping out its vision for the combined company.

It said the plan, which will be “enriched, precised and refined with Converium’s management as soon as the combination of the two groups will become effective”, will be the basis for framing its 2008 underwriting plan.

Under the plan, it said that given “reasonable assumptions”, over the cycle SCOR and Converium together are likely to achieve double-digit growth in earnings per share, return on equity 900 basis points above the risk-free rate, and “endogenous capital production which self-finances the development”.

A combined company would also be likely to achieve an A+ rating by 2010, suggested the French reinsurer, with a self-financed capital base in line with S&P criteria, and earnings growth it said would be expected to generate capital in excess of the rating agency’s target levels.

It also pointed to the creation of an “optimised platform designed for efficiency and capital mobility”, with expected synergies of EUR65mn and a cost ratio of around 4.5 percent by 2010.

The reinsurers would merge to form a “Societas Europaea” company structure, which SCOR said would lead to “increased fluidity and mobility of capital” and “optimised legal and corporate structures”.

SCOR’s proposed deal to buy the 67.1 percent of Converium it does not already own is equivalent to total consideration of EUR1.9bn. Broken down, it would see EUR1.4bn of new SCOR shares issued for the share exchange offer, with the cash portion refinanced through senior and/or subordinated debt.

Last month Converium was upgraded to A- by Standard & Poor's, a move that looked to strengthen its defence against what it views as an under-valued approach from SCOR.

SCOR, which also reported 2006 post-tax profits up 134 percent to EUR306mn last week, claimed the upgrade of its takeover target “corroborates SCOR’s firm conviction that the group resulting from the combination between SCOR and Converium will have a strong commercial position, offering its clients the level of security they expect and accelerating its strategy of profitable growth”.

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