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Converium rejects takeover bid by rival SCOR

Swiss reinsurer says $2.5 billion valuation underprices company


ZUG, Switzerland--Converium Holdings Ltd. earlier this month rejected a hostile takeover bid by SCOR S.A., which valued the Swiss reinsurer at about 3.10 billion Swiss francs ($2.51 billion).

Despite the rejection, observers say a deal between Zug, Switzerland-based Converium and its Paris-based rival could still take place, though few expect SCOR to increase its offer substantially.

If a deal does go ahead, it would unify two European reinsurers with troubled recent histories.

SCOR, which succeeded in buying 32.9% of Converium's share capital in a surprise move launched over the weekend of Feb. 17 and 18, said it "strongly believes that the combination of Converium and SCOR is a unique strategic opportunity to create a top five global multiline reinsurer in this time of market consolidation."

SCOR offered 21 Swiss francs ($17.02) a share for Converium, an offer Converium said undervalued the company.

Converium moved quickly to assure shareholders and cedents that it believed it was profitable and strong, with a well-recognized market position, and that it was on track to achieve a 14% return on equity by 2009.

In addition, the reinsurer brought forward the date for publication of its 2006 financial results to Feb. 28, from March 20, and said it would discuss its "medium-term strategic plan" at that date.

A spokesman for Converium said the company believed it had "a strong story to tell" and that it was hoping for a rating upgrade shortly.

In the first six months of 2006, the latest period for which comparable figures are available, Converium reported gross premiums written of $1.13 billion and profits of $124.1 million. In the same period, SCOR reported gross premiums written of €1.37 billion ($1.75 billion) and profits of €102 million ($130.4 million).

Observers expect SCOR to continue to pursue Converium.

However, rating agency Standard & Poor's Corp. said that it had received "assurances" from SCOR that the reinsurer will not do anything to endanger its A- rating.

And Peter Grant, an associate director at S&P in London, said he did not believe that SCOR would become embroiled in a bidding war for Converium, because such a move could pose a risk to its rating.

SCOR likely would not overbid for Converium, he said.

Analysts at investment bank Keefe, Bruyette & Woods Ltd. in London described SCOR's bid for Converium as "bold," but said that "the deal has good industrial logic."

William Hawkins, head of European insurance at KBW, said that the deal is "relatively sensible" for both parties, and noted that a counterbid from a third party is unlikely. Several large European reinsurers have previously stated that they are not on the lookout for acquisitions and other smaller reinsurers may not have sufficient resources to buy Converium, he said.

Some cedents might be concerned that a deal would mean less choice of reinsurance capacity, said Mr. Grant, but the fact that both SCOR and Converium are midsized--rather than very large--reinsurers is likely to lessen those fears for other reinsurance buyers.

A tie-up between SCOR and Converium would mean less choice for reinsurance buyers, said to Jean-Michel Lewis, director of reinsurance at London-based broker Heath Lambert Group.

A combination of the two would result in some overlap, he noted, as both reinsurers already participate on some of the same reinsurance contracts.

Similar portfolios

If SCOR does succeed in buying Converium, a big challenge would be the integration of the two groups, according to S&P's Mr. Grant.

In some sense the two have similar portfolios, although SCOR is stronger in the French market than Converium and Converium has a stronger position in the Swiss and German markets than SCOR, he said.

SCOR and Converium both have fought back in recent years from rating downgrades linked, in part, to reserving problems caused by U.S. casualty business written between 1997 and 2001.

SCOR in August 2005 bounced back into the ranks of A-rated reinsurers when S&P and A.M. Best Co. Inc. restored A- ratings on the company.

Converium in October announced the sale of its U.S. reinsurance operations, which were in runoff--a move that was welcomed by rating agencies.

But the company must yet resolve outstanding finite reinsurance issues with regulators in the United States before an upgrade to A is likely, sources say. Converium is rated BBB+ by S&P and B++ by Best.