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Ace Merges with Chubb to Create Insurance Giant

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The Ace-Chubb merger

Shares of Chubb Group (CB) surged by 26.12% on July 1 on news of an acquisition by global property giant Ace (ACE). Ace is buying Chubb for about $28.9 billion in a cash and stock deal that will create one of the world’s largest insurance behemoths.

Chubb shareholders will receive $62.93 per share in cash and 0.6019 shares of Ace stock. The offer price is a premium of about 30% over Chubb’s Tuesday closing price of $95.14. Ace shareholders will own 70% of the combined entity, with Chubb shareholders owning 30%. The acquisition is expected to be accretive to earnings per share, with around $650 million in cost savings by the end of the third year. While the combined entity will result in cost savings for both companies, the main rationale behind this deal lies in its opportunities for revenue growth.

This deal will create the US’s second largest property and casualty insurer by market capitalization and pushes the value of mergers and acquisitions to date in this sector to the highest level since 2000.

While Chubb and Ace have weights of 0.73% and 1.14% in the XLF ETF, other peers like Allstate (ALL) and Assurant (AIZ) have the highest weights of 2.73% and 2.28%, respectively.

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Operational details

The merged company plans to operate under the “Chubb” name and will be headquartered in Zurich, Switzerland, where Ace is based. The board will expand to 18 members from the current 14, with the four independent directors from Chubb’s board joining in.

This deal is considered to be the largest in the year and the biggest among life and property insurers to date with the exception of the government bailout of American International Group in 2008.

Chubb, based in New Jersey, is a leading provider of homeowners’ insurance to wealthy Americans through its Masterpiece coverage. ACE also targets customers with high net worths in its personal insurance business. Both companies have large operations selling insurance to mid-size businesses.

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