Accretion of earnings per share
ACE (ACE) will benefit immediately from the transaction with Chubb (CB). The acquisition will be accretive to the company’s per-share earnings and book value per share. Accretion to EPS (earnings per share) will be in the double digits, and there will be accretion to ROE (return on equity) by the end of the first three years.
Returns on investment will exceed ACE’s cost of capital within two years of the transaction being completed. Returns will be in the double digits by the end of the third year. ACE’s tangible book value per share will return to its current levels within three years. The company expects goodwill payback in approximately 5.5 years.
Synergies and value creation
ACE expects to derive cost synergies totaling $650 million annually from the merger. These synergies should be realized by 2018. The company also expects substantial annual incremental growth-related revenue by the end of 2020. By the end of 2020, it’s forecasting balanced contributions to earnings from revenue- and expense-related opportunities. The synergies will position the company well against major competitors such as AIG (AIG), Allstate (ALL), and other major players in the insurance industry (XLF).
The combined company will operate under the Chubb name globally. Chubb’s (CB) headquarters in Warren, New Jersey, will house a substantial portion of the headquarter’s function for the combined company’s North American division. The combined company will remain a Swiss company, with principal offices in Zurich. ACE will maintain a significant presence in Philadelphia, where its current North American division headquarters is based.