Basics of the transaction
As we saw in the first part of this series, ACE Limited (ACE) is buying Chubb (CB) in a cash and stock merger worth about $28 billion. Chubb shareholders will receive $62.93 cash plus 0.6019 shares of ACE Limited for each share of Chubb. The Chubb merger is expected to close in the first quarter of 2016.
Management comments on the transaction
John D. Finnegan, chairman, president, and CEO of Chubb, said, “This is a compelling transaction for all Chubb and ACE stakeholders. The combination brings together two highly respected and successful companies with complementary capabilities, assets and geographic footprints. We are confident that it will deliver strong value to Chubb shareholders, including an immediate premium and participation in the future growth and profitability of a well-positioned combined company.
“We are pleased that the combined company will adopt the Chubb brand and view this as an affirmation that both companies share a commitment to the attributes of quality and service the brand represents. We look forward to working together as we create a best-in-class global franchise in P&C insurance.”
The following conditions need to be satisfied in order for the deal to close:
- Chubb shareholder vote
- ACE shareholder vote
- SEC (Securities and Exchange Commission) approval of joint proxy statement
- Hart–Scott–Rodino Antitrust Improvements Act filing
Non-solicitation agreement and breakup fee
Both companies have non-solicitation covenants with a fiduciary out. This means they aren’t allowed to discuss merging with another company unless they receive a bona fide written proposal and the Board of Directors believes it could lead to a superior transaction. If Chubb accepts another bid, it will owe ACE $930 million.
Merger arbitrage resources
Other important merger spreads include the merger between Freescale Semiconductor (FSL) and NXP Semiconductor (NXPI) or the deal between Baker Hughes (BHI) and Halliburton (HAL). For more information on risk arbitrage investing, please read Merger arbitrage must-knows: A key guide for investors.
Investors who would like to trade in the financial sector may consider the S&P SPDR Financial ETF (XLF).