UPDATE 1-PartnerRe to buy rival Paris Re in $2 bln deal

By Lilla Zuill NEW YORK, July 5 (Reuters) - Bermuda-based reinsurer PartnerRe said late on Sunday it will acquire smaller rival Paris Re in a $2 billion deal that catapults the company into the No. 4 spot among global reinsurers. PartnerRe Chief Executive Patrick Thiele said the financial and global economic crisis led the company to pursue the acquisition. "The world is in the process of change and reinsurers and insurers will likely have to change as well. We feel we will be more competitive with a larger amount of capital and diversification," he said in a telephone interview. PartnerRe will exchange 0.30 of its common shares for each Paris Re common share in an exchange offer that currently values the deal at $1.7 billion. In addition, Paris Re also plans to make a special cash distribution to shareholders of $310 million, or about $3.85 a share, prior to PartnerRe securing majority ownership. Paris Re's shares closed on Friday at 12.30 euros. PartnerRe, which said it had already acquired about 6 percent of Paris Re's outstanding shares, intends to acquire full ownership through a two-part exchange offer, including an agreement with a group of Paris Re's founding private equity shareholders to purchase about 57 percent of outstanding stock through a block transaction expected to close in the fourth quarter. The company said it expects to be able to acquire the balance of outstanding shares by the first quarter of 2010. A final integration plan is not yet hammered out because the deal is still six to nine months from closing, said Thiele. DEAL GROWTH PartnerRe, which was formed in 1993 in response to contraction in the property-catastrophe reinsurance market after Hurricane Andrew, bought Paris reinsurer SAFR in 1997, and Winterthur Re, the reinsurance operations of Winterthur Insurance Group, in 1998. The Paris Re acquisition is not expected to affect PartnerRe's financial strength ratings, added Thiele. PartnerRe, which derives nearly half of its premium volume from the European market, has a large operation in Paris. Thiele said that gives the two companies a "compatible culture," and minimizes any risks in integrating Paris Re into the company. He did not rule out job cuts. Paris Re has about 400 employees, and PartnerRe has about 1,000. Paris Re was formed in 2006 by a consortium of investors led by Trident III, a fund managed by Stone Point Capital, the former private equity arm of insurance broker Marsh & McLennan . Other investors included Hellman & Friedman, Vestar Capital Partners and ABN Amro. PartnerRe Chief Financial Officer Albert Benchimol told Reuters the acquisition was expected to be modestly accretive to PartnerRe's book value, and open up significant opportunities. In December 2006, Paris Re reached an agreement to assume the reinsurance business of French insurer Axa. Axa still owns some Paris Re stock and has agreed to the Partner Re exchange agreement, said Thiele. In addition, Axa will remain responsible for maintaining reserves for any Axa Re liabilities prior to 2006, cutting the risk of prior-year claims. While the company is not making financial projections related to the deal, it does expect to achieve its goals of at least 13 percent return on equity for investors, and 10 percent growth in book value per share annually. PartnerRe, based on shareholders' equity, currently ranks as the 8th largest global reinsurer, and expects to land in the No. 4 spot after the acquisition, said Benchimol. The world's top three reinsurers are Munich Re, Swiss Re, and the reinsurance operations of Warren Buffett's Berkshire Hathaway. Reinsurers assume risks from other insurers, thereby spreading the risk of losses among several carriers. Greenhill & Co LLC and UBS Investment Bank served as financial advisers on the transaction and Davis Polk & Wardwell LLP provided legal counsel to PartnerRe. (Reporting by Lilla Zuill, additional reporting by Megan Davies, editing by Matthew Lewis) Keywords: PARISRE/ ([e-mail]; + 1 646 223 6281) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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