Zurich raises $1 billion to help fund AIG unit purchase
Zurich Financial Services AG, the Swiss company that agreed to buy American International Group Inc.'s U.S. auto-insurance unit, raised 1.26 billion francs ($1.08 billion) by selling shares to help fund the purchase.
Zurich sold 4.8 million new and 1.9 million existing shares at 188 francs each, the company said in a statement today from Zurich. Demand "comfortably" exceeded the shares on offer, the company said. Zurich fell 2.2 francs, or 1.1 percent, to 196.5 francs by 3:53 p.m. in Swiss trading.
The acquisition makes Zurich the third-largest auto insurer in the U.S., passing the Geico unit at Warren Buffett's Berkshire Hathaway Inc., according to 2008 data from the National Association of Insurance Commissioners. Chief Executive Officer James Schiro, who is stepping down at the end of the year, said the acquisition will help reduce earnings volatility.
"The acquisition will offer Zurich Financial a great foothold in the fastest growing direct distribution channel," Stefan Schuermann, an analyst at Vontobel with a "buy" rating on the stock, said in a note. The company "is right to safeguard its balance sheet and capital adequacy through a share sale."
The shares were offered for sale between 185 francs and 190 francs to institutional investors, according to details of the sale obtained by Bloomberg News earlier today.
Zurich yesterday agreed to pay $1.9 billion for the unit and said the acquisition will be immediately accretive to earnings per share. AIG Chief Executive Officer Edward Liddy is working to dismantle most of the New York-based company, once the world's biggest insurer, to help repay parts of a $182.5 billion government bailout.
The Swiss insurer also said yesterday that earnings in the first three months of the year were in line with previous quarters as losses from financial markets weighed on a "solid" operating performance. The regulatory solvency ratio will probably remain "strong," it said. Zurich is due to report first-quarter earnings on May 7.
Moody's Investors Service and Fitch Ratings affirmed Zurich Financial's debt ratings after the acquisition.