|Friday, October 17, 1997
Zurich to Pay BAT $18.6 Billion for Finance Units;
Acquisition: Swiss insurer would merge them with its own financial services
business. Farmers Insurance part of sale.;
By: From Times Staff and Wire Reports
Switzerland's Zurich Insurance Co. Thursday agreed to pay $18.6 billion for the financial
services portion of Britain's BAT Industries, including Los Angeles-based Farmers
Insurance Group. The deal would create Europe's fourth-largest insurance company and the
world's seventh-biggest money manager. It would bring Zurich's Kemper Investment unit and
its Scudder, Stevens & Clark Inc. money manager under the same corporate roof as BAT's
Threadneedle Asset Management, Eagle Star and Allied Dunbar units in Britain, and Farmers
in the U.S.
The move would allow BAT to focus on its tobacco business and free the
financial services units from damage payments of billions of dollars cigarette makers are
facing. Zurich, meanwhile, would bolster its position in the U.S. and Britain.
Farmers, the fifth-largest U.S. property-casualty insurer, said the merger would give its
customers access to new commercial insurance and mutual-fund products through Zurich's
Kemper and Scudder units.
California Insurance Commissioner Chuck Quackenbush welcomed the merger as "good news
for California," saying it "adds even more competitive pressure to an already
Financial rating agencies were less quick to endorse the deal, however. Moodys Investors
Service placed the financial services operations of BAT under review with
"uncertain" implications, the firm said Wednesday.
Martin D. Feinstein, president and chief executive of Farmers, said in a statement
Thursday: "We are enthusiastic about this merger and the opportunity it provides
Farmers. . . . This joins us with a truly global organization dedicated to insurance, and
one which will enhance our future growth plans."
Bolstered by strong balance sheets, Europe's largest insurers are buying competitors and
seeking cross-border alliances to raise revenue, cut costs and gain market share.
Increasingly, insurers are trying to raise the value of assets under their management,
seeking the steady stream of fees that money management offers.
"Financial services companies are seeking more assets to manage to raise profits, and
a better distribution network to lower costs," said Patrick Carisch, who helps manage
CS Asset Management's $160 billion in assets. "Zurich gets both."
The merged financial services operations would be known as Zurich Financial Services
Group, headquartered in Zurich and employing about 66,000 people.
BAT shareholders would own 45% of the new company through a separate holding company,
Allied Zurich, and Zurich shareholders would own 55% through Zurich Allied.
The deal would split BAT's tobacco interests, British American Tobacco, into a separately
listed company. BAT, which owns Brown & Williamson Tobacco Corp. and makes Lucky
Strike, Kool and Benson & Hedges, among other brands, last year accounted for nearly
13% of the world cigarette market.
Although BAT said opportunities for the tobacco business increased significantly in recent
years, Chairman Lord Cairns said BAT might reduce its dividend at first.
The acquisition would bring Zurich's premium income to about $40 billion, making it the
fourth-largest insurer in Europe with significant operations in the U.S., Britain and
The purchase wouldn't dilute Zurich's earnings per share and could boost earnings as early
as the second year, said Rolf Hueppi, chairman and chief executive of Zurich. Zurich
should derive annual savings of $250 million three years after the union is completed, he
Zurich Financial Services would rank third in the U.S. in premium terms for property and
casualty insurance and would also be the third-largest nonlife insurer in Britain. Zurich
is also one of the U.S.'s 10 biggest money managers. In
Switzerland, the company would remain the second-largest nonlife insurer and the
third-largest life insurer.
"Our focus is not size," Hueppi said at an analyst meeting. "It's earnings
power, position for the future and the creation of value that counts." There are
"dramatic changes" coming in the financial services industry in the next five to
10 years, he
said. "This puts us at the forefront of the people who can act--and we will."
---- START OF CORRECTION ----
For the Record;
Los Angeles Times Wednesday, October 22, 1997
Home Edition; Business; Part D; Page 3; Financial Desk;
2 inches; 45 words;
Type of Material: Correction
BAT Industries/Zurich--BAT Industries agreed to merge its financial services
businesses with Zurich Insurance Co. to create a new entity that will be owned
by the current shareholders of BAT and Zurich. There was no acquisition
involved. The terms of the merger were mischaracterized in a story in last
---- END CORRECTION TEXT ----
Descriptors: ZURICH INSURANCE GROUP; BAT INDUSTRIES PLC;
MERGERS; INSURANCE INDUSTRY;
Copyright (c) 1997 Times Mirror Company