Yahoo Finance Financial Nuances of the Ace-Chubb Deal
Insurance Stocks Fly on Ace-Chubb Merger News in July
1Q15 results
Ace (ACE) earned $2.9 billion in premiums earned, 88% of which came from the non-life-insurance business in 1Q15 with profits of $681 million. Comparatively, Chubb (CB), which operates in 25 countries, reported a profit of $375 million on premiums earned of $3.1 billion. The company reported an EPS of $1.61 compared to $2.08 for Ace.
Chubb, which has a weight of 0.73% in the XLF ETF, rose by ~26% by the close of trade on July 1. Year-to-date, it is up ~16%. Trading volumes surged to 28,806,065 shares on July 1, as compared to a trailing five-day average volume of 6,484,987 shares. However, Ace, having a greater weight of 1.14% in the ETF, was up by a meager 0.8% on this news. In fact, in the previous five days of trade, the stock was down by 2.60%.
Deal valuations
Ace paid around 1.8 times the book value for shares of Chubb, while its stock trades at 1.13x price-to-book. Industry peer Travelers (TRV) trades at a price-to-book of 1.27x, while American International Group (AIG) traded at 0.78x.
Ace closed at $102.49 on Wednesday, a modest premium to its estimated book value of $92.07 a share following the deal, but at a big premium to what may be a sub-$60 a share tangible book value owing to the hefty premium it is paying for Chubb and resulting goodwill.
Meanwhile, Chubb closed at $119.99 on Wednesday at a 14.3% premium on consensus price estimates. The stock is currently followed by 20 analysts, out of which two rated it a “buy” and 18 rated it a “hold.”
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