UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant ¨
Check the appropriate box:
¨ Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to § 240.14a-12
The Chubb Corporation
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ | No fee required. |
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
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¨ | Fee paid previously with preliminary materials. |
¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
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Dear Shareholders:
On June 30, 2015, ACE Limited (ACE), a company organized under the laws of Switzerland, entered into an Agreement and Plan of Merger (the merger agreement) with The Chubb Corporation, a New Jersey corporation (Chubb), and William Investment Holdings Corporation, a New Jersey corporation and a wholly owned indirect subsidiary of ACE (Merger Sub). Pursuant to the merger agreement, Merger Sub will merge with and into Chubb, with Chubb continuing as the surviving corporation (the surviving corporation) and a wholly owned indirect subsidiary of ACE (the merger).
In the merger, each share of Chubb common stock owned by a Chubb shareholder (except for certain shares held by ACE, Chubb, or their subsidiaries) will be converted into the right to receive 0.6019 of an ACE common share and $62.93 in cash. For a description of the consideration that Chubb shareholders will receive, see The MergerMerger Consideration. It is anticipated that ACE shareholders and Chubb shareholders, in each case as of immediately prior to the merger, will hold approximately 70 percent and 30 percent, respectively, of the issued and outstanding ACE common shares immediately after completion of the merger, in each case without giving effect to any ACE common shares held by Chubb shareholders prior to the merger. If the merger is completed, it is currently estimated, based on the number of shares of Chubb common stock outstanding as of September 10, 2015, that payment of the stock component of the merger consideration will require ACE to issue approximately 137 million ACE common shares in connection with the merger and that the cash consideration required to be paid in the merger for the cash portion of the merger consideration will be approximately $14.3 billion. The exact value of the stock portion of the merger consideration that Chubb shareholders receive will depend on the price of ACE common shares at the time the merger is completed. Based on the closing price of ACE common shares on September 10, 2015, the last practicable date before the date of this joint proxy statement/prospectus, the value of the per share merger consideration payable to the holders of Chubb common stock is $123.57. The ultimate value of the merger consideration may differ from this estimated value based on the price per ACE common share. We urge you to obtain current market quotations for ACE common shares and Chubb common stock. ACE common shares trade on the NYSE under the symbol ACE, and Chubb common stock trades on the NYSE under the symbol CB.
ACE will hold an extraordinary general meeting of shareholders and Chubb will hold a special meeting of shareholders to consider the proposed merger and related matters. ACE and Chubb cannot complete the proposed merger unless, among other things, ACEs shareholders approve the issuance of ACE common shares and certain other matters related to the merger and Chubb shareholders approve the merger agreement.
Your vote is very important. To ensure your representation at your companys shareholders meeting, please complete and return the enclosed proxy card or submit your proxy through the Internet or, if applicable, by telephone. Please vote promptly whether or not you expect to attend your companys shareholders meeting. Submitting a proxy now will not prevent you from being able to vote in person at your companys shareholders meeting.
The ACE board of directors (the ACE board) determined that the merger and the other transactions contemplated by the merger agreement are in the best interests of the ACE
shareholders, and has unanimously approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger and the issuance of ACE common shares, and unanimously recommends that ACE shareholders vote (1) FOR the amendment of ACEs Articles of Association relating to authorized share capital for general purposes, (2) FOR the amendment of ACEs Articles of Association to change ACEs name to Chubb Limited effective as of the completion of the merger, (3) FOR the issuance of ACE common shares pursuant to the merger agreement in accordance with NYSE requirements and ACEs commitment in its 2014 Proxy Statement not to issue more than 68,000,000 ACE common shares pursuant to Article 6 of its Articles of Association without either providing ACEs shareholders with the opportunity to exercise preemptive rights or seeking specific shareholder approval for such issuance, (4) FOR the election of four current directors of Chubb as new directors of ACE effective as of the completion of the merger, and (5) FOR an increase in the aggregate compensation for members of the ACE board to provide compensation for the four new directors.
The Chubb board of directors (the Chubb board) has determined that the merger and the other transactions contemplated by the merger agreement are advisable and in the best interests of Chubb, its shareholders and its other constituencies, and has unanimously adopted and approved the merger agreement and the transactions contemplated thereby, including the merger, and unanimously recommends that Chubb shareholders vote (1) FOR the approval of the merger agreement and the transactions contemplated thereby, including the merger, (2) FOR the approval, by advisory (non-binding) vote, of certain compensation arrangements for Chubbs named executive officers in connection with the merger and (3) FOR the approval of a proposal for adjournment of the Chubb special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the Chubb special meeting.
The obligations of ACE and Chubb to complete the merger are subject to the satisfaction or waiver of several conditions set forth in the merger agreement, a copy of which is included as Appendix A. The joint proxy statement/prospectus provides you with detailed information about the proposed merger. It also contains or references information about ACE and Chubb and certain related matters. You are encouraged to read this joint proxy statement/prospectus carefully. In particular, you should read the Risk Factors section beginning on page 33 for a discussion of the risks you should consider in evaluating the proposed merger and how it will affect you.
Sincerely,
Evan G. Greenberg Chairman and Chief Executive Officer ACE Limited |
John D. Finnegan Chairman, President and Chief Executive Officer The Chubb Corporation |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The attached joint proxy statement/prospectus is dated September 11, 2015 and is first being mailed to shareholders of ACE and Chubb on or about September 15, 2015.
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NOTICE OF ACES EXTRAORDINARY GENERAL MEETING TO BE HELD ON
OCTOBER 22, 2015
TO THE SHAREHOLDERS OF ACE LIMITED:
A special meeting of shareholders of ACE Limited, called an extraordinary general meeting, will be held at 2:45 p.m. Central European Time (doors open at 1:45 p.m. Central European Time) on October 22, 2015, at the offices of ACE Limited, Baerengasse 32, CH-8001 Zurich, Switzerland.
The proposals of the ACE board to be considered at the extraordinary general meeting are as follows:
1. | To approve the amendment of ACEs Articles of Association relating to authorized share capital for general purposes (the ACE authorized share capital proposal); |
2. | To approve the amendment of ACEs Articles of Association to change ACEs name to Chubb Limited effective as of the completion of the merger (the ACE name change proposal); |
3. | To approve the issuance of ACE common shares pursuant to the merger agreement in accordance with NYSE requirements and ACEs commitment in its 2014 Proxy Statement not to issue more than 68,000,000 ACE common shares pursuant to Article 6 of its Articles of Association without either providing ACEs shareholders with the opportunity to exercise preemptive rights or seeking specific shareholder approval for such issuance (the ACE issuance proposal); |
4. | To elect four current directors of Chubb as new directors of ACE effective as of the completion of the merger (the ACE director election proposal); and |
5. | To increase the aggregate compensation for members of the ACE board to provide compensation for the four new directors (the ACE new director compensation proposal). |
Shareholder approval of the ACE authorized share capital proposal, the ACE issuance proposal, the ACE director election proposal and the ACE new director compensation proposal is required to complete the merger. ACE shareholders will also be asked to approve the ACE name change proposal. ACE will transact no other business at the ACE extraordinary general meeting, except for business properly brought before the ACE extraordinary general meeting or any adjournment or postponement thereof.
The record date for the ACE extraordinary general meeting has been set as the close of business on September 10, 2015. See ACE Extraordinary General Meeting of ShareholdersACE Shareholders Entitled to Vote in the joint proxy statement/prospectus for additional information.
The full agenda items and proposals of the board of directors are contained in the accompanying joint proxy statement/prospectus, which you should read carefully in its entirety before you vote. A copy of the merger agreement is attached as Appendix A to the following joint proxy statement/prospectus. A copy of the proposed amendments to ACEs Articles of Association is attached as Appendix B to the following joint proxy statement/prospectus.
If you plan to attend the extraordinary general meeting in person, you must request an admission ticket by following instructions in the accompanying joint proxy statement/prospectus by October 15, 2015.
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PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE JOINT PROXY STATEMENT/ PROSPECTUS. FOR FURTHER INFORMATION CONCERNING THE AGENDA ITEMS BEING VOTED UPON, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS.
By Order of the Board of Directors,
Joseph F. Wayland
Executive Vice President, General Counsel and
Secretary
September 11, 2015, Zurich, Switzerland
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NOTICE OF SPECIAL MEETING OF CHUBB SHAREHOLDERS TO BE HELD ON
OCTOBER 22, 2015
TO THE SHAREHOLDERS OF THE CHUBB CORPORATION:
A special meeting of shareholders of The Chubb Corporation, called the Chubb special meeting, will be held at 8:00 a.m. local time, at the Amphitheater at The Chubb Corporation, 15 Mountain View Road, Warren, NJ 07059, on October 22, 2015.
The proposals of the Chubb board to be considered at the Chubb special meeting are as follows:
1. | To approve the agreement and plan of merger (as it may be amended from time to time, the merger agreement) by and among ACE Limited, William Investment Holdings Corporation and Chubb (the Chubb merger agreement proposal); |
2. | To approve, by advisory (non-binding) vote, certain compensation arrangements for Chubbs named executive officers in connection with the merger (the Chubb merger-related compensation proposal); and |
3. | To adjourn the Chubb special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the Chubb special meeting (the Chubb adjournment proposal). |
Shareholder approval of the Chubb merger agreement proposal is required to complete the merger. Chubb shareholders will also be asked to approve the non-binding Chubb merger-related compensation proposal and the Chubb adjournment proposal. Chubb will transact no other business at the Chubb special meeting, except for business properly brought before the Chubb special meeting or any adjournment or postponement thereof.
The record date for the Chubb special meeting has been set as of the close of business on September 10, 2015. Only Chubb shareholders of record as of the close of business on such record date are entitled to notice of, and to vote at, the Chubb special meeting or any adjournments and postponements thereof. See Chubb Special Meeting of Shareholders in the joint proxy statement/prospectus for additional information.
The proposals being voted upon are described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully in its entirety before you vote. A copy of the merger agreement is attached as Appendix A to the accompanying joint proxy statement/prospectus.
PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE CHUBB SPECIAL MEETING. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. FOR FURTHER INFORMATION CONCERNING THE PROPOSALS
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BEING VOTED UPON, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE ATTACHED JOINT PROXY STATEMENT/PROSPECTUS.
Sincerely,
Maureen A. Brundage
Executive Vice President, General Counsel &
Corporate Secretary
September 11, 2015
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WHERE YOU CAN FIND MORE INFORMATION
Both ACE and Chubb file annual, quarterly and current reports, proxy statements and other business and financial information with the Securities and Exchange Commission (the SEC). You may read and copy any materials that either ACE or Chubb files with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 ((800) 732-0330) for further information on the Public Reference Room. In addition, ACE and Chubb file reports and other business and financial information with the SEC electronically, and the SEC maintains a website located at http://www.sec.gov containing this information. You will also be able to obtain these documents, free of charge, from ACE at http://www.acegroup.com under the Investor Information link and then under the link SECSection 16 Filings, or from Chubb by accessing Chubbs website at http://www.chubb.com under the Investors link and then under the link SEC Filings. The information contained on, or that may be accessed through, ACEs and Chubbs websites is not incorporated by reference into, and is not a part of, this joint proxy statement/prospectus.
ACE has filed a registration statement on Form S-4 of which this joint proxy statement/prospectus forms a part with respect to the ACE common shares to be issued in the merger. This joint proxy statement/prospectus constitutes the prospectus of ACE filed as part of the registration statement. As permitted by SEC rules, this joint proxy statement/prospectus does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may read and copy the registration statement, including any amendments, schedules and exhibits in the SECs reading room at the address set forth above. Statements contained in this joint proxy statement/prospectus as to the contents of any contract or other documents referred to in this joint proxy statement/prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement. This joint proxy statement/prospectus incorporates by reference documents that ACE and Chubb have previously filed with the SEC and documents that ACE and Chubb may file with the SEC after the date of this joint proxy statement/prospectus and prior to the date of the extraordinary general meeting of ACE shareholders and the special meeting of Chubb shareholders. These documents contain important information about the companies and their financial condition. See Incorporation of Certain Documents by Reference. These documents are available without charge to you upon written or oral request to the applicable company directed to:
For ACE Shareholders: ACE Limited 17 Woodbourne Avenue Hamilton, HM08 Bermuda 1-441-299-9283 Attn: Investor Relations Email: investorrelations@acegroup.com |
For Chubb Shareholders: The Chubb Corporation 15 Mountain View Road Warren, New Jersey 07059 1-908-903-2000 Attn: Investor Relations Email: investorrelations@chubb.com |
This joint proxy statement/prospectus does not constitute an issuance prospectus within the meaning of article 652a of the Swiss Code of Obligations. The information required under article 652a of the Swiss Code of Obligations will be contained in a separate Swiss issuance prospectus, which will be available to shareholders and other interested persons free of charge upon written request from ACE Limited, Baerengasse 32, CH-8001 Zurich, Switzerland, about 10 days before ACEs capital increase required to implement the merger.
In addition, if you have questions about the merger, the ACE extraordinary general meeting or the Chubb special meeting, or if you need to obtain copies of the accompanying joint proxy statement/prospectus, proxy cards or other documents incorporated by reference in this joint proxy statement/prospectus, you may contact the appropriate contact listed below. You will not be charged for any of the documents you request.
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For ACE Shareholders: D.F. King & Co., Inc. 48 Wall Street New York, New York 10005 ace@dfking.com ACE shareholders: 1-866-751-6309 Banks and Brokerage Firms: +1 212-269-5550 |
For Chubb Shareholders: Georgeson Inc. 480 Washington Boulevard Jersey City, New Jersey 07310 chubb@georgeson.com All shareholder inquiries: 866-482-5136 |
To obtain timely delivery of these documents before ACEs extraordinary general meeting and Chubbs special meeting, you must request the information no later than October 9, 2015.
ACE common shares are traded on the NYSE under the symbol ACE, and Chubb common stock is traded on the NYSE under the symbol CB.
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Chubbs Reasons for the Merger; Recommendation of the Chubb Board |
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ACEs Reasons for the Merger; Recommendation of the ACE Board |
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Interests of Chubb Directors and Executive Officers in the Merger |
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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE FINANCIAL DATA |
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Chubbs Reasons for the Merger; Recommendation of the Chubb Board |
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Certain Unaudited Prospective Financial Information for Chubb and ACE |
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ACEs Reasons for the Merger; Recommendation of the ACE Board |
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Interests of Chubb Directors and Executive Officers in the Merger |
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NYSE Market Listing; Delisting and Deregistration of Chubb Common Stock |
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ENFORCEMENT OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS |
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Appendix A |
Agreement and Plan of Merger, dated as of June 30, 2015, by and among ACE Limited, William Investment Holdings Corporation and The Chubb Corporation | A- i | ||
Appendix B |
Text of Proposed Amendments to ACEs Articles of Association | B-1 | ||
Appendix C |
Opinion of Guggenheim Securities, LLC | C-1 | ||
Appendix D |
Opinion of Morgan Stanley & Co. LLC | D-1 | ||
Appendix E |
ACE Current Directors, Corporate Governance and Director and Executive Compensation | E- i |
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QUESTIONS AND ANSWERS ABOUT THE MERGER, THE ACE EXTRAORDINARY GENERAL
MEETING AND THE CHUBB SPECIAL MEETING
The following are answers to certain questions that you may have regarding the merger, the ACE extraordinary general meeting and the Chubb special meeting. We urge you to read carefully the remainder of this joint proxy statement/prospectus because the information in this section may not provide all of the information that might be important to you in determining how to vote. Additional important information is also contained in the appendices to, and the documents incorporated by reference into, this joint proxy statement/prospectus.
Q: | WHAT IS THE MERGER? |
A: | ACE, Chubb and Merger Sub have entered into a merger agreement pursuant to which ACE will acquire Chubb through the merger of Merger Sub with and into Chubb, with Chubb continuing as the surviving corporation and a wholly owned subsidiary of ACE. A copy of the merger agreement is attached as Appendix A to this joint proxy statement/prospectus. In order for ACE and Chubb to complete the merger, each company needs its respective shareholders to approve certain proposals relating to the merger as described below. |
Q: | WHY AM I RECEIVING THIS DOCUMENT? |
A: | Each of ACE and Chubb is sending these materials to its respective shareholders to help them decide how to vote their ACE common shares or shares of Chubb common stock, as the case may be, with respect to matters to be considered at the ACE extraordinary general meeting and the Chubb special meeting. |
The merger cannot be completed unless Chubb shareholders approve the merger agreement and ACE shareholders (1) approve the amendment of ACEs Articles of Association relating to authorized share capital for general purposes, (2) approve the issuance of ACE common shares pursuant to the merger agreement, (3) elect four current directors of Chubb as new directors of ACE effective as of the completion of the merger, and (4) approve an increase in the aggregate compensation for members of the ACE board to provide compensation for the four new directors. ACE shareholders will also be asked to approve the amendment of ACEs Articles of Association to change ACEs name to Chubb Limited effective as of the completion of the merger. ACE is holding an extraordinary general meeting of its shareholders and Chubb is holding a special meeting of its shareholders to vote on the proposals necessary to complete the merger. Information about the ACE extraordinary general meeting, the Chubb special meeting, the merger and the other business to be considered by shareholders at each of the ACE extraordinary general meeting and the Chubb special meeting is contained in this joint proxy statement/prospectus.
This document constitutes both a joint proxy statement of ACE and Chubb and a prospectus of ACE. It is a joint proxy statement because each of the ACE board and the Chubb board is soliciting proxies from its respective shareholders using this document. It is a prospectus because ACE, in connection with the merger, is offering ACE common shares in partial consideration for the outstanding shares of Chubb common stock in the merger.
Q: | WHAT WILL CHUBB SHAREHOLDERS RECEIVE IN THE MERGER? |
A: | In the merger, each share of Chubb common stock owned by a Chubb shareholder will be converted into the right to receive 0.6019 of an ACE common share and $62.93 in cash. |
The exact value of the stock portion of the merger consideration that Chubb shareholders will receive will depend on the price of ACE common shares at the time the merger is completed. Based on the closing price of ACE common shares on September 10, 2015, the last practicable date before the
date of this joint proxy statement/prospectus, the value of the per share merger consideration payable to the holders of Chubb common stock was $123.57. We urge you to obtain current market quotations for ACE common shares and Chubb common stock.
Q: | WHEN WILL THE MERGER BE COMPLETED? |
A: | The parties currently expect that the merger will be completed during the first quarter of 2016. Neither ACE nor Chubb can predict, however, the actual date on which the merger will be completed, or whether it will be completed, because it is subject to factors beyond each partys control, including whether or when the required regulatory approvals will be received. See The Merger AgreementConditions to the Merger. |
Q: | WHAT ARE CHUBB SHAREHOLDERS BEING ASKED TO VOTE ON AND WHY IS THIS APPROVAL NECESSARY? |
A: | Chubb shareholders are being asked to vote on the following matters: |
1. | a proposal to approve the merger agreement, a copy of which is attached as Appendix A to this joint proxy statement/prospectus (the Chubb merger agreement proposal); |
2. | a proposal to approve, by advisory (non-binding) vote, certain compensation arrangements for Chubbs named executive officers in connection with the merger discussed under the section titled The MergerInterests of Chubb Directors and Executive Officers in the Merger (the Chubb merger-related compensation proposal); and |
3. | a proposal for adjournment of the Chubb special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the Chubb special meeting (the Chubb adjournment proposal). |
Chubb shareholder approval of the Chubb merger agreement is required for completion of the merger. Chubb will transact no other business at the Chubb special meeting, except for business properly brought before the Chubb special meeting or any adjournments or postponements thereof.
Q: | WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL AT THE CHUBB SPECIAL MEETING? |
A: | The Chubb merger agreement proposal: The affirmative vote of two-thirds of the votes cast on the Chubb merger agreement proposal is required to approve this proposal. |
The Chubb merger-related compensation proposal: The affirmative vote of the holders of a majority of the votes cast on the Chubb merger-related compensation proposal is required to approve this proposal. The vote on the Chubb merger-related compensation proposal is advisory in nature and, therefore, is not binding on Chubb or on ACE or the boards of directors or the compensation committees of Chubb or ACE, regardless of whether the Chubb merger agreement proposal is approved. If the merger is completed, the merger-related compensation may be paid to Chubbs named executive officers to the extent payable in accordance with the terms of their compensation agreements and arrangements, and the outcome of this advisory (non-binding) vote will not necessarily affect Chubbs or ACEs obligations to make these payments even if Chubb shareholders do not approve, by advisory (non-binding) vote, this proposal.
The Chubb adjournment proposal: The affirmative vote of the holders of a majority of votes cast on the Chubb adjournment proposal is required to approve this proposal.
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Q: | HOW DOES THE CHUBB BOARD RECOMMEND I VOTE? |
A: | The Chubb board unanimously recommends that you vote your shares of Chubb common stock: |
1. | FOR the Chubb merger agreement proposal; |
2. | FOR the Chubb merger-related compensation proposal; and |
3. | FOR the Chubb adjournment proposal. |
Q: | WHAT ARE ACE SHAREHOLDERS BEING ASKED TO VOTE ON AND WHY IS THIS APPROVAL NECESSARY? |
A: | ACE shareholders are being asked to vote on the following proposals: |
1. | To approve the amendment of ACEs Articles of Association relating to authorized share capital for general purposes (the ACE authorized share capital proposal); |
2. | To approve the amendment of ACEs Articles of Association to change ACEs name to Chubb Limited effective as of the completion of the merger (the ACE name change proposal); |
3. | To approve the issuance of ACE common shares pursuant to the merger agreement in accordance with NYSE requirements and ACEs commitment in its 2014 Proxy Statement not to issue more than 68,000,000 ACE common shares pursuant to Article 6 of its Articles of Association without either providing ACEs shareholders with the opportunity to exercise preemptive rights or seeking specific shareholder approval for such issuance (the ACE issuance proposal); |
4. | To elect four current directors of Chubb as new directors of ACE effective as of the completion of the merger (the ACE director election proposal); and |
5. | To increase the aggregate compensation for members of the ACE board to provide compensation for the four new directors (the ACE new director compensation proposal). |
Shareholder approval of the ACE authorized share capital proposal, the ACE issuance proposal, the ACE director election proposal and the ACE new director compensation proposal is required to complete the merger. ACE shareholders will also be asked to approve the ACE name change proposal. ACE will transact no other business at the ACE extraordinary general meeting, except for business properly brought before the ACE extraordinary general meeting or any adjournment or postponement thereof.
Q: | WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL AT THE ACE EXTRAORDINARY GENERAL MEETING? |
A: | The ACE authorized share capital proposal; The affirmative vote of two-thirds of the votes present (in person or by proxy) at the ACE extraordinary general meeting is required to approve the ACE authorized share capital proposal. |
The ACE name change proposal; The affirmative vote of the majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, not counting abstentions, broker non-votes or blank or invalid ballots, is required to approve the ACE name change proposal.
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The ACE issuance proposal; The affirmative vote of the majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, not counting abstentions, broker non-votes or blank or invalid ballots, is required to approve the ACE issuance proposal.
The ACE director election proposal; The affirmative vote of the majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, not counting abstentions, broker non-votes or blank or invalid ballots, is required to approve the ACE director election proposal.
The ACE new director compensation proposal; The affirmative vote of the majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, not counting abstentions, broker non-votes or blank or invalid ballots, is required to approve the ACE new director compensation proposal.
Q: | HOW DOES THE ACE BOARD RECOMMEND I VOTE? |
A: | The ACE board unanimously recommends that you vote your ACE common shares: |
1. | FOR the ACE authorized share capital proposal; |
2. | FOR the ACE name change proposal; |
3. | FOR the ACE issuance proposal; |
4. | FOR the ACE director election proposal; and |
5. | FOR the ACE new director compensation proposal. |
Q: | WHAT DO I NEED TO DO NOW? |
A: | After carefully reading and considering the information contained in this joint proxy statement/prospectus, please vote your shares as soon as possible so that your shares will be represented at the ACE extraordinary general meeting or the Chubb special meeting, as the case may be. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your broker, bank or other nominee. |
Q: | HOW DO I VOTE? |
A: | September 10, 2015 is the record date for ACEs extraordinary general meeting. Beneficial owners of shares held in street name and shareholders of record with voting rights at the close of business on that date are entitled to vote at ACEs extraordinary general meeting, except as provided in the section titled ACE Extraordinary General Meeting of Shareholders. You may vote over the Internet or by completing an ACE proxy card and mailing it in the return envelope provided. You may also vote in person at the ACE extraordinary general meeting. Additional details can be found in the section titled ACE Extraordinary General Meeting of Shareholders. |
If you are a shareholder of record of Chubb as of the close of business on September 10, 2015, you may have your shares of Chubb common stock voted on matters presented at the Chubb special meeting in any of the following ways:
| By Internet: by following the Internet voting instructions on the Chubb proxy card if you received a paper copy of the proxy materials at any time up until 11:59 p.m. on October 21, 2015; |
| By Telephone: by following the telephone voting instructions included in the Chubb proxy card at any time up until 11:59 p.m. on October 21, 2015; |
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| By Mail: by marking, dating and signing your Chubb proxy card in accordance with the instructions on it and returning it by mail in the pre-addressed reply envelope provided with the proxy materials. The Chubb proxy card must be received prior to the Chubb special meeting; or |
| In Person: you may attend the Chubb special meeting and cast your vote there. Attendance at the Chubb special meeting will not, in and of itself, constitute a vote or a revocation of a prior proxy, however. |
Additional details can be found in the section titled Chubb Special Meeting of Shareholders.
If you are a participant in the Capital Accumulation Plan of The Chubb Corporation (CCAP), your proxy will include all shares allocated to you in the CCAP (Plan Shares), which you may vote in person at the Chubb special meeting or over the Internet, by telephone or, provided that you have not delivered a written consent to receive materials electronically, by completing and mailing the proxy card accompanying your paper copy of the Chubb special meeting materials. Your proxy will serve as a voting instruction for the trustee of the CCAP. If your voting instructions are not received by October 19, 2015, any Plan Shares you hold will not be voted by the trustee.
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name. Your broker, bank or other nominee should forward the proxy materials to you, since they are considered, with respect to those shares, the shareholder of record. Your broker, bank or other nominee should enclose directions for you to use in directing your broker, bank or other nominee as to how to vote your shares, which may contain instructions for voting by telephone or electronically through the Internet. For certain agenda items, your broker may not be permitted to vote your shares without voting directions from you. However, since you are not the shareholder of record, you may only vote these shares in person at the ACE extraordinary general meeting or the Chubb special meeting, as the case may be, if you follow the instructions described below under the heading ACE Extraordinary General Meeting of ShareholdersHow to Vote in Person at the ACE Extraordinary General Meeting, for ACE shareholders, or Chubb Special Meeting of ShareholdersHow to Vote, for Chubb shareholders.
Q: | WHEN AND WHERE ARE THE ACE EXTRAORDINARY GENERAL MEETING AND THE CHUBB SPECIAL MEETING? |
A: | The ACE extraordinary general meeting will be held at 2:45 p.m. Central European Time on October 22, 2015, at the offices of ACE Limited, Baerengasse 32, CH-8001 Zurich, Switzerland. |
The Chubb special meeting will be held on October 22, 2015, at 8:00 a.m., local time, in the Amphitheater at The Chubb Corporation, 15 Mountain View Road, Warren, New Jersey 07059, and at any adjournments or postponements thereof.
Q: | IF MY SHARES ARE HELD IN STREET NAME BY A BROKER, BANK OR OTHER NOMINEE, WILL MY BROKER, BANK OR OTHER NOMINEE VOTE MY SHARES FOR ME? |
A: | If your shares are held in street name in a stock brokerage account or by a bank or other nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to ACE or Chubb or by voting in person at your respective companys shareholder meeting unless you obtain a signed proxy from the shareholder of record giving you the right to vote the shares. Additional information can be found in the section titled ACE Extraordinary General Meeting of ShareholdersHow to Vote in Person at the ACE Extraordinary General Meeting, for ACE shareholders, and Chubb Special Meeting of ShareholdersHow to Vote, for Chubb shareholders. |
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Under the rules of the NYSE, brokers who hold shares in street name for a beneficial owner of those shares typically have the authority to vote in their discretion on routine proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the NYSE determines to be non-routine without specific instructions from the beneficial owner. It is expected that all proposals to be voted on at the ACE extraordinary general meeting and the Chubb special meeting are such non-routine matters. Broker non-votes occur when a broker or nominee is not instructed by the beneficial owner of shares how to vote on a particular proposal for which the broker does not have discretionary voting power.
Q: | WHAT IF I DO NOT VOTE OR I ABSTAIN? |
A: | For ACE shareholders, because an increase in ACEs authorized capital requires an affirmative vote of two-thirds of the votes present (in person or by proxy) for approval, abstentions and broker non-votes will have the effect of an AGAINST vote because they will be counted as present but not FOR the ACE authorized share capital proposal. Otherwise, abstentions and broker non-votes will not be considered in the vote and will not have an impact on any of the agenda items being voted upon at the ACE extraordinary general meeting. |
For Chubb shareholders, in accordance with New Jersey law, abstentions and broker non-votes will not be considered in the vote and will not have an impact on any of the proposals being voted upon at the Chubb special meeting.
Q: | WHAT WILL HAPPEN IF I RETURN MY PROXY OR VOTING INSTRUCTION CARD WITHOUT INDICATING HOW TO VOTE? |
A: | If you sign and return your proxy or voting instruction card without indicating how to vote on any particular proposal, the ACE common shares represented by your ACE proxy will be voted FOR each proposal in accordance with the recommendation of the ACE board with respect to each proposal and the shares of Chubb common stock represented by your Chubb proxy will be voted FOR each proposal in accordance with the recommendation of the Chubb board with respect to each proposal. Unless an ACE shareholder or a Chubb shareholder, as applicable, checks the box on its proxy card to withhold discretionary authority, the proxyholders may use their discretion to vote on the proposals relating to the ACE extraordinary general meeting or the Chubb special meeting, as applicable. |
Q: | MAY I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY OR VOTING INSTRUCTION CARD? |
A: | Yes. ACE shareholders may change their vote or revoke a proxy by following the steps described in the section titled ACE Extraordinary General Meeting of ShareholdersYou May Revoke or Change Your Vote. Chubb shareholders may change their vote or revoke a proxy by following the steps described in the section titled Chubb Special Meeting of ShareholdersRevocations. |
Q: | WHAT SHOULD I DO IF I RECEIVE MORE THAN ONE SET OF VOTING MATERIALS? |
A: | ACE shareholders and Chubb shareholders may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold ACE common shares and/or Chubb common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold such shares. If you are a holder of record of ACE common shares or Chubb common stock and your shares are registered in more than one name, |
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you will receive more than one proxy card. In addition, if you are a holder of both ACE common shares and Chubb common stock, you will receive one or more separate proxy cards or voting instruction cards for each company. Please complete, sign, date and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this joint proxy statement/prospectus to ensure that you vote every ACE common share and share of Chubb common stock that you own. |
Q: | ARE CHUBB SHAREHOLDERS ENTITLED TO APPRAISAL RIGHTS? |
A: | No. In accordance with Section 14A:11-1 of the New Jersey Business Corporation Act (the NJBCA), no appraisal rights will be available to holders of Chubb common stock with respect to the merger. |
Q: | WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO U.S. HOLDERS OF CHUBB COMMON STOCK? |
A: | The receipt by U.S. holders (as defined in the section titled Material United States Federal Income Tax Consequences) of ACE common shares and cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. holder will recognize capital gain or loss equal to the difference between (i) the sum of the fair market value of the ACE common shares on the date of the exchange and the cash consideration received as consideration in the merger and (ii) the U.S. holders adjusted tax basis in the shares of Chubb common stock surrendered in the exchange. A U.S. holders adjusted basis in the shares of Chubb common stock generally will equal the holders purchase price for such shares of Chubb common stock, as adjusted to take into account stock dividends, stock splits, or similar transactions. If a U.S. holder acquired different blocks of shares of Chubb common stock at different times and different prices, such holder must determine its adjusted tax basis and holding period separately with respect to each block of shares of Chubb common stock. |
For a further discussion of certain U.S. federal income tax consequences of the merger to Chubb shareholders, see the section titled Material United States Federal Income Tax ConsequencesTax Consequences of the Merger to U.S. Holders of Shares of Chubb Common Stock.
Tax matters are very complicated and the tax consequences of the merger to each U.S. holder of Chubb common stock may depend on such shareholders particular facts and circumstances. Holders of Chubb common stock are urged to consult their tax advisors to understand fully the tax consequences to them of the merger.
Q: | WHAT HAPPENS IF THE MERGER IS NOT COMPLETED? |
A: | If the merger is not completed, Chubb shareholders will not receive any consideration for their shares of Chubb common stock in connection with the merger. Instead, Chubb will remain an independent public company and its common stock will continue to be listed and traded on the NYSE. Under certain circumstances, Chubb may be required to pay a termination fee to ACE with respect to the termination of the merger agreement, as described under The Merger AgreementEffect of Termination and Termination Fee. |
Q: | SHOULD I SEND IN MY CHUBB STOCK CERTIFICATES NOW? |
A: | No. Chubb shareholders SHOULD NOT send in any stock certificates now. If the merger agreement is approved, following completion of the merger, transmittal materials with instructions for their completion will be provided to Chubb shareholders under separate cover and the stock certificates should be sent at that time. |
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Q: | WHO SHOULD I CONTACT IF I HAVE ANY QUESTIONS ABOUT THE PROXY MATERIALS OR VOTING? |
A: | If you have any questions about the proxy materials or if you need assistance submitting your proxy or voting your shares or need additional copies of this joint proxy statement/prospectus or the enclosed proxy card, you should contact the proxy solicitation agent for the company in which you hold shares. |
If you are an ACE shareholder, you should contact D.F. King & Co., Inc., ACEs proxy solicitor, at 1-866-751-6309 or by email at ace@dfking.com. Banks and brokerage firms should contact D.F. King & Co., Inc. at 1-212-269-5550 or by email at ace@dfking.com.
If you are a Chubb shareholder, you should contact Georgeson Inc., Chubbs proxy solicitor, at 1-866-482-5136 or by email at chubb@georgeson.com.
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This summary provides a brief overview of the key aspects of the merger and the transactions contemplated thereby, the ACE extraordinary general meeting and the Chubb special meeting. This summary does not contain all of the information that may be important to you. You should read this entire document and its appendices and the other documents to which we refer before you decide how to vote with respect to the merger-related proposals. In addition, we incorporate by reference important business and financial information about ACE and Chubb into this joint proxy statement/prospectus. For a description of this information, see Incorporation of Certain Documents by Reference. You may obtain the information incorporated by reference into this joint proxy statement/prospectus without charge by following the instructions in the section titled Where You Can Find More Information.
All references in this joint proxy statement/prospectus to ACE refer to ACE Limited, a Swiss-incorporated holding company of ACE Group and, unless the context otherwise requires, to its affiliates (which do not include Chubb); all references in this joint proxy statement/prospectus to Chubb refer to The Chubb Corporation, a New Jersey corporation, and the holding company for several separately organized property and casualty insurance companies referred to informally as the Chubb Group of Insurance Companies and, unless the context otherwise requires, to its affiliates (which do not include ACE); all references in this joint proxy statement/prospectus to Merger Sub refer to William Investment Holdings Corporation, a New Jersey corporation and an indirect, wholly owned subsidiary of ACE; and unless otherwise indicated or as the context requires, all references in this joint proxy statement/prospectus to we, us, and our refer to ACE and Chubb, collectively.
All references in this joint proxy statement/prospectus to $ and USD are to United States dollars, and all references to CHF are to Swiss francs.
Information About the Companies (page 67)
ACE Limited
Baerengasse 32
Zurich, Switzerland CH-8001
Telephone: +41 (0) 43 456 76 00
ACE Limited is the Swiss-incorporated holding company of ACE Group, one of the worlds largest multiline property and casualty insurance organizations. Zurich-based ACE and its direct and indirect subsidiaries operate in 54 countries and territories. The affiliated insurance companies of ACE Group provide distinct insurance and reinsurance products and services to a diverse group of clients ranging from multinational corporations to consumers. ACE serves multinational corporations and local businesses with property and casualty insurance and services; companies and affinity groups providing or offering accident and health insurance programs and life insurance to their employees or members; insurers managing exposures with reinsurance coverage; and individuals purchasing life, personal accident, supplemental health, homeowners, automobile, valuables, umbrella liability and other specialty insurance coverage.
William Investment Holdings Corporation
c/o ACE Group Holdings, Inc.
1133 Avenue of the Americas
New York, New York 10036
Telephone: 1-212-827-4400
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Merger Sub, whose legal name is William Investment Holdings Corporation, is a newly-formed New Jersey corporation and an indirect, wholly owned subsidiary of ACE. Upon completion of the merger in which Merger Sub will merge with and into Chubb, the separate existence of Merger Sub will terminate and Chubb will be an indirect wholly owned subsidiary of ACE.
The Chubb Corporation
15 Mountain View Road
Warren, New Jersey 07059
Telephone: 1-908-903-2000
Chubb was incorporated as a business corporation under the laws of the State of New Jersey in June 1967 and is a holding company for several separately organized property and casualty insurance companies referred to informally as the Chubb Group of Insurance Companies (the P&C Group). Chubb, through the P&C Group, is one of the largest property and casualty insurers in the United States and has a worldwide network of some 120 offices in 25 countries. Since 1882, insurance companies or predecessor companies included in the P&C Group have provided property and casualty insurance to businesses and individuals around the world. The P&C Group operates through three business units: Chubb Personal Insurance, Chubb Commercial Insurance and Chubb Specialty Insurance. Chubb Personal Insurance offers personal insurance products for homes and valuable articles (such as art and jewelry), fine automobiles and yachts, as well as personal liability insurance (both primary and excess). It also provides personal accident and limited supplemental health insurance to a wide range of customers, including businesses. Chubb Commercial Insurance offers a broad range of commercial insurance products, including multiple peril, primary liability, excess and umbrella liability, automobile, workers compensation and property and marine. Chubb Specialty Insurance offers a wide variety of specialized professional liability products for privately held and publicly traded companies, financial institutions, professional firms, healthcare and not-for-profit organizations. Chubb Specialty Insurance also offers surety products.
The Merger and the Merger Agreement (page 119)
The terms and conditions of the merger are contained in the merger agreement, which is attached to this joint proxy statement/prospectus as Appendix A. We encourage you to read the merger agreement carefully, as it is the legal document that governs the merger. All descriptions in this summary and elsewhere in this joint proxy statement/prospectus of the terms and conditions of the merger are qualified by reference to the merger agreement.
Under the terms of the merger agreement, Merger Sub, a wholly owned subsidiary of ACE, will merge with and into Chubb, with Chubb surviving the merger as a wholly owned subsidiary of ACE.
Merger Consideration (page 68)
In the merger, each share of Chubb common stock owned by a Chubb shareholder (except for certain shares held by ACE, Chubb, or their subsidiaries) will be converted into the right to receive 0.6019 of an ACE common share and $62.93 in cash. It is anticipated that ACE shareholders and Chubb shareholders, in each case as of immediately prior to the merger, will hold approximately 70 percent and 30 percent, respectively, of the issued and outstanding ACE common shares immediately after completion of the merger, without giving effect to any ACE common shares held by Chubb shareholders prior to the merger.
The exact value of the stock portion of the merger consideration that Chubb shareholders receive will depend on the price of ACE common shares at the time the merger is completed. Based on the closing price of ACE common shares on September 10, 2015, the last practicable date before the date of this joint
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proxy statement/prospectus, the value of the per share merger consideration payable to the holders of Chubb common stock was $123.57. We urge you to obtain current market quotations for ACE common shares and Chubb common stock.
Chubbs Reasons for the Merger; Recommendation of the Chubb Board (page 72)
The Chubb board determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of Chubb, its shareholders and its other constituencies, and has unanimously adopted and approved the merger agreement. For the factors considered by the Chubb board in reaching its decision to approve and adopt the merger agreement, see the section titled The MergerChubbs Reasons for the Merger; Recommendation of the Chubb Board. The Chubb board unanimously recommends that Chubb shareholders vote FOR the approval of the Chubb merger agreement proposal, FOR the Chubb merger-related compensation proposal and FOR the Chubb adjournment proposal.
The Chubb board considered a number of factors in determining to approve and adopt the merger agreement, including the following material factors:
| the fact that the per share merger consideration (1) had an implied value of $125.87 using ACEs 20-day volume weighted average share price for the period ending June 30, 2015, representing an approximately 32 percent premium to the Chubb common stocks closing price of $95.14 on June 30, 2015 and (2) had an implied value of $124.13 based on ACEs closing price of $101.68 on June 30, 2015, representing an approximately 30 percent premium to the Chubb common stocks closing price of $95.14 on June 30, 2015; |
| the fact that the stock component of the merger consideration offers Chubb shareholders the opportunity to participate in the future growth and opportunities of the combined company; |
| the potential for Chubbs shareholders, as future ACE shareholders, to benefit to the extent of their interest in the combined company from the synergies of the merger and the anticipated pro forma impact of the merger, and the expectation that the merger will be immediately accretive to ACEs earnings per share and book value and accretive to earnings per share on a double-digit basis and accretive to return on equity within three years after the consummation of the merger; |
| the view that the combined company will create a global leader in commercial and personal property and casualty insurance, with enhanced growth and earning power and an exceptional balance of products as a result of greater diversification and a product mix with reduced exposure to individual products or geographies; and |
| the view that the combined company will remain a growth company with complementary products, distribution, and customer segments, a shared commitment to underwriting discipline and outstanding claims service, and substantially increased data to drive new, profitable growth opportunities in both developed and developing markets around the world. |
ACEs Reasons for the Merger; Recommendation of the ACE Board (page 94)
The ACE board determined that the merger and the merger agreement are consistent with, and will further, ACEs business strategies and goals and are in the best interests of ACE and ACEs shareholders. The
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ACE board unanimously recommends that ACE shareholders vote FOR each of the proposals to (1) approve the amendment of ACEs Articles of Association relating to authorized share capital for general purposes, (2) approve the amendment of ACEs Articles of Association to change ACEs name to Chubb Limited effective as of the completion of the merger, (3) approve the issuance of ACE common shares pursuant to the merger agreement in accordance with NYSE requirements and ACEs commitment in its 2014 Proxy Statement not to issue more than 68,000,000 ACE common shares pursuant to Article 6 of its Articles of Association without either providing ACEs shareholders with the opportunity to exercise preemptive rights or seeking specific shareholder approval for such issuance, (4) elect four current directors of Chubb as new directors of ACE effective as of the completion of the merger, and (5) increase the aggregate compensation for members of the ACE board to provide compensation for the four new directors.
The ACE board considered a number of factors in determining to approve the merger agreement and proceed with the proposed transaction, including the following material factors:
| the expectation that the combined company would have greater growth and earning power than the sum of ACEs and Chubbs businesses separately; |
| the expected benefits from combining the complementary strengths of ACE and Chubb in product, customer and distribution capabilities, as well as in underwriting and claims service; |
| the expectation that the combined company would have greater product diversification, which would reduce exposure to cyclicality in certain product classes; and |
| the opportunities from having greater scale and the ability to use substantially increased data to drive new opportunities in both developed and developing markets. |
Opinion of Chubbs Financial Advisor (page 75)
The Chubb board retained Guggenheim Securities, LLC (Guggenheim Securities) to act as its financial advisor and to provide a financial opinion in connection with the proposed merger. Guggenheim Securities delivered its opinion to the Chubb board to the effect that, as of June 30, 2015 and based on the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the merger consideration was fair, from a financial point of view, to the common shareholders of Chubb. The full text of Guggenheim Securities written opinion, which is attached as Appendix C to this joint proxy statement/prospectus and which you should read carefully and in its entirety, is subject to the assumptions, limitations, qualifications and other conditions contained in such opinion and is necessarily based on economic, capital markets and other conditions, and the information made available to Guggenheim Securities, as of the date of such opinion.
Guggenheim Securities opinion was provided to the Chubb board (in its capacity as such) for its information and assistance in connection with its evaluation of the merger consideration, did not constitute a recommendation to the Chubb board with respect to the merger and does not constitute advice or a recommendation to any holder of Chubb or ACE common shares as to how to vote in connection with the merger or otherwise. Guggenheim Securities opinion addressed only the fairness, from a financial point of view, of the merger consideration to the common shareholders of Chubb in connection with the merger and did not address any other term or aspect of the merger, the merger agreement or any other agreement, transaction document or instrument contemplated by the merger agreement or to be entered into or amended in connection with the merger.
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Opinion of ACEs Financial Advisor (page 97)
ACE retained Morgan Stanley & Co. LLC (Morgan Stanley) to act as its financial advisor and to provide a financial opinion in connection with the proposed merger. At the meeting of the ACE board on June 30, 2015, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that, as of such date, and based upon and subject to the various assumptions, procedures, matters, qualifications and limitations on the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the consideration to be paid by ACE pursuant to the merger agreement was fair from a financial point of view to ACE.
The full text of the written opinion of Morgan Stanley, dated as of June 30, 2015, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion, is attached to this joint proxy statement/prospectus as Appendix D. ACE shareholders are encouraged to read the opinion carefully and in its entirety. Morgan Stanleys opinion was rendered for the benefit of the ACE board, in its capacity as such, and addressed only the fairness from a financial point of view of the consideration pursuant to the merger agreement to ACE as of the date of the opinion. Morgan Stanleys opinion did not address any other aspect of the merger or related transactions, including the prices at which ACE common shares will trade following consummation of the merger or at any time, or any compensation or compensation agreements arising from (or relating to) the merger which benefit any of Chubbs officers, directors or employees, or any class of such persons. The opinion was addressed to, and rendered for the benefit of, the ACE board and was not intended to, and does not, constitute advice or a recommendation as to how shareholders of Chubb or ACE should vote at the shareholders meetings of ACE and Chubb to be held in connection with the merger or act on any matter with respect to the merger or related transactions. The summary of the opinion of Morgan Stanley set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion.
Chubb Special Meeting of Shareholders (page 42)
The Chubb special meeting will be held at 8:00 a.m., local time, on October 22, 2015, in the Amphitheater at The Chubb Corporation, 15 Mountain View Road, Warren, New Jersey 07059. At the Chubb special meeting, Chubb shareholders will be asked to approve the Chubb merger agreement proposal, the Chubb merger-related compensation proposal and the Chubb adjournment proposal.
The Chubb board has set the close of business on September 10, 2015 as the record date for determining the holders of Chubb common stock entitled to receive notice of and to vote at the Chubb special meeting. You are entitled to receive notice of, and to vote at, the Chubb special meeting if you owned shares of Chubb common stock as of the close of business on the record date for the Chubb special meeting. You will have one vote on all matters properly coming before the Chubb special meeting for each share of Chubb common stock that you owned as of the close of business on the record date for the Chubb special meeting.
The approval of the Chubb merger agreement proposal requires the affirmative vote of two-thirds of the votes cast on the proposal.
As of the record date, there were 227,047,207 shares of Chubb common stock outstanding and entitled to vote. As of the record date, the directors and executive officers of Chubb and their affiliates
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beneficially owned and were entitled to vote approximately 887,600 shares of Chubb common stock representing approximately less than 0.5 percent of the shares of Chubb common stock outstanding on that date.
As of the record date, ACE did not beneficially own any shares of Chubb common stock.
ACE Extraordinary General Meeting of Shareholders (page 48)
The ACE extraordinary general meeting will be held at 2:45 p.m. Central European Time (doors open at 1:45 p.m. Central European Time) on October 22, 2015, at the offices of ACE Limited, Baerengasse 32, CH-8001 Zurich, Switzerland. Shareholder approval of each of the ACE authorized share capital proposal, the ACE issuance proposal, the ACE director election proposal and the ACE new director compensation proposal is required to complete the merger. ACE shareholders will also be asked to approve the ACE name change proposal.
The ACE board has fixed the close of business on September 10, 2015 as the record date for determining the holders of ACE common shares entitled to receive notice of and to vote at the ACE extraordinary general meeting. As of the ACE record date, there were 323,927,846 ACE common shares outstanding and entitled to vote at the ACE extraordinary general meeting. Each ACE common share entitles the holder to one vote on each proposal to be considered at the ACE extraordinary general meeting subject to the voting restrictions set forth in ACEs Articles of Association, a summary of which is contained in the section titled ACE Extraordinary General Meeting of ShareholdersHow Many Votes You Have. As of the record date, directors and executive officers of ACE and their affiliates owned and were entitled to vote 2,304,648 ACE common shares, representing less than 1 percent of the ACE common shares outstanding on that date. ACE currently expects that ACEs directors and executive officers will vote their shares in favor of the ACE authorized share capital proposal, the ACE name change proposal, the ACE issuance proposal, the ACE director election proposal, and the ACE new director compensation proposal, although none of them has entered into any agreements obligating them to do so.
As of the record date, Chubb did not beneficially own any ACE common shares.
Approval of the ACE authorized share capital proposal requires the affirmative vote of two-thirds of the votes present (in person or by proxy) at the ACE extraordinary general meeting.
Approval of the ACE name change proposal, the ACE issuance proposal, the ACE director election proposal, and the ACE new director compensation proposal requires the affirmative vote of a majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, not counting abstentions, broker non-votes or blank or invalid ballots.
Interests of Chubb Directors and Executive Officers in the Merger (page 106)
The non-employee directors and executive officers of Chubb have certain interests in the merger that are different from, or in addition to, the interests of Chubb shareholders generally. These interests include, among others, potential severance benefits and other payments, the treatment of outstanding equity awards pursuant to the merger agreement and applicable Chubb equity compensation plans, and rights to ongoing indemnification and insurance coverage. The Chubb board was aware of these interests and considered them, among other matters, in reaching its decisions to (i) approve the merger agreement and the transactions contemplated thereby and (ii) recommend that the shareholders of Chubb approve the merger agreement proposal. See the section titled The MergerInterests of Chubb Directors and Executive Officers in the Merger for a more detailed description of these interests.
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Effect of the Merger on Chubb Stock-Based Awards (page 120)
Subject to the terms and conditions of the merger agreement, upon the completion of the merger, each Chubb option, restricted stock unit award (including each performance unit award), deferred stock unit award and deferred unit that is outstanding immediately prior to the completion of the merger will be automatically converted into an option, restricted stock unit award, deferred stock unit award or deferred unit, as applicable, relating to ACE common shares, the number of which will be determined in accordance with the adjustment mechanism set forth in the merger agreement, on the same terms and conditions as were applicable under such Chubb equity award immediately prior to the completion of the merger, subject to certain modifications required by certain Chubb equity compensation plans and certain other modifications, in each case, as described under The Merger AgreementEffect of the Merger on Chubb Stock-Based Awards.
Regulatory Reviews and Approvals (page 116)
The insurance laws and regulations of the states of Connecticut, Delaware, Indiana, New Jersey, New York, Texas and Wisconsin, jurisdictions where insurance company subsidiaries of Chubb are domiciled, generally require that, prior to the acquisition of control of an insurance company domiciled or commercially domiciled in those respective jurisdictions, the acquiring company must obtain the approval of the insurance regulators of those jurisdictions. Between August 7 and August 13, 2015, ACE made the filings requesting such approval with the insurance regulators of the states of Connecticut, Delaware, Indiana, New Jersey, New York, Texas and Wisconsin.
The insurance laws and regulations of multiple states where insurance company subsidiaries of Chubb are authorized to conduct insurance business require the filing of pre-acquisition notifications regarding the potential competitive impact of an acquisition of control of an insurance company authorized in those jurisdictions in which the requirement to make such notifications is triggered (and not otherwise exempted) under applicable law. Such notifications generally must be made at least 30 days before completion of the acquisition (which period may be terminated earlier by the applicable states insurance regulator or extended on a one time basis for up to an additional 30 days). On September 2 and September 3, 2015, ACE made such notifications with the insurance regulators of the states of Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, the District of Columbia, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maryland, Minnesota, Missouri, New Hampshire, New Jersey, New Mexico, Nevada, North Dakota, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia and Wisconsin.
The insurance and competition laws and regulations of Argentina, Australia, Bermuda, Brazil, Canada, Chile, China, Colombia, Hong Kong, Japan, Korea, Malaysia, Mexico, Singapore and the United Kingdom, jurisdictions where insurance company subsidiaries of Chubb are domiciled or where branches of insurance company subsidiaries of Chubb are active, generally require that, in connection with the acquisition of control of such insurance companies, the acquiring company must provide notice to or seek approval from the relevant governmental authorities in such jurisdictions.
Under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), the merger may not be completed until certain information and documentary materials have been provided to the Antitrust Division of the U.S. Department of Justice (the Antitrust Division), and the Federal Trade Commission (the FTC), by ACE and Chubb, and the applicable waiting period has expired or been terminated. The parties filed the required notifications with the Antitrust Division and the FTC on September 2, 2015.
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The Antitrust Division and the FTC scrutinize the legality under the antitrust laws of transactions such as the merger. At any time before or after the merger, the Antitrust Division, the FTC or a state attorney general could take action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the merger or seeking divestiture of businesses or assets of ACE, Chubb or their respective subsidiaries. Private parties may also bring legal actions under the antitrust laws under certain circumstances.
In addition to the foregoing, ACE and Chubb may be required to make certain other filings with governmental authorities in connection with the merger.
ACE and Chubb have agreed to cooperate with each other and to use their respective reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and governmental entities that are necessary or advisable to complete the merger. Neither party is, however, required to take, or commit to take, any action or agree to any condition or restriction that would reasonably be likely to have a material and adverse effect on ACE and its subsidiaries, taken as a whole, giving effect to the merger (with such materiality measured on a scale relative to Chubb and its subsidiaries, taken as a whole).
Conditions to the Merger (page 133)
The respective obligations of each of ACE and Chubb to complete the merger are subject to the satisfaction of the following conditions:
| the receipt of the requisite affirmative vote of the Chubb shareholders of the approval of the merger agreement and the requisite affirmative vote of ACE shareholders on certain merger-related proposals; |
| the ACE common shares to be issued in the merger must have been authorized for listing on the NYSE; |
| the effectiveness of the registration statement on Form S-4, of which this joint proxy statement/prospectus is a part, and the absence of a stop order or proceeding initiated or threatened by the SEC for the purpose of suspending the effectiveness of the Form S-4; |
| the absence of any injunction or other legal prohibition or restraint against the merger; |
| the receipt of required regulatory approvals or the receipt of those approvals the failure of which to be obtained would reasonably be likely to have a material adverse effect on the surviving corporation; |
| the absence of a regulatory condition or restriction that would reasonably be likely to have a material and adverse effect on ACE and its subsidiaries, taken as a whole, giving effect to the merger (with such materiality measured on a scale relative to Chubb and its subsidiaries, taken as a whole); |
| the accuracy of the other partys representations and warranties in the merger agreement as of the closing date of the merger, subject to applicable materiality qualifiers; and |
| the prior performance by the other party, in all material respects, of its obligations under the merger agreement. |
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As more fully described in this joint proxy statement/prospectus and in the merger agreement, and subject to certain exceptions summarized below, Chubb has agreed not to initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or proposals with respect to, or engage or participate in any negotiations concerning, or provide confidential or nonpublic information or data to, or have any discussions with, any person relating to an alternative acquisition proposal. Notwithstanding these restrictions, the merger agreement provides that Chubb may, and may permit its subsidiaries and its and its subsidiaries representatives to, furnish or cause to be furnished nonpublic information or data and participate in such negotiations or discussions with a third party in response to an unsolicited bona fide written acquisition proposal if the Chubb board concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisors) that failure to take such actions would result in a violation of its fiduciary duties under applicable law.
The merger agreement may be terminated at any time prior to the completion of the merger, whether before or after approval of the merger agreement by Chubb shareholders:
| by mutual written consent of ACE and Chubb; |
| by either ACE or Chubb, if any of the required regulatory approvals are denied or completion of the merger has been prohibited or made illegal by a governmental entity (and the denial or prohibition is final and nonappealable), unless the failure to obtain the required regulatory approvals is due to the terminating partys failure to abide by the merger agreement; |
| by either ACE or Chubb, if the merger has not been completed by June 30, 2016, unless the failure to complete the merger by that date is due to the terminating partys failure to abide by the merger agreement; |
| by either ACE or Chubb, if there is a breach by the other party that would result in the failure of the conditions of the terminating partys obligation to complete the merger to be satisfied, unless the breach is capable of being, and is, cured within 45 days of written notice of the breach (provided that the terminating party is not then in material breach of the merger agreement); |
| by ACE, if, before Chubb shareholders approve the merger agreement, Chubb or the Chubb board (1) submits the merger agreement to its shareholders without a recommendation for approval, or otherwise withdraws or materially and adversely modifies (or discloses such an intention) its recommendation for approval, or recommends to its shareholders an acquisition proposal other than the merger agreement, or (2) materially breaches its obligations to call a shareholder meeting or to prepare and mail its shareholders the joint proxy statement/prospectus pursuant to the merger agreement or abide by the non-solicitation requirements in the merger agreement; or |
| by ACE, if a tender or exchange offer for 20 percent or more of the outstanding shares of Chubb common stock is commenced (other than by ACE), and the Chubb board recommends that the Chubb shareholders tender their shares in such tender or exchange offer or otherwise fails to recommend that such shareholders reject such tender or exchange offer within 10 business days. |
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Litigation Related to the Merger (page 136)
Chubb, the Chubb board, ACE and/or Merger Sub have been named as defendants in ten putative class actions challenging the merger in the New Jersey Superior Court, Somerset County, Chancery Division. The suits are captioned The Sadie Nauy Charitable Found. v. The Chubb Corp., et al., C-012040-15 (filed July 10, 2015); Anne Cutler v. John D. Finnegan, et al., C-012041-15 (filed July 10, 2015); Sidney Weiman v. The Chubb Corp., et al., C-012043-15 (filed July 14, 2015); Renee Sayegh v. The Chubb Corp., et al., C-012045-15 (filed July 10, 2015); Judy Mesirov v. The Chubb Corp., et al., C-012046-15 (filed July 20, 2015); Shiva Stein v. The Chubb Corp., et al., C-012047-15 (filed July 21, 2015); Vladimir Gusinsky Living Trust v. The Chubb Corp., et al., C-012048-15 (filed July 22, 2015); Jane Schwartzman v. Zoe Baird Budinger, et al., C-012049-15 (filed July 20, 2015); Saunders v. The Chubb Corp., et al., C-012050-15 (filed July 23, 2015); and Polatsch v. The Chubb Corp., et al., C-012051-15 (filed July 23, 2015). The complaints allege, among other things, that the Chubb board breached its fiduciary duties by agreeing to sell Chubb through an unfair and inadequate process and by failing to maximize the value of Chubb. Several of the complaints also allege that Chubb, ACE and/or Merger Sub have aided and abetted these breaches of fiduciary duties. Amended complaints were filed in the Mesirov, Weiman and Schwartzman suits on August 10, August 10 and August 14, respectively, adding, among other things, allegations of material misstatements and omissions concerning the preliminary Registration Statement on Form S-4 filed by ACE on August 3, 2015. Plaintiffs seek as relief, among other things, an injunction against the merger, rescission of the merger to the extent it is already implemented, and an award of damages. Defendants believe the lawsuits are without merit.
Accounting Treatment (page 117)
ACE prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). The merger will be accounted for using the acquisition method of accounting. ACE will be treated as the acquirer for accounting purposes.
Material United States Federal Income Tax Consequences (page 137)
The receipt by U.S. holders (as defined in the section titled Material United States Federal Income Tax Consequences) of ACE common shares and cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. holder will recognize capital gain or loss equal to the difference between (i) the sum of the fair market value of the ACE common shares on the date of the exchange and the cash consideration received as consideration in the merger and (ii) the U.S. holders adjusted tax basis in the shares of Chubb common stock surrendered in the exchange. A U.S. holders adjusted basis in the shares of Chubb common stock generally will equal the holders purchase price for such shares of Chubb common stock, as adjusted to take into account stock dividends, stock splits, or similar transactions. If a U.S. holder acquired different blocks of shares of Chubb common stock at different times and different prices, such holder must determine its adjusted tax basis and holding period separately with respect to each block of shares of Chubb common stock.
Material Swiss Tax Consequences (page 145)
The merger is not subject to Swiss withholding tax. For non-Swiss holders no Swiss income tax arises as a result of the merger. ACE expects to receive a Swiss tax ruling, qualifying the merger as tax neutral with the effect that no Swiss securities transfer stamp taxes are due on the exchange of shares. Distributions paid on ACE shares that are attributed to par value or qualifying paid-in capital are not subject to Swiss withholding tax. ACEs amount of par value and qualifying paid-in capital will increase substantially as a result of the merger, allowing for the payment of tax exempt dividends thereout for many years. Remittances out of other than par value or qualifying paid-in capital are subject to Swiss withholding which are fully refundable
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to a Swiss holder, if the respective legal requirements are met, and may be refunded to a non-Swiss holder fully or partially, subject to an applicable double taxation treaty and the requirements set forth therein. With respect to the United Kingdom and Austria, a final withholding tax may apply. Non-Swiss holders are not subject to any Swiss income tax, if they do not conduct any business activities in Switzerland through a permanent establishment. A transfer of ACE common shares with a Swiss bank or another securities dealer as an intermediary or as a party to the transaction may be subject to Swiss securities transfer stamp taxes of up to 0.15 percent.
Comparison of Shareholders Rights (page 165)
ACE is organized under the laws of Switzerland and, accordingly, the rights and privileges of ACE shareholders are governed principally by the laws of Switzerland and by ACEs Articles of Association and Organizational Regulations. Chubb is incorporated as a business corporation under the laws of the State of New Jersey and, accordingly, the rights and privileges of Chubb shareholders are governed principally by the laws of the State of New Jersey and by Chubbs Restated Certificate of Incorporation and By-Laws.
In the merger, each share of Chubb common stock held by a Chubb shareholder will be converted into the right to receive ACE common shares and cash. The rights of former Chubb shareholders, who will become ACE shareholders following completion of the merger, will change and will thereafter be governed principally by Swiss law and by ACEs Articles of Association and Organizational Regulations.
No Appraisal Rights (page 182)
In accordance with Section 14A:11-1 of the NJBCA, no appraisal rights will be available to holders of Chubb common stock with respect to the merger.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ACE
The following table presents ACEs selected historical consolidated financial and other data as of and for the dates and periods indicated. The following consolidated statement of operations data for the years ended December 31, 2014, 2013, and 2012 and the consolidated balance sheet data as of December 31, 2014 and 2013 have been derived from the audited consolidated financial statements of ACE contained in its Annual Report on Form 10-K for the year ended December 31, 2014, which is incorporated into this joint proxy statement/prospectus by reference. The consolidated statement of operations data for the years ended December 31, 2011 and 2010 and the consolidated balance sheet data as of December 31, 2012, 2011 and 2010 have been derived from ACEs audited consolidated financial statements for such years, which have not been incorporated into this joint proxy statement/prospectus by reference.
The consolidated statement of operations data for the six months ended June 30, 2015 and 2014 and the consolidated balance sheet data as of June 30, 2015 have been derived from ACEs unaudited interim consolidated financial statements contained in its Quarterly Report on Form 10-Q for the period ended June 30, 2015, which is incorporated into this joint proxy statement/prospectus by reference. The consolidated balance sheet data as of June 30, 2014 have been derived from ACEs unaudited interim consolidated financial statements contained in its Quarterly Report on Form 10-Q for the period ended June 30, 2014, which is not incorporated into this joint proxy statement/prospectus by reference. These consolidated financial statements are unaudited, but, in the opinion of ACEs management, have been prepared on the same basis as its audited consolidated financial statements and contain all normal and recurring adjustments necessary to present fairly ACEs financial position and results of operations for the periods indicated.
The following information is only a summary and is not necessarily indicative of the results of future operations of ACE or the combined company. You should read this selected historical consolidated financial and other data together with ACEs consolidated financial statements that are incorporated by reference into this joint proxy statement/prospectus and their accompanying notes and managements discussion and analysis of financial condition and results of operations contained in such reports.
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For the Year Ended December 31, | For the Six Months Ended June 30, | |||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | 2015 | 2014 | ||||||||||||||||||||||
(in millions, except per share data and percentages) | ||||||||||||||||||||||||||||
Operations Data: |
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Net premiums earned excluding Life segment |
$ | 15,464 | $ | 14,708 | $ | 13,761 | $ | 13,528 | $ | 11,875 | $ | 7,326 | $ | 7,328 | ||||||||||||||
Net premiums earned Life segment |
1,962 | 1,905 | 1,916 | 1,859 | 1,629 | 961 | 974 | |||||||||||||||||||||
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Total net premiums earned |
17,426 | 16,613 | 15,677 | 15,387 | 13,504 | 8,287 | 8,302 | |||||||||||||||||||||
Net investment income |
2,252 | 2,144 | 2,181 | 2,242 | 2,070 | 1,113 | 1,109 | |||||||||||||||||||||
Losses and loss expenses |
9,649 | 9,348 | 9,653 | 9,520 | 7,579 | 4,539 | 4,549 | |||||||||||||||||||||
Policy benefits |
517 | 515 | 521 | 401 | 357 | 295 | 258 | |||||||||||||||||||||
Policy acquisition costs and administrative expenses |
5,320 | 4,870 | 4,542 | 4,540 | 4,218 | 2,566 | 2,587 | |||||||||||||||||||||
Net income |
$ | 2,853 | $ | 3,758 | $ | 2,706 | $ | 1,540 | $ | 3,085 | $ | 1,623 | $ | 1,513 | ||||||||||||||
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Weighted-average shares outstanding diluted |
339 | 344 | 343 | 341 | 341 | 330 | 342 | |||||||||||||||||||||
Diluted earnings per share |
$ | 8.42 | $ | 10.92 | $ | 7.89 | $ | 4.52 | $ | 9.04 | $ | 4.91 | $ | 4.43 | ||||||||||||||
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Balance Sheet Data (at end of period): | ||||||||||||||||||||||||||||
Total investments |
$ | 62,904 | $ | 60,928 | $ | 60,264 | $ | 55,676 | $ | 51,407 | $ | 63,265 | $ | 63,620 | ||||||||||||||
Total assets |
98,248 | 94,510 | 92,545 | 87,321 | 83,216 | 99,840 | 97,447 | |||||||||||||||||||||
Net unpaid losses and loss expenses |
27,008 | 26,831 | 26,547 | 25,875 | 25,242 | 27,082 | 27,067 | |||||||||||||||||||||
Net future policy benefits |
4,537 | 4,397 | 4,229 | 4,025 | 2,825 | 4,632 | 4,544 | |||||||||||||||||||||
Long-term debt |
3,357 | 3,807 | 3,360 | 3,360 | 3,358 | 4,157 | 4,057 | |||||||||||||||||||||
Trust preferred securities |
309 | 309 | 309 | 309 | 309 | 309 | 309 | |||||||||||||||||||||
Total liabilities |
68,661 | 65,685 | 65,014 | 62,989 | 60,381 | 70,285 | 67,122 | |||||||||||||||||||||
Shareholders equity |
29,587 | 28,825 | 27,531 | 24,332 | 22,835 | 29,555 | 30,325 | |||||||||||||||||||||
Book value per share |
$ | 90.02 | $ | 84.83 | $ | 80.90 | $ | 72.22 | $ | 68.17 | $ | 91.27 | $ | 90.19 | ||||||||||||||
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Selected Data: |
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Loss and loss expense ratio(1) |
58.7% | 59.6% | 65.7% | 66.0% | 59.4% | 58.0% | 58.0% | |||||||||||||||||||||
Underwriting and administrative expense ratio(2) |
29.4% | 28.4% | 28.2% | 28.7% | 30.9% | 30.0% | 30.2% | |||||||||||||||||||||
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Combined ratio(3) |
88.1% | 88.0% | 93.9% | 94.7% | 90.3% | 88.0% | 88.2% | |||||||||||||||||||||
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Net loss reserves to capital and surplus ratio(4) |
106.6% | 108.3% | 111.8% | 122.9% | 122.9% | 107.3% | 104.2% | |||||||||||||||||||||
Cash Dividends per Share |
$ | 2.70 | $ | 2.02 | $ | 2.06 | $ | 1.38 | $ | 1.30 | $ | 1.32 | $ | 1.28 |
(1) | The loss and loss expense ratio is calculated by dividing Losses and loss expenses, excluding the Life segment, by Net premiums earned excluding Life segment. Losses and loss expenses for the Life segment were $589 million, $582 million, $611 million, $593 million, and $528 million for the years ended December 31, 2014, 2013, 2012, 2011, and 2010, respectively, and $289 million and $297 million for the six months ended June 30, 2015 and 2014, respectively. |
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(2) | The underwriting and administrative expense ratio is calculated by dividing the Policy acquisition costs and administrative expenses, excluding the Life segment, by Net premiums earned excluding Life segment. Policy acquisition costs and administrative expenses for the Life segment were $763 million, $701 million, $662 million, $656 million, and $552 million for the years ended December 31, 2014, 2013, 2012, 2011, and 2010, respectively, and $372 million and $373 million for the six-months ended June 30, 2015 and 2014, respectively. |
(3) | The combined ratio is the sum of loss and loss expense ratio and the underwriting and administrative expense ratio. |
(4) | The net loss reserves to capital and surplus ratio is calculated by dividing the sum of the Net unpaid losses and loss expenses and Net future policy benefits by Shareholders equity. |
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CHUBB
The following table presents Chubbs selected historical consolidated financial data as of and for the dates and periods indicated. The following consolidated statement of income data for the years ended December 31, 2014, 2013 and 2012 and the consolidated balance sheet data as of December 31, 2014 and 2013 have been derived from the audited consolidated financial statements of Chubb contained in its Annual Report on Form 10-K for the year ended December 31, 2014, which is incorporated into this joint proxy statement/prospectus by reference. The consolidated statement of income data for the years ended December 31, 2011 and 2010 and the consolidated balance sheet data as of December 31, 2012, 2011 and 2010 have been derived from Chubbs audited consolidated financial statements for such years, which have not been incorporated into this joint proxy statement/prospectus by reference.
The consolidated statement of income data for the six months ended June 30, 2015 and 2014 and the consolidated balance sheet data as of June 30, 2015 have been derived from Chubbs unaudited interim consolidated financial statements contained in its Quarterly Report on Form 10-Q for the period ended June 30, 2015, which is incorporated into this joint proxy statement/prospectus by reference. The consolidated balance sheet data as of June 30, 2014 have been derived from Chubbs unaudited interim consolidated financial statements contained in its Quarterly Report on Form 10-Q for the period ended June 30, 2014, which is not incorporated into this joint proxy statement/ prospectus by reference. These consolidated financial statements are unaudited, but, in the opinion of Chubbs management, have been prepared on the same basis as its audited consolidated financial statements and contain all normal and recurring adjustments necessary to present fairly Chubbs financial position and results of operations for the periods indicated.
The following information is only a summary and is not necessarily indicative of the results of future operations of Chubb or the combined company. You should read this selected historical consolidated financial data together with Chubbs consolidated financial statements that are incorporated by reference into this joint proxy statement/prospectus and their accompanying notes and managements discussion and analysis of financial condition and results of operations contained in such reports.
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For the Year Ended December 31, | For the Six Months Ended June 30, |
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Operations Data: |
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Revenues |
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Property and casualty insurance Premiums earned |
$ | 12,328 | $ | 12,066 | $ | 11,838 | $ | 11,644 | $ | 11,215 | $ | 6,238 | $ | 6,093 | ||||||||||||||
Investment income |
1,368 | 1,436 | 1,518 | 1,598 | 1,590 | 660 | 696 | |||||||||||||||||||||
Corporate and other |
33 | 43 | 46 | 55 | 88 | 17 | 18 | |||||||||||||||||||||
Realized investment gains, net |
369 | 402 | 193 | 288 | 426 | 31 | 241 | |||||||||||||||||||||
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Total Revenues |
$ | 14,098 | $ | 13,947 | $ | 13,595 | $ | 13,585 | $ | 13,319 | $ | 6,946 | $ | 7,048 | ||||||||||||||
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Income |
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Property and casualty insurance income |
$ | 2,727 | $ | 3,072 | $ | 2,040 | $ | 2,157 | $ | 2,782 | $ | 1,272 | $ | 1,159 | ||||||||||||||
Corporate and other |
(235 | ) | (237 | ) | (237 | ) | (246 | ) | (220 | ) | (143 | ) | (119 | ) | ||||||||||||||
Realized investment gains, net |
369 | 402 | 193 | 288 | 426 | 31 | 241 | |||||||||||||||||||||
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Income before income tax |
2,861 | 3,237 | 1,996 | 2,199 | 2,988 | 1,160 | 1,281 | |||||||||||||||||||||
Federal and foreign income tax |
761 | 892 | 451 | 521 | 814 | 291 | 333 | |||||||||||||||||||||
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Net Income |
$ | 2,100 | $ | 2,345 | $ | 1,545 | $ | 1,678 | $ | 2,174 | $ | 869 | $ | 948 | ||||||||||||||
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Per Share |
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Net income |
$ | 8.62 | $ | 9.04 | $ | 5.69 | $ | 5.76 | $ | 6.76 | $ | 3.74 | $ | 3.83 | ||||||||||||||
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Dividends declared on common stock |
$ | 2.00 | $ | 1.76 | $ | 1.64 | $ | 1.56 | $ | 1.48 | $ | 1.14 | $ | 1.00 | ||||||||||||||
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Balance Sheet Data (at end of period): |
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Total invested assets |
$ | 43,485 | $ | 42,613 | $ | 44,221 | $ | 42,769 | $ | 42,213 | $ | 42,677 | $ | 43,471 | ||||||||||||||
Total assets |
51,286 | 50,433 | 52,184 | 50,445 | 49,976 | 50,726 | 51,440 | |||||||||||||||||||||
Unpaid losses and loss expenses, net of reinsurance recoverable |
21,039 | 21,344 | 22,022 | 21,329 | 20,901 | 20,956 | 21,398 | |||||||||||||||||||||
Long term debt |
3,300 | 3,300 | 3,575 | 3,575 | 3,975 | 3,300 | 3,300 | |||||||||||||||||||||
Total liabilities |
34,990 | 34,336 | 36,357 | 35,144 | 34,719 | 34,808 | 34,942 | |||||||||||||||||||||
Total shareholders equity |
16,296 | 16,097 | 15,827 | 15,301 | 15,257 | 15,918 | 16,498 | |||||||||||||||||||||
Book value per share |
$ | 70.12 | $ | 64.83 | $ | 60.45 | $ | 56.15 | $ | 51.32 | $ | 70.12 | $ | 68.60 | ||||||||||||||
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SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table presents selected unaudited pro forma combined financial data about ACEs consolidated statements of operations and balance sheet, after giving effect to the merger. The information under Statements of Operations Data in the table below gives effect to the merger as if it had occurred on January 1, 2014, the beginning of the earliest period presented. The information under Balance Sheet Data in the table below assumes the merger had occurred on June 30, 2015. This unaudited pro forma combined financial information was prepared using the acquisition method of accounting with ACE considered the acquirer of Chubb (see The MergerAccounting Treatment).
The selected unaudited pro forma combined financial data is based on the historical consolidated financial statements of ACE and Chubb after giving effect to the completion of the merger and the assumptions and adjustments described in the notes to the unaudited pro forma combined financial statements appearing elsewhere in this joint proxy statement/prospectus. Such pro forma adjustments are (1) factually supportable, (2) directly attributable to the merger and (3) with respect to the unaudited pro forma combined statements of operations, are expected to have a continuing impact on the results of operations of the combined company. The unaudited pro forma adjustments, which ACE believes are reasonable under the circumstances, have been made solely for the purpose of providing unaudited pro forma combined financial statements. The unaudited pro forma adjustments are preliminary and based upon available information and certain assumptions described in the notes to the unaudited pro forma combined financial statements appearing elsewhere in this joint proxy statement/prospectus. ACE management believes the fair values recognized for the assets to be acquired and the liabilities to be assumed are based on reasonable estimates and assumptions currently available. The final determination of the acquisition consideration and fair values of Chubbs assets and liabilities will be based on the actual net tangible and intangible assets of Chubb that exist as of the date of completion of the merger. Consequently, the amounts allocated to goodwill and intangible assets could change significantly from those allocations used in the unaudited pro forma combined financial statements presented below and could result in a material change in amortization of acquired finite lived intangible assets.
The information presented below should be read in conjunction with the historical consolidated financial statements and related notes of ACE and Chubb filed by each with the SEC, and incorporated by reference in this joint proxy statement/prospectus, and with the unaudited pro forma combined financial statements, including the related notes, appearing elsewhere in this joint proxy statement/prospectus under Unaudited Pro Forma Combined Financial Statements. The unaudited pro forma combined financial statements are presented solely for informational purposes and are not necessarily indicative of the combined financial position or results of operations that might have been achieved had the merger been completed as of the dates indicated, nor are they meant to be indicative of any anticipated combined financial position or future results of operations that the combined company will experience after the merger. In addition, the unaudited pro forma combined statements of operations do not reflect expected revenue synergies, expected cost savings or restructuring actions that may be achievable or the impact of any non-recurring activity and one-time transaction related costs.
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Combined Statements of Operations Data:
(in millions) | Year End December 31, 2014 |
Six Months Ended June 30, 2015 |
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Net premiums earned |
$ | 29,754 | $ | 14,525 | ||||
Net investment income |
3,071 | 1,494 | ||||||
Losses and loss expenses |
16,635 | 8,162 | ||||||
Policy benefits |
517 | 295 | ||||||
Policy acquisition costs and administrative expenses |
9,519 | 4,520 | ||||||
Net income |
$ | 4,317 | $ | 2,251 | ||||
|
|
|
|
|||||
Diluted earnings per share |
$ | 8.98 | $ | 4.77 | ||||
|
|
|
|
Combined Balance Sheet Data:
(in millions) | As of June 30, 2015 | |||
Total investments |
$ | 96,773 | ||
Total assets |
156,838 | |||
Net losses and loss expenses |
47,979 | |||
Net future policy benefits |
4,632 | |||
Long-term debt |
13,321 | |||
Trust preferred securities |
309 | |||
Total liabilities |
112,785 | |||
Shareholders equity |
$ | 44,053 | ||
|
|
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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE FINANCIAL DATA
Presented below are ACEs and Chubbs historical per share data for the year ended December 31, 2014 and the six months ended June 30, 2015 and unaudited pro forma combined per share data for the year ended December 31, 2014 and for the six months ended June 30, 2015. This information should be read together with the historical consolidated financial statements and related notes of ACE and Chubb filed by each with the SEC, and incorporated by reference in this joint proxy statement/prospectus, and with the unaudited pro forma combined financial statements included under Unaudited Pro Forma Combined Financial Statements.
The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed as of the beginning of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the combined company. The pro forma information, although helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings, opportunities to earn additional revenue, or other factors that may affect the combined companys results of operations following the completion of the merger and, accordingly, does not attempt to predict or suggest future results.
The historical book value per share is computed by dividing shareholders equity by the number of common shares outstanding at the end of the period. The pro forma income per share of the combined company is computed by dividing the pro forma income by the pro forma weighted average number of shares outstanding. The pro forma book value per share of the combined company is computed by dividing total pro forma shareholders equity by the pro forma number of common shares outstanding at the end of the period. The pro forma book value per share of the combined company is computed as if the merger had been completed on June 30, 2015.
Historical ACE Limited |
Historical Chubb |
Unaudited Pro Forma Combined |
Equivalent Basis Unaudited Pro Forma Combined(1) |
|||||||||||||
Basic Earnings per Share Applicable to Common Shares |
||||||||||||||||
Year Ended December 31, 2014 |
$ | 8.50 | $ | 8.65 | $ | 9.07 | $ | 5.46 | ||||||||
Six Months Ended June 30, 2015 |
4.97 | 3.75 | 4.82 | 2.90 | ||||||||||||
Diluted Earnings per Share Applicable to Common Shareholders |
||||||||||||||||
Year Ended December 31, 2014 |
8.42 | 8.62 | 8.98 | 5.41 | ||||||||||||
Six Months Ended June 30, 2015 |
4.91 | 3.74 | 4.77 | 2.87 | ||||||||||||
Dividends Declared per Share |
||||||||||||||||
Year Ended December 31, 2014 |
2.70 | 2.00 | - | - | ||||||||||||
Six Months Ended June 30, 2015 |
1.32 | 1.14 | - | - | ||||||||||||
Book Value per Share |
||||||||||||||||
As of June 30, 2015 |
91.27 | 70.12 | 95.60 | 57.54 |
(1) | Equivalent basis unaudited pro forma combined is calculated by multiplying the pro forma combined amounts by the exchange ratio of 0.6019 of an ACE common share for each share of Chubb common stock. This presentation does not take into account the $62.93 cash payment made by ACE for each share of Chubb common stock at the time of merger. |
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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The table below sets forth, for the calendar quarters indicated, the high and low closing sales prices per share, as well as the dividend declared per share, of ACE common shares, which trades on the NYSE under the symbol ACE, and Chubb common stock, which trades on the NYSE under the symbol CB.
ACE Common Shares | Chubb Common Stock | |||||||||||||||||||||||||||
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|
Dividend |
|
|
|
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High | Low | USD | CHF | High | Low | Dividend | ||||||||||||||||||||||
2013 |
||||||||||||||||||||||||||||
First Quarter |
$ | 89.06 | $ | 79.99 | $ | 0.49 | 0.46 | $ | 87.53 | $ | 76.09 | $ | 0.44 | |||||||||||||||
Second Quarter |
$ | 92.67 | $ | 85.79 | $ | 0.51 | 0.48 | $ | 90.60 | $ | 81.79 | $ | 0.44 | |||||||||||||||
Third Quarter |
$ | 95.58 | $ | 87.72 | $ | 0.51 | 0.46 | $ | 90.10 | $ | 83.17 | $ | 0.44 | |||||||||||||||
Fourth Quarter |
$ | 103.53 | $ | 91.01 | $ | 0.51 | 0.45 | $ | 97.34 | $ | 87.58 | $ | 0.44 | |||||||||||||||
2014 |
||||||||||||||||||||||||||||
First Quarter |
$ | 101.70 | $ | 92.19 | $ | 0.75 | 0.65 | $ | 95.00 | $ | 83.00 | $ | 0.50 | |||||||||||||||
Second Quarter |
$ | 105.32 | $ | 97.61 | $ | 0.65 | 0.58 | $ | 94.08 | $ | 88.40 | $ | 0.50 | |||||||||||||||
Third Quarter |
$ | 107.39 | $ | 99.95 | $ | 0.65 | 0.61 | $ | 94.04 | $ | 86.71 | $ | 0.50 | |||||||||||||||
Fourth Quarter |
$ | 117.58 | $ | 102.92 | $ | 0.65 | 0.63 | $ | 105.00 | $ | 90.77 | $ | 0.50 | |||||||||||||||
2015 |
||||||||||||||||||||||||||||
First Quarter |
$ | 115.00 | $ | 107.96 | $ | 0.65 | 0.62 | $ | 104.19 | $ | 97.90 | $ | 0.57 | |||||||||||||||
Second Quarter |
$ | 112.37 | $ | 101.60 | $ | 0.67 | 0.62 | $ | 101.96 | $ | 94.56 | $ | 0.57 | |||||||||||||||
Third Quarter (through September 10, 2015) |
$ | 111.13 | $ | 99.72 | $ | - | - | $ | 126.00 | $ | 119.17 | $ | - |
On June 30, 2015, the last trading day before the public announcement of the signing of the merger agreement, the closing price per ACE common share on the NYSE was $101.68, and the closing price per share of Chubb common stock on the NYSE was $95.14. On September 10, 2015, the latest practicable date before the date of this joint proxy statement/prospectus, the closing price per ACE common share on the NYSE was $100.74, and the closing price per Chubb share on the NYSE was $120.66.
In the merger, each share of Chubb common stock owned by a Chubb shareholder (except for certain shares held by ACE, Chubb or their subsidiaries) will be converted into the right to receive 0.6019 of an ACE common share and $62.93 in cash. Although the exchange ratio is fixed, the value of an ACE common share will fluctuate until the merger is completed. As a result, the value of the stock component of the merger consideration that Chubb shareholders will receive upon completion of the merger will depend on the market price of the ACE common shares at the time of the merger. The value of the per share merger consideration that Chubb shareholders would have received in exchange for each share of Chubb common stock if the merger had been completed on June 30, 2015 and September 10, 2015 is set forth in the following table.
ACE Closing Price | Chubb Closing Price | Implied Per
Share Value |
||||||||||
June 30, 2015 |
$ | 101.68 | $ | 95.14 | $ | 124.13 | ||||||
September 10, 2015 |
$ | 100.74 | $ | 120.66 | $ | 123.57 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
All forward-looking statements made in this joint proxy statement/prospectus related to the merger, potential post-merger performance or otherwise, reflect ACEs current views with respect to future events, business transactions and business performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by words such as may, will, should, expect, plan, anticipate, intend, believe, estimate, predict, potential, continue, could, future, project or other words of similar meaning. All forward-looking statements involve risks and uncertainties, which may cause actual results to differ, possibly materially, from those contained in the forward-looking statements.
Forward-looking statements include, but are not limited to, statements about the benefits of the proposed transaction involving ACE and Chubb, including future financial results; ACEs and Chubbs plans, objectives, expectations and intentions; the expected timing of completion of the merger and other statements that are not historical facts. Important factors that could cause actual results to differ, possibly materially, from those indicated by the forward-looking statements include, without limitation, the following:
| the inability to complete the merger in a timely manner; |
| the inability to complete the merger due to, among other reasons, the failure of Chubbs shareholders to approve the merger agreement or the failure of ACE shareholders to approve, among other matters, the issuance of ACE common shares in connection with the merger; |
| the failure to satisfy other conditions to completion of the merger, including receipt of required regulatory approvals; |
| the inability to complete the merger due to any other reason; |
| the inability to finance the cash portion of the merger consideration through ACEs expected methods; |
| the risk that integration of Chubbs operations with those of ACE will be materially delayed or will be more costly or difficult than expected; |
| the challenges of integrating and retaining key employees; |
| the effect of the announcement of the merger on ACEs, Chubbs or the combined companys respective business relationships, operating results and business generally; |
| the possibility that the anticipated benefits of the merger (including synergies and cost savings) will not be realized, or will not be realized within the expected time period; |
| the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; |
| diversion of managements attention from ongoing business operations and opportunities; |
| general competitive, economic, political and market conditions and fluctuations; |
| actions taken or conditions imposed by the United States and foreign governments and regulatory authorities; |
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| losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods, climate change (including effects on weather patterns; greenhouse gases; sea; land and air temperatures; sea levels; and rain and snow), nuclear accidents, or terrorism which could be affected by: |
¡ | the number of insureds and ceding companies affected; |
¡ | the amount and timing of losses actually incurred and reported by insureds; |
¡ | the impact of these losses on our reinsurers and the amount and timing of reinsurance recoverable actually received; |
¡ | the cost of building materials and labor to reconstruct properties or to perform environmental remediation following a catastrophic event; and |
¡ | complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related lawsuits; |
| actions that rating agencies may take from time to time, such as financial strength or credit ratings downgrades or placing these ratings on credit watch negative or the equivalent; |
| the ability to collect reinsurance recoverables, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality, or availability of reinsurance; |
| actual loss experience from insured or reinsured events and the timing of claim payments; |
| the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, the impact of bankruptcy protection sought by various asbestos producers and other related businesses, and the timing of loss payments; |
| changes to assessments as to whether an other-than-temporary impairment is required to be recorded; |
| infection rates and severity of pandemics and their effects on ACEs or Chubbs business operations and claims activity; |
| developments in global financial markets, including changes in interest rates, stock markets, and other financial markets, increased government involvement or intervention in the financial services industry, the cost and availability of financing, and foreign currency exchange rate fluctuations, which could affect ACEs or Chubbs results of operations, investment portfolio, financial condition, and financing plans; |
| general economic and business conditions, volatility in the stock and credit markets and the depth and duration of potential recession; |
| global political conditions, the occurrence of any terrorist attacks, including any nuclear, radiological, biological, or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events; |
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| judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms; |
| the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on: |
¡ | the capital markets; |
¡ | the markets for directors and officers and errors and omissions insurance; and |
¡ | claims and litigation arising out of such disclosures or practices by other companies; |
| governmental, legislative and regulatory policies, developments, actions, investigations, and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect ACEs or Chubbs current operations; |
| the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies; |
| the competitive environment in which ACE and Chubb operate, including trends in pricing or in policy terms and conditions, which may differ from their respective projections and changes in market conditions that could render their respective business strategies ineffective or obsolete; |
| ACE acquisitions performing differently than expected, failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on pre-existing organization, or announced acquisitions not closing; |
| in the case of ACE, risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens; |
| the potential impact from government-mandated insurance coverage for acts of terrorism; |
| the availability of borrowings and letters of credit under ACEs credit facilities; |
| the adequacy of collateral supporting funded high deductible programs; |
| changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers; |
| material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; |
| the effects of investigations into market practices in the property and casualty industry; |
| changing rates of inflation and other economic conditions; |
| the amount of dividends received from subsidiaries; |
| loss of the services of any of ACEs or Chubbs executive officers without suitable replacements being recruited in a reasonable time frame; |
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| the ability of ACEs, Chubbs or third parties technology resources to maintain the availability of systems and safeguard the security of data in the event of a disaster or other information security event; and |
| responses by the management of ACE or Chubb to these factors and actual events (including, but not limited to, those described above). |
In addition, you should carefully consider the risks and uncertainties and other factors that may affect future results of the combined company described or incorporated by reference in the section titled Risk Factors in this joint proxy statement/prospectus, those set forth in the section titled Forward Looking Statements in ACEs annual and quarterly reports and other filings with the SEC and those set forth in the section titled Cautionary Statement Regarding Forward-Looking Information in Chubbs annual and quarterly reports and other filings with the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date of this joint proxy statement/prospectus. ACE and Chubb undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
ACE and Chubb expressly qualify in their entirety all forward-looking statements attributable to ACE and Chubb or any person acting on their behalf by the cautionary statements contained or referred to in this section.
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In addition to the other information contained in or incorporated by reference into this joint proxy statement/prospectus, including the matters addressed under the caption Cautionary Statement Regarding Forward-Looking Statements, Chubb shareholders should carefully consider the following risk factors in deciding whether to vote for the approval of the merger agreement, and ACE shareholders should carefully consider the following risks in deciding whether to vote for the approval of certain merger-related proposals. You should also consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. See Where You Can Find More Information and Incorporation of Certain Documents by Reference.
Because the market price of ACE common shares may fluctuate, Chubb shareholders cannot be certain of the precise value of the stock portion of the merger consideration they may receive in the merger.
At the time the merger is completed, each issued and outstanding share of Chubb common stock (except for certain shares held by ACE, Chubb or their subsidiaries) will be converted into the right to receive consideration in the form of a combination of ACE common shares and cash.
There will be a time lapse between each of the date of this joint proxy statement/prospectus, the date on which Chubb shareholders vote to approve the merger agreement at the Chubb special meeting and the date on which Chubb shareholders entitled to receive ACE common shares actually receive such shares. The market value of ACE common shares may fluctuate during these periods as a result of a variety of factors, including general market and economic conditions, changes in ACEs businesses, operations and prospects and regulatory considerations. Many of these factors are outside the control of Chubb and ACE. Consequently, at the time Chubb shareholders must decide whether to approve the merger agreement, they will not know the actual market value of the ACE common shares they will receive when the merger is completed. The actual value of the ACE common shares received by Chubb shareholders will depend on the market value of the ACE common shares at that time. This market value may differ, possibly materially, from the value used to determine the exchange ratio. Chubb shareholders should obtain current stock quotations for ACE common shares before voting their shares of Chubb common stock.
Chubbs shareholders will have a reduced ownership and voting interest in the combined company after the merger and will exercise less influence over management.
Currently, Chubbs shareholders have the right to vote in the election of the Chubb board and the power to approve or reject any matters requiring shareholder approval under New Jersey law and Chubbs Restated Certificate of Incorporation and By-Laws. Upon the completion of the merger, each Chubb shareholder will become a shareholder of ACE with a percentage ownership of ACE that is substantially smaller than the shareholders current percentage ownership of Chubb. Based on the number of issued and outstanding ACE common shares and shares of Chubb common stock as of September 10, 2015 and based on the exchange ratio of 0.6019, after the merger, Chubb shareholders are expected to become owners of approximately 30 percent of the outstanding ACE common shares, without giving effect to any ACE common shares held by Chubb shareholders prior to the completion of the merger. Even if all former Chubb shareholders voted together on all matters presented to ACEs shareholders from time to time, the former Chubb shareholders would exercise significantly less influence over ACE after the completion of the merger relative to their influence over Chubb prior to the completion of the merger, and thus would have a less significant impact on the approval or rejection of future ACE proposals submitted to a shareholder vote.
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ACE common shares received by Chubb shareholders as a result of the merger will have different rights from shares of Chubb common stock.
Following completion of the merger, Chubb shareholders will no longer be shareholders of Chubb, and Chubb shareholders will become shareholders of ACE. There will be important differences between the current rights of Chubb shareholders and the rights to which such shareholders will be entitled as shareholders of ACE. See the section titled Comparison of Shareholders Rights for a discussion of the different rights associated with the ACE common shares.
The market price of ACE common shares may be affected by factors different from those that historically have affected shares of Chubb Common Stock.
Upon completion of the merger, holders of Chubb common stock will become holders of ACE common shares. ACEs businesses differ from those of Chubb, and accordingly the results of operations of ACE will be affected by some factors that are different from those currently affecting the results of operations of Chubb. For a discussion of the businesses of ACE and Chubb and of some important factors to consider in connection with those businesses, see the section titled SummaryInformation About the Companies and the documents incorporated by reference referred to under the section titled Where You Can Find More Information, including, in particular, in the sections titled Risk Factors in each of ACEs Annual Report on Form 10-K for the year ended December 31, 2014 and Chubbs Annual Report on Form 10-K for the year ended December 31, 2014.
The merger agreement limits Chubbs ability to pursue alternatives to the merger.
The merger agreement contains provisions that may discourage a third party from submitting an acquisition proposal to Chubb that might result in greater value to Chubbs shareholders than the merger, or may result in a potential competing acquirer proposing to pay a lower per share price to acquire Chubb than it might otherwise have proposed to pay. These provisions include a general prohibition on Chubb from soliciting or, subject to certain exceptions relating to the exercise of fiduciary duties by the Chubb board, entering into discussions with any third party regarding any acquisition proposal or offers for competing transactions. Chubb also has an unqualified obligation to submit the proposal to approve the merger to a vote by its shareholders, even if Chubb receives an alternative acquisition proposal that the Chubb board believes is superior to the merger. In addition, Chubb may be required to pay ACE a termination fee of $930 million in certain circumstances involving acquisition proposals for competing transactions. See the section titled The Merger AgreementEffect of Termination and Termination Fee.
The merger agreement may be terminated in accordance with its terms and the merger may not be completed.
The merger agreement is subject to a number of conditions that must be fulfilled in order to complete the merger. Those conditions include: the approval of the merger agreement by Chubb shareholders, the approval of certain merger-related proposals by ACE shareholders, the receipt of all required regulatory approvals and expiration or termination of all statutory waiting periods in respect thereof, the accuracy of representations and warranties under the merger agreement (subject to the materiality standards set forth in the merger agreement) and ACEs and Chubbs performance of their respective obligations under the merger agreement in all material respects. These conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and, accordingly, the merger may be delayed or may not be completed.
In addition, if the merger is not completed by June 30, 2016, either ACE or Chubb may choose not to proceed with the merger, and the parties can mutually decide to terminate the merger agreement at any time, before or after shareholder approval. In addition, ACE and Chubb may elect to terminate the merger
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agreement in certain other circumstances. If the merger agreement is terminated under certain circumstances, Chubb may be required to pay a termination fee of $930 million to ACE. See the section titled The Merger AgreementEffect of Termination and Termination Fee.
Failure to complete the merger could negatively impact the price of ACE common shares and Chubb common stock, as well as ACEs and Chubbs respective future business and financial results.
The merger agreement contains a number of conditions that must be satisfied or waived prior to the completion of the merger. There can be no assurance that all of the conditions to the merger will be so satisfied or waived. If the conditions to the merger are not satisfied or waived, ACE and Chubb will be unable to complete the merger.
If the merger is not completed for any reason, including the failure to receive the required approvals of ACEs and Chubbs respective shareholders, ACEs and Chubbs respective businesses and financial results may be adversely affected as follows:
| ACE and Chubb may experience negative reactions from the financial markets, including negative impacts on the market price of ACE common shares and Chubb common stock; |
| the manner in which brokers, customers, insurers, cedants and other third parties perceive ACE and Chubb may be negatively impacted, which in turn could affect ACEs and Chubbs ability to compete for or write new business or obtain renewals in the marketplace; |
| ACE and Chubb may experience negative reactions from employees; and |
| ACE and Chubb will have expended time and resources that could otherwise have been spent on ACEs and Chubbs existing businesses and the pursuit of other opportunities that could have been beneficial to each company, and ACEs and Chubbs ongoing business and financial results may be adversely affected. |
In addition to the above risks, if the merger agreement is terminated and either partys board seeks an alternative transaction, such partys shareholders cannot be certain that such party will be able to find a party willing to engage in a transaction on more attractive terms than the merger. If the merger agreement is terminated under certain circumstances, Chubb may be required to pay a termination fee of $930 million to ACE. See the section titled The Merger AgreementEffect of Termination and Termination Fee for a description of these circumstances.
Regulatory approvals may not be received, may take longer than expected to be received or may impose conditions that are not presently anticipated or cannot be met.
Completion of the merger is conditioned upon the approval of certain matters by ACEs and Chubbs shareholders and the receipt of certain governmental approvals, including, without limitation, insurance regulatory approvals and the expiration or termination of the applicable waiting period under the HSR Act. Although each party has agreed to use respective reasonable best efforts to obtain the requisite shareholder and governmental approvals, there can be no assurance that these approvals will be obtained and that the other conditions to completing the merger will be satisfied. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions on the completion of the merger or require changes to the terms of the merger or merger agreement. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding completion of the merger or of imposing additional costs or limitations on ACE following completion of the merger, any of which might have an adverse effect on ACE following completion of the merger.
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Each partys obligation to complete the merger is subject to the condition that the required governmental approvals have been obtained without the imposition of a condition or restriction that would reasonably be likely to have a material and adverse effect on ACE and its subsidiaries, taken as a whole, giving effect to the merger (with such materiality measured on a scale relative to Chubb and its subsidiaries, taken as a whole). In the merger agreement, such a condition or restriction is referred to as a materially burdensome regulatory condition.
Chubb will be subject to business uncertainties while the merger is pending, which could adversely affect its business.
Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Chubb, and, consequently, ACE. Additionally, the merger is not expected to close until the first quarter of 2016 and may be delayed for any number of reasons, including those described in these Risk Factors. These uncertainties may impair Chubbs ability to attract, retain and motivate key personnel until the merger is completed and for a period of time thereafter, and could cause customers and others that deal with Chubb to seek to change their existing business relationships with Chubb or cease doing business with Chubb. Employee retention at Chubb may be particularly challenging during the pendency of the merger, as employees may experience uncertainty about their roles with ACE following the merger and may become distracted as a result of such uncertainty. In addition, the merger agreement restricts Chubb from making certain acquisitions and taking other specified actions without the consent of ACE, and generally requires Chubb to continue its operations in the ordinary course, until completion of the merger. These restrictions may prevent Chubb from pursuing attractive business opportunities that may arise prior to the completion of the merger or otherwise adversely affect Chubbs ability to do business. Please see the section titled The Merger AgreementCovenants and Agreements for a description of the restrictive covenants to which Chubb is subject.
Directors and executive officers of Chubb may have interests in the merger that are different from, or in addition to, the interests of Chubb shareholders.
Directors and executive officers of Chubb may have interests in the merger that are different from, or in addition to, the interests of Chubb shareholders generally. These interests include, among others, the treatment of outstanding equity and equity-based awards pursuant to the merger agreement; potential severance and other benefits upon a qualifying termination in connection with the merger; the appointment of John D. Finnegan, the current Chairman, President and Chief Executive Officer of Chubb, as Executive Vice Chairman for External Affairs of North America of ACE upon completion of the merger; ACEs agreement to nominate Sheila P. Burke, James I. Cash, Jr., Lawrence W. Kellner and James M. Zimmerman, each of whom currently serves as a director of Chubb, for election as directors of ACE, with terms commencing upon the completion of the merger; and rights to ongoing indemnification and insurance coverage.
These interests are described in more detail in the section titled The MergerInterests of Chubb Directors and Executive Officers in the Merger.
The merger may not be accretive, and may be dilutive, to ACEs earnings per share, which may negatively affect the market price of ACE common shares.
Because ACE common shares will be issued in the merger, it is possible that, although ACE currently expects the merger to be accretive to earnings per share, the merger may be dilutive to ACE earnings per share, which could negatively affect the market price of ACE common shares.
In connection with the completion of the merger, based on the number of issued and outstanding shares of Chubb common stock as of September 10, 2015, ACE would issue approximately 137 million
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ACE common shares. The issuance of these new ACE common shares could have the effect of depressing the market price of ACE common shares, through dilution of earnings per share or otherwise.
Any dilution of, or delay of any accretion to, ACE earnings per share could cause the price of ACE common shares to decline or increase at a reduced rate.
ACE and Chubb will incur significant transaction and merger-related costs in connection with the merger.
Each of ACE and Chubb has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, including the costs and expenses of filing, printing and mailing this joint proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the merger.
ACE and Chubb expect to continue to incur a number of non-recurring costs associated with completing the merger, combining the operations of the two companies and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will consist of transaction costs related to the merger and include, among others, employee retention costs, fees paid to financial, legal and accounting advisors, severance and benefit costs and filing fees.
ACE also will incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. ACE continues to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the merger and the integration of the two companies businesses. Although ACE expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow ACE to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all. See the risk factor titled The integration of Chubb into ACE may not be as successful as anticipated below.
These costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on the financial condition and operating results of ACE following the completion of the merger.
Litigation relating to the merger could require ACE and Chubb to incur significant costs and suffer management distraction, as well as prevent and/or delay the merger.
In connection with the merger, purported Chubb shareholders have filed putative shareholder class action lawsuits against Chubb, the members of the Chubb board, ACE and Merger Sub. Among other remedies, the plaintiffs seek to enjoin the merger. The outcome of any such litigation is uncertain. If the cases are not resolved, these lawsuits could prevent or delay completion of the merger and result in substantial costs to Chubb and ACE, including any costs associated with the indemnification of directors and officers. Plaintiffs may file additional lawsuits against Chubb, ACE and/or the directors and officers of either company in connection with the merger. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is completed may adversely affect ACEs business, financial condition, results of operations and cash flows. See Litigation Related to the Merger.
The opinions of Chubbs and ACEs respective financial advisors will not reflect changes in circumstances between the signing of the merger agreement and the completion of the merger.
Chubb and ACE have received opinions from their respective financial advisors in connection with the signing of the merger agreement, but have not obtained updated opinions from their respective financial
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advisors as of the date of this joint proxy statement/prospectus. Changes in the operations and prospects of Chubb or ACE, general market and economic conditions and other factors that may be beyond the control of Chubb or ACE, and on which Chubbs and ACEs financial advisors opinions were based, may significantly alter the value of Chubb or the prices of the ACE common shares or the shares of Chubb common stock by the time the merger is completed. The opinions do not speak as of the time the merger will be completed or as of any date other than the date of such opinions. Because Chubb and ACE do not currently anticipate asking their respective financial advisors to update their opinions, the opinions will not address the fairness of the merger consideration from a financial point of view at the time the merger is completed. The Chubb boards recommendation that Chubb shareholders vote FOR approval of the merger agreement and the ACE boards recommendation that ACE shareholders vote FOR approval of the ACE issuance proposal and the other merger-related proposals, however, is made as of the date of this joint proxy statement/prospectus. For a description of the opinions that ACE and Chubb received from their respective financial advisors, please refer to The MergerOpinion of ACEs Financial Advisor and The MergerOpinion of Chubbs Financial Advisor. A copy of the opinion of Guggenheim Securities, Chubbs financial advisor, is attached as Appendix C, and a copy of the opinion of Morgan Stanley, ACEs financial advisor, is attached as Appendix D.
ACE will require additional capital or financing sources for the merger or in the future, which may not be available or may be available only on unfavorable terms.
There is no financing condition under the merger agreement, which means that if the conditions to closing are otherwise satisfied, ACE is obligated to complete the merger whether or not it has sufficient funds to pay the cash consideration under the merger agreement. ACE intends to pay the cash consideration using cash on hand, cash sourced from certain of its insurance company subsidiaries and Chubb and certain of Chubbs insurance company subsidiaries and debt financing. The availability to ACE or Chubb of cash currently held at certain of ACEs or Chubbs subsidiaries may be subject to prior regulatory approvals, which may not be received in a timely fashion or at all. In addition, although ACE believes, based on current market conditions, that it will be able to complete the contemplated debt financing, ACE cannot provide assurances as to the ultimate cost or availability of financing for the merger. See The MergerFinancing.
ACEs future capital and financing requirements depend on many factors, including its ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses, as well as its investment performance and capital expenditure obligations, including with respect to acquisitions. ACE may need to raise additional funds through financings or access funds through existing or new credit facilities or through short-term repurchase agreements. ACE also from time to time seeks to refinance debt or credit as amounts become due or commitments expire. Any equity or debt financing or refinancing, if available at all, may be on terms that are not favorable to ACE. In the case of equity financings, dilution to ACEs shareholders could result, and in any case, such securities may have rights, preferences, and privileges that are senior to those of ACE common shares. ACEs access to funds under existing credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments. If ACE cannot obtain adequate capital or sources of credit on favorable terms, or at all, it could be forced to use assets otherwise available for its business operations, and its business, results of operations, and financial condition could be adversely affected.
The effective tax rate that will apply to ACE is uncertain and may vary from expectations.
There can be no assurance that the merger will allow ACE to maintain any particular worldwide effective corporate tax rate. No assurances can be given as to what ACEs effective tax rate will be after the completion of the merger because of, among other things, uncertainty regarding the tax policies of the jurisdictions where it operates. ACEs actual effective tax rate may vary from its expectations and that variance may be material.
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Changes in U.S. federal income tax law could materially adversely affect an investment in ACE common shares.
In the past, legislation has been introduced in the U.S. Congress intended to eliminate some perceived tax advantages of companies (including insurance companies) that have legal domiciles outside the United States but have certain U.S. connections. It is possible that similar legislation could be introduced and enacted by the current Congress or future Congresses that could have an adverse impact on ACE.
In addition, the U.S. federal income tax laws and interpretations, including those regarding whether a company is a passive foreign investment company (a PFIC), or whether U.S. holders would be required to include subpart F income or related person insurance income (RPII) in their gross income, are subject to change, possibly on a retroactive basis. The regulations regarding RPII are still in proposed form. Proposed regulations regarding the application of the PFIC rules to insurance companies were recently released (the proposed PFIC insurance regulations). Although the proposed PFIC insurance regulations are not effective until finalized, it is possible that, if finalized in their current form, the regulations could, or could be interpreted to, heighten the risk that ACE or one or more of its subsidiaries could be treated as a PFIC. Even if the proposed PFIC insurance regulations were finalized in their current form, various aspects of the application of the PFIC rules to insurance companies would remain unclear. In addition to the PFIC regulations described in the previous sentence, new regulations or pronouncements interpreting or clarifying the PFIC, subpart F income and RPII rules may be forthcoming. ACE cannot be certain if, when, or in what form, such regulations or pronouncements may be provided, and whether such guidance will have a retroactive effect.
If Section 7874 of the Internal Revenue Code were to apply as a result of the merger, then ACE may be required to pay substantial additional U.S. federal income taxes going forward.
Section 7874 of the Internal Revenue Code of 1986, as amended (the Code) would apply if, (i) the percentage (by vote and value) of ACE common shares considered to be held by former Chubb shareholders immediately after the merger by reason of holding Chubb common stock as calculated for Section 7874 purposes (the Section 7874 Percentage) is at least 60 percent, and (ii) the expanded affiliated group that includes ACE does not have substantial business activities in Switzerland. Determining the Section 7874 Percentage is complex and, with respect to the merger, subject to factual and legal uncertainties, including the uncertain scope and application of possible regulatory action under Section 7874 announced by the IRS and the U.S. Treasury Department in Notice 2014-52.
If the Section 7874 Percentage were determined to be at least 60 percent, several limitations could apply to ACE. For example, Chubb would be prohibited from using its net operating losses, foreign tax credits or other tax attributes, if any, to offset the income or gain recognized by reason of the transfer of property to a foreign related person during the 10-year period following the merger or any income received or accrued during such period by reason of a license of any property by the U.S. corporation to a foreign related person. In addition, the IRS has announced that it intends to promulgate new rules, which may limit the ability to engage in certain restructuring transactions relating to the non-U.S. members of the ACE Group after the merger. Moreover, Section 4985 of the Code and rules related thereto would impose an excise tax on the value of certain Chubb stock compensation held directly or indirectly by certain disqualified individuals (including officers and directors of Chubb) at a rate equal to 15 percent. Additionally, recent legislative, regulatory and treaty proposals in the United States would impose certain earnings stripping limitations and reduce potential tax treaty benefits with respect to ACE and its affiliates if the Section 7984 Percentage is calculated to be at least 60 percent.
Section 7874 is not expected to apply as a result of the merger because the former Chubb shareholders are expected to receive less than 60 percent of the ACE common shares (by vote or value) by reason of holding Chubb common stock. However, it is possible that there could be a change in law under
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Section 7874 or otherwise (including the promulgation of regulations announced by the IRS and the U.S. Treasury Department in Notice 2014-52) that could, prospectively or retroactively, adversely affect ACE and its affiliates.
Risks Relating to the Combined Company Upon Completion of the Merger
Future results of ACE may differ, possibly materially, from the Selected Unaudited Pro Forma Combined Financial Data of ACE presented in this joint proxy statement/prospectus.
The future results of ACE following the completion of the merger may be different, possibly materially, from those shown in the Selected Unaudited Pro Forma Combined Financial Data of ACE presented in this joint proxy statement/prospectus, which show only a combination of ACEs and Chubbs historical results after giving effect to the merger. Additionally, if the merger occurs, ACE anticipates incurring integration costs, which have not been reflected in the Selected Unaudited Pro Forma Combined Financial Data of ACE presented in this joint proxy statement/prospectus. In addition, the merger and post-merger integration process may give rise to unexpected liabilities and costs, including costs associated with the defense and resolution of transaction-related litigation or other claims. Unexpected delays in completing the merger or in connection with the post-merger integration process may significantly increase the related costs and expenses incurred by ACE.
The integration of Chubb into ACE may not be as successful as anticipated.
The merger involves numerous operational, strategic, financial, accounting, legal, tax and other risks; potential liabilities associated with the acquired businesses; and uncertainties related to design, operation and integration of Chubbs internal control over financial reporting. Difficulties in integrating Chubb into ACE may result in Chubb performing differently than expected, in operational challenges or in the failure to realize anticipated expense-related efficiencies. ACEs and Chubbs existing businesses could also be negatively impacted by the merger. In addition, goodwill and intangible assets recorded in connection with insurance company acquisitions may be impaired if premium growth, underwriting profitability, agency retention and policy persistency, among other factors, differ from expectations.
Even if ACE and Chubb complete the merger, ACE may fail to realize all of the anticipated benefits of the proposed merger.
The success of the proposed merger will depend, in part, on ACEs ability to realize the anticipated benefits and cost savings from combining ACEs and Chubbs businesses. The anticipated benefits and cost savings of the proposed merger may not be realized fully or at all, or may take longer to realize than expected or could have other adverse effects that ACE does not currently foresee. Some of the assumptions that ACE has made, such as the achievement of operating synergies, may not be realized. The integration process may, for each of ACE and Chubb, result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities and unforeseen expenses associated with the merger that were not discovered in the course of performing due diligence.
ACEs results will suffer if it does not effectively manage its expanded operations following the merger.
Following completion of the merger, ACEs success will depend, in part, on its ability to manage its expansion through the completion of the merger, which poses numerous risks and uncertainties, including the need to integrate the operations and business of Chubb into its existing business in an efficient and timely manner, to combine systems and management controls and to integrate relationships with customers, vendors and business partners.
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The market price of ACE common shares may decline in the future as a result of the sale of such shares held by former Chubb shareholders or current ACE shareholders or due to other factors.
Based on the number of shares of Chubb common stock outstanding as of September 10, 2015, ACE expects to issue an aggregate of 137 million ACE common shares to Chubb shareholders in the merger. Upon the receipt of ACE common shares as merger consideration, former holders of shares of Chubb common stock may seek to sell the ACE common shares delivered to them. Current ACE shareholders may also seek to sell ACE common shares held by them following, or in anticipation of, completion of the merger. These sales (or the perception that these sales may occur), coupled with the increase in the outstanding number of ACE common shares, may affect the market for, and the market price of, ACE common shares in an adverse manner. None of these shareholders are subject to lock-up or market stand off agreements.
The market price of ACE common shares may also decline in the future as a result of the completion of the merger for a number of other reasons, including:
| the unsuccessful integration of Chubb into ACE; |
| the failure of ACE to achieve the anticipated benefits of the merger, including financial results, as rapidly as or to the extent anticipated; |
| decreases in ACEs financial results before or after the completion of the merger; and |
| general market or economic conditions unrelated to ACEs performance. |
These factors are, to some extent, beyond the control of ACE.
Risks Relating to ACEs Business
You should read and consider risk factors specific to ACEs businesses that will also affect the combined company after the completion of the merger. These risks are described in Part I, Item 1A of ACEs Annual Report on Form 10-K for the year ended December 31, 2014, Part II, Item 1A of ACEs Quarterly Report on Form 10-Q for the period ended June 30, 2015 and in other documents that are incorporated by reference into this joint proxy statement/prospectus. See Incorporation of Certain Documents by Reference for the location of information incorporated by reference in this joint proxy statement/prospectus.
Risks Relating to Chubbs Business
You should read and consider risk factors specific to Chubbs businesses that will also affect the combined company after the completion of the merger. These risks are described in Part I, Item 1A of Chubbs Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Part II, Item 1A of Chubbs Quarterly Report on Form 10-Q for the period ended June 30, 2015 and in other documents that are incorporated by reference into this joint proxy statement/prospectus. See Incorporation of Certain Documents by Reference for the location of information incorporated by reference in this joint proxy statement/prospectus.
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CHUBB SPECIAL MEETING OF SHAREHOLDERS
This section contains information for holders of Chubb common stock about the special meeting that Chubb has called to consider and approve the merger agreement and other related matters. Chubb is mailing this joint proxy statement/prospectus to its shareholders on or about September 15, 2015. Together with this joint proxy statement/prospectus, Chubb is sending a notice of the Chubb special meeting and a form of proxy that the Chubb board is soliciting for use at the Chubb special meeting and at any adjournments or postponements of the Chubb special meeting.
Time, Place and Purpose of the Chubb Special Meeting
This joint proxy statement/prospectus is being furnished to Chubb shareholders as part of the solicitation of proxies by Chubb for use at the Chubb special meeting to be held on October 22, 2015, at 8:00 a.m., local time, in the Amphitheater at The Chubb Corporation, 15 Mountain View Road, Warren, New Jersey 07059, and at any adjournments or postponements thereof.
At the Chubb special meeting, Chubb shareholders will be asked to consider and vote upon the following proposals:
1. | a proposal to approve the merger agreement (the Chubb merger agreement proposal); |
2. | a proposal to approve, by advisory (non-binding) vote, certain compensation arrangements for Chubbs named executive officers in connection with the merger (the Chubb merger-related compensation proposal); and |
3. | a proposal for adjournment of the Chubb special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the Chubb special meeting (the Chubb adjournment proposal). |
Chubb Merger Agreement Proposal
Chubb shareholders must approve the Chubb merger agreement proposal in order for the merger to occur. A copy of the merger agreement is attached as Appendix A to this joint proxy statement/prospectus, and you are encouraged to read the merger agreement carefully and in its entirety, as well as the other information in this joint proxy statement/prospectus.
Chubb Merger-Related Compensation Proposal
Pursuant to Section 14A of the Securities Exchange Act of 1934 (Exchange Act) and Rule 14a-21(c) thereunder, Chubb is providing its shareholders with a separate advisory (non-binding) vote to approve the compensation that may be paid or become payable to its named executive officers that is based on or otherwise relates to the merger, as described in the table in the section titled The MergerInterests of Chubb Directors and Executive Officers in the MergerQuantification of Potential Payments and Benefits to Chubbs Named Executive Officers in Connection with the Merger, including the footnotes to the table and related narrative discussion.
Chubb shareholders are being asked to approve the following resolution on an advisory (non-binding) basis:
RESOLVED, that the compensation that may be paid or become payable to Chubbs named executive officers in connection with the merger, and the agreements, plans or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in the table in the section titled The MergerInterests of
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Chubb Directors and Executive Officers in the MergerQuantification of Potential Payments and Benefits to Chubbs Named Executive Officers in Connection with the Merger, including the footnotes to the table and the related narrative discussion, is hereby APPROVED.
The vote on the Chubb merger-related compensation proposal is a vote separate and apart from the vote on the merger agreement proposal and is advisory in nature; therefore, it is not binding on Chubb or on ACE or the boards of directors or the compensation committees of Chubb or ACE and does not affect whether the Chubb merger agreement proposal is approved. You may vote AGAINST the Chubb merger-related compensation proposal and FOR approval of the Chubb merger agreement proposal and vice versa. You also may abstain from this proposal and vote on the Chubb merger agreement proposal and vice versa.
Approval of this advisory (non-binding) proposal is not a condition to the completion of the merger. If the merger is completed, the merger-related compensation may be paid to Chubbs named executive officers to the extent payable in accordance with the terms of their compensation agreements and arrangements, and the outcome of this advisory (non-binding) vote will not affect Chubbs or ACEs obligations to make these payments.
Chubb shareholders are being asked to grant authority to proxy holders to vote in favor of one or more adjournments of the Chubb special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Chubb special meeting to approve the merger agreement. If the Chubb adjournment proposal is approved, the Chubb special meeting could be successively adjourned to any date. In accordance with the Chubb By-laws, a vote on adjournment of the Chubb special meeting may be taken in the absence of a quorum. Chubb does not intend to call a vote on adjournment of the Chubb special meeting to solicit additional proxies if the Chubb merger agreement proposal is approved at the Chubb special meeting.
The affirmative vote of the holders of a majority of the votes cast on the Chubb adjournment proposal is required to approve this proposal.
Recommendations of the Chubb Board
The Chubb board recommends that you vote FOR the Chubb merger agreement proposal, FOR the Chubb merger-related compensation proposal and FOR the Chubb adjournment proposal.
Chubb has set the close of business on September 10, 2015 as the record date for the Chubb special meeting, and only holders of record of Chubb common stock on such record date are entitled to vote at the Chubb special meeting. You are entitled to receive notice of, and to vote at, the Chubb special meeting if you owned shares of Chubb common stock as of the close of business on the record date for the Chubb special meeting. You will have one vote on all matters properly coming before the Chubb special meeting for each share of Chubb common stock that you owned on the record date for the Chubb special meeting.
As of the record date, there were 227,047,207 shares of Chubb common stock outstanding and entitled to vote. As of the record date, the directors and executive officers of Chubb and its affiliates beneficially owned and were entitled to vote approximately 887,600 shares of Chubb common stock representing approximately less than 0.5 percent of the shares of Chubb common stock outstanding on that date.
As of the record date, ACE did not beneficially own any shares of Chubb common stock.
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The presence, in person or represented by proxy, of holders of a majority of all of the outstanding shares of Chubb common stock entitled to vote at the Chubb special meeting constitutes a quorum for the purposes of the Chubb special meeting.
Abstentions, which occur when you vote ABSTAIN with respect to one or more proposals, will be considered present for purposes of establishing a quorum.
Broker non-votes will also be considered present for purposes of establishing a quorum at the Chubb special meeting. Under the applicable rules, banks, brokerage firms or other nominees who hold shares in street name for customers have the authority to vote on routine proposals when they have not received voting instructions from beneficial owners. However, banks, brokerage firms and other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters such as the Chubb merger agreement proposal, the Chubb merger-related compensation proposal and the Chubb adjournment proposal. As a result, absent specific voting instructions from the beneficial owner of such shares of Chubb common stock, banks, brokerage firms and other nominees are not empowered to vote those shares of Chubb common stock on any of the proposals at the Chubb special meeting. A so-called broker non-vote results when banks, brokerage firms and other nominees return a valid proxy but do not vote on a particular proposal because they do not have discretionary authority to vote on the matter and have not received specific voting instructions from the beneficial owner of such shares. Because all proposals at the Chubb special meeting are considered non-routine, the only way a broker non-vote would result is if you provide your bank, brokerage firm or other nominee with instructions on how to vote your shares with respect to one or more proposals but do not provide it with instructions on how to vote your shares with respect to at least one proposal.
Failures to vote will not be considered present for purposes of establishing a quorum.
The approval of the Chubb merger agreement proposal requires the affirmative vote of two-thirds of the votes cast on the proposal. For the approval of the Chubb merger agreement, you may vote FOR, AGAINST or ABSTAIN. Neither votes to abstain nor broker non-votes will be counted as votes cast on the merger agreement proposal. As a result, if you fail to submit a proxy or to vote in person at the Chubb special meeting or if you vote to abstain, it will have no impact on the outcome of the voting.
The approval of the Chubb merger-related compensation proposal requires the affirmative vote of the holders of a majority of the votes cast on the proposal; however, such vote is advisory (non-binding) only. Neither votes to abstain nor broker non-votes will be counted as votes cast on the Chubb merger-related compensation proposal. As a result, if you fail to submit a proxy or to vote in person at the Chubb special meeting or if you vote to abstain, it will have no impact on the outcome of the voting.
The affirmative vote of the holders of a majority of votes cast on the Chubb adjournment proposal is required to approve this proposal. Neither votes to abstain nor broker non-votes will be counted as votes cast on the Chubb adjournment proposal. As a result, if you fail to submit a proxy or to vote in person at the Chubb special meeting or if you vote to abstain, it will have no impact on the outcome of the voting.
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Shareholders of Record
If you are a shareholder of record of Chubb common stock, you may have your shares of Chubb common stock voted on matters presented at the Chubb special meeting in any of the following ways:
| By Internet: by following the Internet voting instructions on the Chubb proxy card if you received a paper copy of the proxy materials at any time up until 11:59 p.m. on October 21, 2015; |
| By Telephone: by following the telephone voting instructions included in the Chubb proxy card at any time up until 11:59 p.m. on October 21, 2015; |
| By Mail: by marking, dating and signing your Chubb proxy card in accordance with the instructions on it and returning it by mail in the pre-addressed reply envelope provided with the proxy materials. The Chubb proxy card must be received prior to the Chubb special meeting; or |
| In Person: you may attend the Chubb special meeting and cast your vote there. Attendance at the Chubb special meeting will not, in and of itself, constitute a vote or a revocation of a prior proxy, however. |
Beneficial Owners
If your shares of Chubb common stock are held through a bank, brokerage firm or other nominee, you are considered the beneficial owner of shares of Chubb common stock held in street name. In that case, this joint proxy statement/prospectus has been forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to those shares of Chubb common stock, the shareholder of record. As the beneficial owner, you have the right to direct your bank, brokerage firm or other nominee how to vote your shares by following their instructions for voting.
To vote your shares of Chubb common stock as a beneficial owner, you must follow the instructions received from your bank, brokerage firm or other nominee in order to have your shares of Chubb common stock voted. Those instructions will identify how to ensure that your shares of Chubb common stock are voted. Please note that if you are a beneficial owner and wish to vote in person at the Chubb special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee at the Chubb special meeting.
CCAP Participants
If you are a participant in the Capital Accumulation Plan of The Chubb Corporation (CCAP), your proxy will include all the shares of Chubb common stock allocated to you in the CCAP (Plan Shares), which you may vote in person at the Chubb special meeting or over the Internet, by telephone or, by completing and mailing the enclosed Chubb proxy card. Your proxy will serve as a voting instruction for the trustee of the CCAP. If your voting instructions are not received by October 19, 2015, any Plan Shares you hold will not be voted by the trustee.
Other Voting Instructions
(1) | Please refer to the instructions on your Chubb proxy or voting instruction card to determine the deadlines for voting over the Internet or by telephone. If you submit a proxy by mailing a proxy card, your Chubb proxy card should be mailed in the accompanying prepaid reply envelope, and your Chubb proxy card must be filed with the Corporate Secretary of Chubb by the time the Chubb special meeting begins. Please do not send in your stock certificates with your Chubb proxy card. |
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(2) | If you vote by proxy, the individuals named on the enclosed Chubb proxy card (each of them, with full power of substitution) will vote your shares of Chubb common stock in the way that you indicate. When completing the Internet or telephone processes or the Chubb proxy card, you may specify whether your shares of Chubb common stock should be voted FOR or AGAINST or to ABSTAIN from voting on all, some or none of the specific items of business to come before the Chubb special meeting. |
(3) | If you properly sign your Chubb proxy card but do not mark the boxes showing how your shares of Chubb common stock should be voted on a matter, the shares of Chubb common stock represented by your properly signed Chubb proxy will be voted FOR the Chubb merger agreement proposal, FOR the Chubb merger-related compensation proposal and FOR the Chubb adjournment proposal. |
(4) | If you hold your shares of Chubb common stock in more than one brokerage account, or if you hold your shares of Chubb common stock in multiple ways (as a record holder and/or beneficial holder), you may have received more than one set of proxy materials. It is important that you return all proxy cards and voting instruction cards to make sure all your shares of Chubb common stock are voted. |
(5) | If you have any questions or need assistance voting your shares of Chubb common stock, please contact Georgeson Inc., Chubbs proxy solicitor, at 1-866-482-5136. |
(6) | IT IS IMPORTANT THAT YOU VOTE YOUR SHARES OF CHUBB COMMON STOCK PROMPTLY. |
Shareholders of Record
If you are a shareholder of record of Chubb common stock or a holder of Plan Shares, you may change your vote at any time before your shares of Chubb common stock are voted in any of the following ways:
| by voting via Internet or telephone at a later date (in which case only the later-submitted Chubb proxy will be counted and the earlier-submitted Chubb proxy will be revoked); |
| by completing, signing, dating and returning a new Chubb proxy card, which must be received before the shares of Chubb common stock are voted at the Chubb special meeting (in which case only the later-submitted proxy will be counted and the earlier-submitted proxy will be revoked); |
| by filing a timely written notice of revocation with the Corporate Secretary of Chubb at 15 Mountain View Road, Warren, NJ 07059; or |
| in personyou may attend the Chubb special meeting and cast your vote there (in which case any earlier-submitted Chubb proxy will be revoked). Attendance at the Chubb special meeting will not, in and of itself, constitute a vote or a revocation of a prior Chubb proxy. |
Unless you attend the Chubb special meeting and vote your shares of Chubb common stock in person after you have submitted a prior Chubb proxy, we recommend that you revoke or amend your prior instructions in the same way you initially gave themthat is, by telephone, Internet or in writing. This will help to ensure that your shares of Chubb common stock are voted the way you have finally determined you wish
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them to be voted. If you revoke by mail or by using the telephone or Internet voting options, Chubb must receive the revocation before the Chubb special meeting begins. If you choose to revoke by mail, please make sure you have provided enough time for the replacement proxy to reach Chubb. Once the Chubb special meeting begins, you can only revoke your Chubb proxy in person. Once the polls close at the Chubb special meeting, the right to revoke ends.
Beneficial Holders
If you are a beneficial holder of Chubb common stock, you may change your vote by following the instructions provided to you by your bank, brokerage firm or other nominee and submit new voting instructions to such bank, brokerage firm or other nominee.
Solicitation of Proxies; Payment of Solicitation Expenses
Chubb will pay for the proxy solicitation costs related to the Chubb special meeting, except that Chubb and ACE will share equally the costs and expenses of printing and mailing this joint proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the merger.
Chubb has engaged Georgeson Inc. to act as its proxy solicitor and to assist in the solicitation of proxies for the Chubb special meeting. Chubb has agreed to pay such proxy solicitor approximately $30,000 plus reasonable out-of-pocket expenses for such services and also will indemnify it against certain claims, costs, damages, liabilities, judgments and expenses.
Chubb may reimburse banks, brokerage firms, other nominees or their respective agents for their expenses in forwarding proxy materials to beneficial owners of Chubb common stock.
Chubbs directors, officers and employees also may solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.
Where You Can Find the Voting Results
Chubb will publish the voting results of the Chubb special meeting in a Form 8-K that Chubb will file with the SEC within four business days of the Chubb special meeting. You can find the Form 8-K on Chubbs website at www.chubb.com.
Questions and Additional Information
If you have additional questions about the merger, need assistance in submitting your proxy or voting your shares of Chubb common stock or need additional copies of this joint proxy statement/prospectus or the enclosed Chubb proxy card, please contact Georgeson Inc., Chubbs proxy solicitor, by calling toll-free at 1-866-482-5136.
Important Notice About Security
Before entering the Chubb special meeting, attendees may be asked to present a valid, government-issued photo identification (federal, state or local), such as a drivers license or passport, and proof of beneficial ownership if they hold shares through a broker, bank or other nominee. Attendees may be subject to security inspections. Video and audio recording devices and other electronic devices will not be permitted at the Chubb special meeting.
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ACE EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
The ACE extraordinary general meeting will be held at 2:45 p.m. Central European Time on October 22, 2015, at the offices of ACE Limited, Baerengasse 32, CH-8001 Zurich, Switzerland. ACE will begin mailing these proxy materials on or about September 15, 2015 to all shareholders entitled to vote.
Agenda Items that Will Be Voted on at the ACE Extraordinary General Meeting
The following agenda items are scheduled to be voted on at the ACE extraordinary general meeting:
| Agenda Item 1: Amendment of ACEs Articles of Association Relating to Authorized Share Capital for General Purposes; |
| Agenda Item 2: Amendment of ACEs Articles of Association to Change ACEs Name to Chubb Limited Effective as of the Completion of the Merger; |
| Agenda Item 3: Approval of Issuance of New Shares of ACE for Purposes of the Merger with Chubb; |
| Agenda Item 4: Election of Four Additional Members of the ACE Board; and |
| Agenda Item 5: Approval of the Increased Maximum Compensation of ACEs Board of Directors until the Next Annual General Meeting. |
The ACE board unanimously recommends that you vote your shares FOR each of Agenda Items 1, 2, 3, 4 and 5 listed above.
Proxy Materials Are Available on the Internet
Important Notice Regarding the Availability of Proxy Materials for the ACE Extraordinary General Meeting to Be Held on October 22, 2015
This joint proxy statement/prospectus for the ACE extraordinary general meeting, the form of ACE proxy card and ACEs 2014 Annual Report, which includes the statutory financial statements of ACE and ACEs consolidated financial statements for the year ended December 31, 2014, will be available on ACEs website in the Investor Information section at http://investors.acegroup.com/investor-information/shareholder-meeting-materials/default.aspx.
You may also request a printed copy of these proxy materials by any of the methods described under Where You Can Find More Information.
ACE Shareholders Entitled to Vote
September 10, 2015 is the record date for the ACE extraordinary general meeting. On that date, 323,927,846 ACE common shares were outstanding. The ACE common shares are registered shares with a current par value of CHF 24.15 per share and are ACEs only class of voting stock.
Beneficial owners of ACE common shares held in street name and shareholders of record with voting rights at the close of business on September 10, 2015 are entitled to vote at the ACE extraordinary general meeting, except as provided below.
| If you are a beneficial holder of ACE common shares held in street name and ask to become a shareholder of record for those shares after September 10, 2015 but on or before October 9, 2015 and want to vote those shares at the ACE extraordinary general meeting, you |
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will need to obtain a proxy for identification purposes. You can obtain a proxy from the registered voting rights record holder of those shares as of the record date of the ACE extraordinary general meeting. |
| If you are a record holder of ACE common shares (as opposed to a beneficial holder of shares held in street name) on the record date of the ACE extraordinary general meeting but sell your shares prior to October 9, 2015, you will not be entitled to vote those shares at the ACE extraordinary general meeting. |
Generally, you have one vote for each ACE common share that you own. However, if you own Controlled Shares (as defined in ACEs Articles of Association) that constitute 10 percent or more of the issued ACE common shares, then your voting rights with respect to those Controlled Shares will be limited, in the aggregate, to a voting power of approximately 10 percent of a voting class pursuant to a formula specified in Article 14 of ACEs Articles of Association. ACEs Articles of Association define Controlled Shares generally to include all shares of ACE directly, indirectly or constructively owned or beneficially owned by any person or group of persons.
The Difference between Holding Shares as a Shareholder of Record and as a Beneficial Owner
Most of ACEs shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized below, there are some differences between shares held of record and those owned beneficially.
Shareholders of Record
If your ACE common shares are registered directly in your name, as registered shares entitled to voting rights, in ACEs share register operated by ACEs transfer agent, Computershare Shareowner Services LLC, then you are considered, with respect to those shares, the shareholder of record. These proxy materials are sent to you directly by ACE. As the shareholder of record, you have the right to grant your voting proxy directly to the independent proxy (see How to Vote by Proxy Given to the Independent Proxy if You Are a Record Holder below) or to grant a written, signed proxy to any person, who does not need to be a shareholder or to vote in person at the ACE extraordinary general meeting. If you are a shareholder of record, you may vote electronically through the Internet by following the instructions provided in the ACE proxy materials.
Beneficial Owners
If your ACE common shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of ACE common shares held in street name. Your broker, bank or other nominee forwards the proxy materials to you, since they are considered, with respect to those ACE common shares, the shareholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your ACE common shares and are also invited to attend the ACE extraordinary general meeting. However, since you are not the shareholder of record, you may only vote these ACE common shares in person at the ACE extraordinary general meeting if you follow the instructions described below under the heading How to Vote in Person at the ACE Extraordinary General Meeting.
Your broker, bank or other nominee has enclosed directions for you to use in directing your broker, bank or other nominee as to how to vote your shares, which may contain instructions for voting by telephone or electronically through the Internet. For each of the ACE agenda items, your broker may not be permitted to vote your ACE common shares without voting directions from you.
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Voting via the Internet, Mail or Telephone
You have a choice of voting over the Internet or voting by completing an ACE proxy card and mailing it in the return envelope provided. ACE encourages you to vote over the Internet because ACE can tabulate your vote faster than by mail. There are separate Internet arrangements depending on whether you are a shareholder of record or beneficial owner (holding your shares in street name).
| If you are an ACE shareholder of record, you may vote electronically through the Internet by following the instructions provided on the proxy card included with the proxy materials mailed to you. Telephone voting for record holders is not permitted. |
| If you are a beneficial owner and hold your ACE common shares in street name, you may need to contact your bank or broker to determine whether you will be able to vote by telephone or electronically through the Internet. |
The Internet voting procedures are designed to authenticate shareholders identities, to allow ACE shareholders to give their voting instructions and to confirm that shareholders instructions have been recorded properly.
Whether or not you plan to attend the ACE extraordinary general meeting, ACE urges you to vote. Voting over the Internet, by telephone (in the case of beneficial owners) or by returning your ACE proxy card by mail will not affect your right to attend the ACE extraordinary general meeting.
How to Vote by Proxy Given to the Independent Proxy if You Are a Record Holder
If you are a record holder, then you may appoint the independent proxy to vote your ACE common shares by voting over the Internet or by requesting an ACE proxy card, completing it and mailing it in the return envelope provided. At ACEs last annual general meeting, on May 21, 2015, Homburger AG was elected by ACEs shareholders as ACEs independent proxy until the conclusion of ACEs 2016 annual general meeting. Homburger AG is a law firm located in Switzerland.
If you vote over the Internet or properly fill in your ACE proxy card appointing the independent proxy as your proxy and send it in time to vote, the independent proxy will vote your ACE common shares as you have directed. If you do not make specific choices on the Internet voting website or your signed proxy card, then the independent proxy will vote your ACE common shares as recommended by the ACE board with regard to the items listed in the notice of meeting.
If new agenda items (other than those in the notice of meeting) or new proposals or motions with respect to the ACE agenda items set forth in the notice of meeting are put before the ACE extraordinary general meeting, then the independent proxy will, acting as your proxy and in the absence of instructions otherwise, vote in accordance with the recommendation of the ACE board. At the time ACE began printing this joint proxy statement/prospectus, ACE knew of no matters that needed to be acted on at the ACE extraordinary general meeting other than those discussed in this joint proxy statement/prospectus. The independent proxy will not make statements, submit proposals or ask questions of the ACE board on behalf of ACE shareholders.
Whether or not you plan to attend the ACE extraordinary general meeting, ACE urges you to vote. Voting over the Internet or by returning your ACE proxy card will not affect your right to attend the ACE extraordinary general meeting.
In order to assure that your votes, as a record holder, are tabulated in time to be voted at the ACE extraordinary general meeting, you must complete your voting over the Internet or submit your ACE proxy card so that it is received by 6:00 p.m. Central European Time (12:00 noon Eastern Daylight Time) on October 21, 2015.
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How to Give Voting Instructions if You Are a Beneficial Owner
If you are a beneficial owner of ACE common shares, the broker will ask you how you want your shares to be voted. If you give the broker instructions, the broker will vote your ACE common shares as you direct. If your broker does not receive instructions from you about how your ACE common shares are to be voted, one of two things can happen, depending on the type of proposal. Pursuant to the rules of the NYSE, brokers have discretionary power to vote your ACE common shares with respect to routine matters, but they do not have discretionary power to vote your ACE common shares on non-routine matters. For example, brokers holding shares beneficially owned by their clients do not have the ability to cast votes with respect to the election of directors unless they have received instructions from the beneficial owner of the shares. It is therefore important that you provide instructions to your broker so that your ACE common shares are voted with respect to the proposals related to the merger, which will be treated as non-routine.
In order to assure that your votes, as a beneficial holder, are tabulated in time to be voted at the ACE extraordinary general meeting, you must submit your voting instructions by 11:59 p.m. Eastern Daylight Time on October 20, 2015 to ensure that your broker will be able to vote on time.
You May Revoke or Change Your Vote
If you change your mind after you vote, you may revoke or change your proxy by following the procedures described below.
| For record holders wishing to change their proxy, vote again by following the instructions for Internet voting on the ACE proxy card, or send in a signed ACE proxy card with a later date. The latest received ACE proxy will be counted. If you are an ACE record holder, you may request a new ACE proxy card from ACEs transfer agent, Computershare Shareowner Services LLC, by phone at +1 (877) 522-3752 (within the U.S.) or +1 (201) 680-6898 (outside the U.S.); |
| For record holders wishing to revoke their ACE proxy, send a letter revoking your ACE proxy directly to the independent proxy, Homburger AG, Attention: Dr. Claude Lambert, Prime Tower, Hardstrasse 201, P.O. Box 314, CH-8037 Zurich, Switzerland; |
| For beneficial owners, follow the voting instructions provided by your broker, bank or other nominee to change your ACE proxy and the latest received vote will be counted; to revoke your ACE proxy, contact your broker, bank or other nominee; or |
| Attend the ACE extraordinary general meeting to revoke your ACE proxy and vote in person, as described and following the instructions provided in How to Vote in Person at the ACE Extraordinary General Meeting below. |
If you wish to revoke or change your proxy, you must do so in sufficient time to permit the necessary examination and tabulation of the subsequent proxy or revocation before the vote is taken.
How to Vote in Person at the ACE Extraordinary General Meeting
You may vote ACE common shares held directly in your name as the shareholder of record in person at the ACE extraordinary general meeting. If you choose to vote your ACE common shares in person at the ACE extraordinary general meeting and you are a record holder, then you must bring your admission ticket (which you may obtain as described below) and government-issued identification such as a drivers license or passport. You may also appoint another person to represent you at the ACE extraordinary general meeting through a written, signed proxy giving such person the right to vote the ACE common shares. Such person must bring that proxy, his or her government-issued identification, and an admission ticket to the ACE extraordinary general meeting.
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You may vote ACE common shares beneficially owned and held in street name in person only if you obtain a signed proxy from the shareholder of record giving you the right to vote the ACE common shares. If your ACE common shares are held in the name of your broker, bank or other nominee, then you must bring to the ACE extraordinary general meeting government-issued identification and a written, signed proxy from the shareholder of record giving you the right to vote the shares. You must also request and bring an admission ticket.
To request an admission ticket to the ACE extraordinary general meeting, please contact ACE Investor Relations (by telephone at +1 (441) 299-9283, via e-mail at investorrelations@acegroup.com or by mail at ACE Investor Relations, ACE Limited, 17 Woodbourne Avenue, Hamilton HM08, Bermuda) and send proof of your stock ownership. For beneficial owners, proof of stock ownership is an account statement or letter from the broker, bank or other nominee indicating that you are the beneficial owner of the ACE common shares. To allow time for processing, please submit requests for admission tickets by October 15, 2015. Admission tickets are not transferable. You may contact ACE Investor Relations with any questions about the admission ticket process.
ACE reserves the right to deny admission to the ACE extraordinary general meeting to any ACE shareholder that does not present a valid admission ticket, government issued identification or any other required document described in this section.
Even if you plan to attend the ACE extraordinary general meeting, ACE recommends that you vote your ACE common shares in advance by submitting your proxy, so that your vote will be counted if you later decide not to attend the ACE extraordinary general meeting.
No Minimum Number of Votes Must Be Present to Hold the ACE Extraordinary General Meeting
There is no quorum requirement under Swiss law.
ACE Common Shares Are Not Subject to Share Blocking or Re-Registration
Neither share blocking nor re-registration is required in order to vote ACE common shares at the ACE extraordinary general meeting.
ACE does not impose trading restrictions as a condition of voting ACE common shares, does not require that ACE common shares be deposited with a custodian or sub-custodian in order to be voted and does not instruct any custodians or sub-custodians that may receive deposits of ACE common shares for voting to block those shares.
ACE common shares that are beneficially held do not need to be re-registered into the name of the beneficial owners in order to vote (see The Difference between Holding Shares as a Shareholder of Record and as a Beneficial Owner above).
Shareholders holding ACE common shares directly (i.e. not as beneficial holder via street name) and who are not yet registered as shareholders with voting rights in ACEs share register operated by ACEs transfer agent, Computershare Shareowner Services LLC, must be properly registered in ACEs share register in order to vote their ACE common shares directly. If you are a record holder and you received these proxy materials in the mail, then your ACE common shares are properly registered to vote.
Vote Required to Approve Each Agenda Item
The approval of each ACE agenda item requires the affirmative vote of a majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, with the exception of Agenda Item 1, the
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ACE authorized share capital proposal. Agenda Item 1, the ACE authorized share capital proposal, requires the affirmative vote of two-thirds of the votes present (in person or by proxy) at the ACE extraordinary general meeting.
For each ACE agenda item, your vote may be cast FOR or AGAINST or you may ABSTAIN (and, with respect to agenda items with sub-parts, you may cast your vote separately for each sub-part). Here is how to make sure your votes are counted:
| If you are a record holder and you sign your ACE proxy card (including by electronic signature in the case of Internet voting) with no further instructions, then you direct the independent proxy to vote your ACE common shares in accordance with the recommendations of the ACE board. |
| If you are a beneficial owner, and your ACE common shares are held by a broker, then it is important that you provide instructions to your broker so that your vote with respect to non-routine agenda items is counted. If you sign your broker voting instruction card with no further instructions, then your ACE common shares will be voted in the brokers discretion with respect to routine matters but will not be voted with respect to non-routine matters. Because each of the ACE agenda items is considered a non-routine matter, your vote will not be counted unless you provide your broker with instructions for voting these agenda items. |
How the Directors and Executive Officers of ACE Will Vote
At the close of business on the record date for the ACE extraordinary general meeting, ACEs directors and executive officers owned and were entitled to vote an aggregate of 2,304,648 ACE common shares, which represented less than 1 percent of the outstanding ACE common shares. Each of ACEs directors, nominees and executive officers has indicated their present intention to vote, or cause to be voted, their shares in favor of all of the agenda items at the ACE extraordinary general meeting.
As of the record date for the ACE extraordinary general meeting, Chubb did not own any ACE common shares.
The Effect of Broker Non-Votes and Abstentions
A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular agenda item because the broker does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.
Abstentions and broker non-votes will not be considered in the vote and will not have an impact on any of the agenda items being voted upon at the ACE extraordinary general meeting, other than Agenda Item 1 (the ACE authorized share capital proposal), because the amendment of ACEs Articles of Association requires an affirmative vote of two-thirds of the votes present (in person or by proxy) for approval. For Agenda Item 1, abstentions and broker non-votes will have the effect of an against vote because they will be counted as present but not for the Agenda Item.
Costs of Soliciting Proxies and Who Will Pay Them
ACE will pay all the costs of soliciting the proxies for the ACE extraordinary general meeting, except that ACE and Chubb will share equally the costs and expenses of printing and mailing the joint proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the merger. Although ACE is mailing these proxy materials, ACEs directors and employees may also solicit proxies by telephone,
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by fax or other electronic means of communication, or in person. They will not be paid any additional amounts for soliciting proxies. ACE will reimburse brokers, banks and nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you. D.F. King & Co., Inc. is assisting ACE with the solicitation of proxies for a fee of $50,000 plus out-of-pocket expenses and fees for telephone solicitation, if used, and ACE will also indemnify D.F. King & Co., Inc. against certain claims, costs, damages, liabilities, judgments and expenses.
Where You Can Find the Voting Results
ACE will publish the voting results of the ACE extraordinary general meeting in a Form 8-K that ACE will file with the SEC within four business days following the ACE extraordinary general meeting. You can find the Form 8-K on ACEs website at www.acegroup.com.
Communicating Directly with the ACE Board
The ACE board provides a process for shareholders, employees and other interested parties to send communications to the ACE board. If you want to contact the ACE board concerning accounting or auditing matters, then you may send an e-mail to the Chairman of the Audit Committee at Chmnaudit@acegroup.com. If you want to contact the ACE board about other matters, you may contact:
| the ACE board, |
| the non-management and independent directors, |
| the Chairman of the ACE board, |
| the Lead Director, |
| the Chair of any ACE board committee, or |
| any other director. |
As to other matters, you may send an e-mail to LeadDirector@acegroup.com. The Corporate Secretary also has access to these e-mail addresses. Alternatively, shareholders, employees and other interested parties may send written communications to the ACE board c/o Corporate Secretary, ACE Limited, Baerengasse 32, CH-8001 Zurich, Switzerland, although mail to Switzerland is not as prompt as e-mail. Communication with the ACE board may be anonymous. The Corporate Secretary will forward all anonymous communications to the ACE board to the Lead Director.
Organizational Matters Required by Swiss Law
Admission to the ACE Extraordinary General Meeting
Shareholders who are registered in ACEs share register on September 10, 2015 will receive this joint proxy statement/prospectus and a proxy card from ACEs share registrar. Beneficial owners of shares will receive proxy materials, as well as a voting instruction form, from their broker, bank, nominee or custodian acting as shareholder of record to indicate how they wish their shares to be voted.
In order to attend the ACE extraordinary general meeting in person, shareholders of record must bring their admission ticket (which may be obtained as described below) and government-issued identification such as a drivers license or passport. An ACE shareholder may also appoint another person to represent him or her at the ACE extraordinary general meeting through a written, signed proxy giving such person the right to vote the ACE common shares. Such person must bring that proxy, his or her government-issued identification, and an admission ticket to the ACE extraordinary general meeting.
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Beneficial owners who wish to vote in person at the ACE extraordinary general meeting must obtain a signed proxy from their broker, bank, nominee or other custodian that authorizes you to vote the ACE common shares held by them on your behalf. In addition, they must bring to the ACE extraordinary general meeting an admission ticket and government-issued identification.
Beneficial owners who have not obtained an ACE proxy from their broker or custodian are not entitled to vote in person at, or participate in, the ACE extraordinary general meeting.
Each ACE common share carries one vote. The exercise of the voting right is subject to the voting restrictions set out in ACEs Articles of Association.
To request an admission ticket to the ACE extraordinary general meeting, please contact ACE Investor Relations (by telephone at +1 (441) 299-9283, via e-mail at investorrelations@acegroup.com or by mail at ACE Investor Relations, ACE Limited, 17 Woodbourne Avenue, Hamilton HM08, Bermuda) and send proof of your ACE share ownership. For beneficial owners, proof of ACE share ownership is an account statement or letter from the broker, bank or other nominee indicating that you are the owner of the ACE common shares. To allow time for processing, please submit requests for admission tickets by October 15, 2015. Admission tickets are not transferable. You may contact ACE Investor Relations with any questions about the admission ticket process.
ACE reserves the right to deny admission to the ACE extraordinary general meeting to any ACE shareholder who does not present a valid admission ticket, government issued identification or any other required document described in this section.
Beneficial owners of ACE common shares held in street name and shareholders of record with voting rights at the close of business on September 10, 2015 are entitled to vote at the ACE extraordinary general meeting, except that ACE shareholders who, upon application, become registered as shareholders with respect to their shares in ACEs share register after September 10, 2015 but on or before October 9, 2015 and wish to vote those shares at the ACE extraordinary general meeting will need to obtain a proxy for identification purposes from the registered voting rights record holder of those shares as of the record date of the ACE extraordinary general meeting to vote their shares in person at the ACE extraordinary general meeting. Alternatively they may also obtain the proxy materials by contacting ACE Investor Relations by telephone at +1 (441) 299-9283 or via e-mail at investorrelations@acegroup.com. Shareholders registered in ACEs share register (as opposed to beneficial holders of shares held in street name) who have sold their shares prior to October 9, 2015 are not entitled to vote those shares at the ACE extraordinary general meeting.
Granting of Proxy to the Independent Proxy
If you are a shareholder of record and do not wish to attend the ACE extraordinary general meeting, you have the right to grant your voting proxy directly to the independent proxy, Homburger AG, Prime Tower, Hardstrasse 201, P.O. Box 314, CH-8032 Zurich, Switzerland, in the sense of Article 689c of the Swiss Code of Obligations, with the corresponding proxy card (including electronically). For further information, refer to How to Vote by Proxy Given to the Independent Proxy if You Are a Record Holder above.
The proxies granted to the independent proxy by shareholders of record must be received no later than 6:00 p.m. Central European Time on October 21, 2015.
Registered ACE shareholders who have appointed the independent proxy as a proxy may not vote in person at the ACE extraordinary general meeting, or send a proxy of their choice to the ACE extraordinary general meeting, unless they revoke or change their proxies.
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By signing the proxy card and if no other instructions are given, the ACE shareholder instructs the independent proxy to vote in favor of each agenda item as proposed by the ACE board. If a new agenda item or a new proposal for an existing agenda item is put before the ACE extraordinary general meeting and no other instructions are given, the ACE shareholder instructs the independent proxy to vote in accordance with the position of the ACE board. In case an ACE shareholder invalidates these general instructions and does not provide any other instructions, the independent proxy must abstain from voting.
Admission Office
The admission office opens on the day of the ACE extraordinary general meeting at 1:45 p.m. Central European Time. Shareholders of record attending the meeting are required to present the proof of admission described above in Organizational Matters Required by Swiss LawAdmission to the ACE Extraordinary General Meeting at the entrance.
Annual Report of ACE Limited
The ACE Limited 2014 Annual Report containing ACEs audited consolidated financial statements with accompanying notes and its audited statutory standalone financial statements prepared in accordance with Swiss law, ACEs Swiss law compensation report, the statutory auditors report, as well as additionally required Swiss disclosures, is available on ACEs website in the Investor Information section at http://investors.acegroup.com/investor-information/shareholder-meeting-materials/default.aspx. Copies of this joint proxy statement/prospectus may be obtained without charge by contacting ACE Investor Relations by telephone at +1 (441) 299-9283 or via e-mail at investorrelations@acegroup.com. Copies may also be obtained without charge by contacting ACE Investor Relations, or may be physically inspected, at the offices of ACE Limited, Baerengasse 32, CH-8001 Zurich, Switzerland.
Publication of Invitation in Switzerland
In accordance with Swiss law and ACEs Articles of Association, the formal and authoritative invitation to the ACE extraordinary general meeting will be published at least 20 days prior to the ACE extraordinary general meeting in the Swiss Official Commercial Gazette.
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PROPOSALS TO BE SUBMITTED TO ACE SHAREHOLDERS
Agenda Item 1: Amendment of ACEs Articles of Association Relating to Authorized Share Capital for General Purposes
Introduction
The ACE board proposes approval of the amendment to Article 6(a) of ACEs Articles of Association to authorize the ACE board to increase ACEs share capital within two years following the ACE extraordinary general meeting to a maximum amount equal to CHF 3,984,750,000.00, which amount would be divided into 165,000,000 shares.
Agenda Item
The ACE board proposes approval of the following amendment to Article 6 of ACEs Articles of Association:
Artikel 6 Genehmigtes Kapital zu allgemeinen Zwecken |
Article 6 Authorized Share Capital for General Purposes | |
(a) Der Verwaltungsrat ist ermächtigt, das Aktienkapital jederzeit bis zum 22. Oktober 2017 im Maximalbetrag von CHF 3984750000.00 durch Ausgabe von höchstens 165000000 vollständig zu liberierenden Namenaktien mit einem Nennwert von CHF 24.15 je Aktie zu erhöhen. |
(a) The Board of Directors is authorized to increase the share capital from time to time until October 22, 2017 by an amount not exceeding CHF 3,984,750,000.00 through the issue of up to 165,000,000 fully paid up registered shares with a nominal value of CHF 24.15 each. | |
[(b)(d)bleiben unverändert.] |
[(b)(d)remain unchanged.] |
Explanation
Chubb shareholders will receive a combination of cash and ACE common shares as consideration for the merger (see The MergerMerger Consideration).
ACE shareholders approved authorized share capital for general purposes (CHF 3,381,000,000 or 140,000,000 shares) at ACEs 2014 annual general meeting. Under Swiss law, shareholder authorization for share capital only lasts for two years, so the authorized share capital expires on May 15, 2016. ACE currently expects that it will issue fewer than 140,000,000 ACE common shares as non-cash consideration for the merger, and that the issuance will occur during the first quarter of 2016. However, it is possible that ACE may be obligated to issue more than 140,000,000 shares as non-cash consideration for the merger and that the merger may occur after May 15, 2016. Accordingly, in order to ensure that ACE has the capacity to issue sufficient ACE common shares when the merger occurs, ACE is seeking to amend Article 6(a) of its Articles of Association to provide for an increased amount of authorized share capital, which would be available until October 22, 2017.
The authorized share capital approved pursuant to this agenda item, or as may otherwise be approved by ACE shareholders, will be available for issuance at such times and for such purposes as the ACE board may deem advisable without further action by ACEs shareholders, except as may be required by applicable laws or regulations, including NYSE requirements. For example, in addition to being available for
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issuance in connection with the merger, the additional authorized share capital will be available for issuance in connection with financings, acquisitions of other companies, stock dividends, raising capital following significant catastrophes that would otherwise have a material effect on ACEs balance sheet or financial condition, or other corporate purposes.
If this agenda item is approved, ACE would nevertheless seek shareholder approval for share issuances to the extent required under NYSE rules. Under NYSE rules, shareholder approval is generally required for ACE to issue ACE common shares or securities convertible into or exercisable for ACE common shares in one or a series of related transactions if such shares represent 20 percent or more of the voting power or number of outstanding shares before the issuance. However, shares issued for cash in a public offering are excluded from this shareholder approval requirement, as are shares issued for cash in a private offering at a price at least equal to both the book value and market value of the shares. NYSE rules also require shareholder approval for an issuance of shares that would result in a change of control of ACE, as well as for share issuances in connection with certain benefit plans or related-party transactions.
Shareholders of a Swiss company are generally entitled to preemptive rights in connection with the issuance of shares, but Article 6 of ACEs Articles of Association provides for exceptions in which shareholder preemptive rights in connection with any issuance of authorized share capital may be limited or withdrawn. While the issuance of ACE common shares in these circumstances could have the effect of reducing the current shareholders proportionate interest, ACE believes these specific exceptions to preemptive rights, if approved by the ACE board, would better position ACE to react to significant opportunities or occurrences, and are critical to ACEs ability to operate and grow.
In addition to any NYSE requirements, if ACE shareholders approve this agenda item, ACE will nevertheless undertake not to issue, other than pursuant to the merger agreement (assuming ACE shareholders approve the ACE issuance proposal under Agenda Item 3, below), more than 68,000,000 shares (approximately 19.9 percent of its currently existing share capital) pursuant to Article 6 during the two-year period that the share capital authorization contained in Article 6 remains in effect without either providing ACEs shareholders with the opportunity to exercise preemptive rights or seeking specific shareholder approval for such issuance. This undertaking by ACE applies only to ACE common shares issued pursuant to the authorization of share capital for general purposes set forth in Article 6, and not to ACE common shares issued pursuant to conditional share capital authorizations that already exist under the Articles of Association.
If the ACE issuance proposal is approved (see Agenda Item 3, below), the undertaking set forth in this agenda item will not require an additional approval for the issuance of ACE common shares to allow ACE to meet its obligations pursuant to the merger agreement.
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As a Swiss company, ACE is required to submit both the English and the (authoritative) German versions of the proposed amendment to its Articles of Association, pursuant to which Article 6(a) of ACEs Articles of Association would read as follows:
Artikel 6 Genehmigtes Kapital zu allgemeinen Zwecken |
Article 6 Authorized Share Capital for General Purposes | |
(a) Der Verwaltungsrat ist ermächtigt, das Aktienkapital jederzeit bis zum 22. Oktober 2017 im Maximalbetrag von CHF 3984750000.00 durch Ausgabe von höchstens 165000000 vollständig zu liberierenden Namenaktien mit einem Nennwert von CHF 24.15 je Aktie zu erhöhen. |
(a) The Board of Directors is authorized to increase the share capital from time to time until October 22, 2017 by an amount not exceeding CHF 3,984,750,000.00 through the issue of up to 165,000,000 fully paid up registered shares with a nominal value of CHF 24.15 each. | |
[(b)(d)bleiben unverändert.] |
[(b)(d)remain unchanged.] |
As noted above, the authorized share capital allows ACE to limit or withdraw ACEs shareholders preemptive rights in specified and limited circumstances. Article 6 of ACEs Articles of Association contains the following paragraphs, which remain unchanged:
(b) | Increases through firm underwriting or in partial amounts are permitted. The issue price, the date of dividend entitlement, the type of consideration (including the contribution or underwriting in kind) as well as the allocation of non-exercised preemptive rights shall be determined by the Board of Directors. |
(c) | The Board of Directors is authorized to exclude the preemptive rights of the shareholders and to allocate them to third parties in the event of the use of shares for the purpose of (1) mergers, acquisitions of enterprises or participations, financing and/or refinancing of such mergers and acquisitions and of other investment projects (including by way of private placements), (2) to improve the regulatory capital position of the company or its subsidiaries (including by way of private placements), (3) broadening the shareholder constituency or (4) for the purpose of the participation of employees. |
(d) | The subscription and acquisition of registered shares out of authorized share capital for general purposes and any further transfers of registered shares shall be subject to the restrictions specified in Article 8 of the Articles of Association. |
A marked copy of Article 6 of ACEs Articles of Association is included in Appendix B.
Voting Requirement
The affirmative FOR vote of two-thirds of the votes present (in person or by proxy) at the ACE extraordinary general meeting is required to approve this agenda item.
Recommendation
The ACE board unanimously recommends a vote FOR the ACE authorized share capital proposal.
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Agenda Item 2: Amendment of ACEs Articles of Association to Change ACEs Name to Chubb Limited Effective as of the Completion of the Merger
Introduction
The ACE board proposes approval of the amendment to Article 1 of ACEs Articles of Association to change ACEs corporate name to Chubb Limited and to make conforming amendments to other provisions of ACEs Articles of Association, in each case, subject to, and effective as of, the completion of the merger.
Agenda Item
The ACE board proposes approval of the following amendments to ACEs Articles of Association, subject to, and effective as of, the completion of the merger:
Article 1:
Artikel 1 Firma, Sitz und Dauer der Gesellschaft |
Article 1 Corporate Name, Registered Office and Duration | |
Unter der Firma | Under the corporate name | |
Chubb Limited (Chubb AG) (Chubb SA) |
Chubb Limited (Chubb AG) (Chubb SA) | |
besteht eine Aktiengesellschaft gemäss Artikel 620 ff. OR mit Sitz in Zürich. Die Dauer der Gesellschaft ist unbeschränkt. | a Company exists pursuant to art. 620 et seq. of the Swiss Code of Obligations (hereinafter CO) having its registered office in Zurich. The duration of the Company is unlimited. |
Article 24(b): changing the ACE Group to the Company and the group (and in the German text, der ACE Gruppe to der Gesellschaft und der Gruppe).
Explanation
Under the merger agreement, ACE agreed to submit to its shareholders an amendment of ACEs Articles of Association to change the name of ACE to Chubb Limited. The resolution for the amendment of Article 1 of ACEs Articles of Association and other conforming amendments (i.e. Article 24(b)) are conditioned upon the completion of the merger. If the merger does not occur, for whatever reason, the amendment of Article 1 of ACEs Articles of Association, and other conforming amendments, will not become effective.
Following completion of the merger, Chubb will continue to operate under its name while the combined company transitions to operate under the Chubb name globally. The ACE board believes it is in the best interests of ACE and its shareholders for ACE to change its name to the renowned Chubb name upon the completion of the merger, in acknowledgement of the distinctiveness and strength of the Chubb brand.
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As a Swiss company, ACE is required to submit both the English and the (authoritative) German versions of the proposed amendment to its Articles of Association.
A marked copy of ACEs Articles of Association showing changes to Article 1 and other conforming amendments is included in Appendix B.
Voting Requirement
The affirmative FOR vote of the majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, not counting abstentions, broker non-votes or blank or invalid ballots, is required to approve the ACE name change proposal.
Recommendation
The ACE board unanimously recommends a vote FOR the ACE name change proposal to approve the amendment of ACEs Articles of Association to change ACEs name to Chubb Limited and to make conforming amendments to other provisions of ACEs Articles of Association, in each case, subject to, and effective as of, the completion of the merger.
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Agenda Item 3: Approval of Issuance of New Shares of ACE for Purposes of the Merger with Chubb
Agenda Item
The ACE board proposes approval of the issuance of ACE common shares pursuant to the merger agreement in accordance with:
| NYSE rules; and |
| ACEs undertaking set forth in its 2014 Proxy Statement not to issue more than 68,000,000 ACE common shares pursuant to Article 6 of its Articles of Association without either providing ACEs shareholders with the opportunity to exercise preemptive rights or seeking specific shareholder approval for such issuance. |
Explanation
Under the merger agreement, as consideration in the merger, each share of Chubb common stock owned by a Chubb shareholder (except for certain shares held by ACE, Chubb, or their subsidiaries) will be converted into the right to receive $62.93 in cash and 0.6019 of an ACE common share.
It is expected that, upon completion of the merger, Chubb shareholders will own approximately 30 percent of ACE common shares then outstanding (without giving effect to any ACE common shares held by Chubb shareholders prior to the merger). If the merger is completed, it is currently estimated that payment of the stock portion of the merger consideration will require ACE to issue 137 million ACE common shares, which represents more than 20 percent of the outstanding ACE common shares before the expected issuance.
Under NYSE rules, ACE may not issue shares representing 20 percent of the voting power or number of shares outstanding before the issuance without first obtaining shareholder approval. Additionally, in connection with the shareholder approval at ACEs 2014 annual general meeting increasing its authorized share capital, ACE committed in its 2014 Proxy Statement not to issue more than 68,000,000 shares under Article 6 of its Articles of Association without either providing ACEs shareholders with the opportunity to exercise preemptive rights or seeking specific shareholder approval for such issuance. The issuance of ACE common shares as consideration for the merger will be under Article 6 of ACEs Articles of Association. As permitted under Article 6, the preemptive rights of shareholders with respect to this issuance will be excluded.
ACE is asking that its shareholders approve the ACE issuance proposal. The issuance of ACE common shares as consideration for the merger is necessary to complete the merger, and the approval of the ACE issuance proposal is required for that issuance to occur.
Voting Requirement
The affirmative FOR vote of the majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, not counting abstentions, broker non-votes or blank or invalid ballots, is required to approve the ACE issuance proposal.
Recommendation
The ACE board unanimously recommends a vote FOR the ACE issuance proposal to approve the issuance of ACE common shares in accordance with NYSE rules and ACEs 2014 Proxy Statement.
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Agenda Item 4: Election of Four Additional Members of the ACE Board
Agenda Item
The ACE board proposes that subject to the completion of the merger the four nominees set forth below be individually elected to the ACE board, with terms beginning at completion of the merger and ending at ACEs first annual general meeting following the completion of the merger.
New Nominees for Election
Sheila P. Burke
Faculty Research Fellow, John F. Kennedy School of Government, Harvard University
Age 64
Ms. Burke currently serves as a director on the Chubb board, the chair of its Governance Committee and a member of the Chubb boards Executive Committee and Compensation Committee. Ms. Burke is a Faculty Research Fellow at the Malcolm Wiener Center for Social Policy, and has been a Member of Faculty at the John F. Kennedy School of Government, Harvard University, since 2007. She has been a Senior Public Policy Advisor at Baker, Donelson, Bearman, Caldwell & Berkowitz since 2009. From 2004 to 2007, Ms. Burke served as Deputy Secretary and Chief Operating Officer of the Smithsonian Institution. Ms. Burke previously was Under Secretary for American Museums and National Programs, Smithsonian Institution, from June 2000 to December 2003. She was Executive Dean and Lecturer in Public Policy of the John F. Kennedy School of Government, Harvard University, from November 1996 until June 2000. Ms. Burke served as Chief of Staff to the Majority Leader of the U.S. Senate from 1985 to 1996. Ms. Burke was, within the last five years, a member of the board of directors of WellPoint, Inc. (now Anthem Inc.).
Skills and Qualifications: Ms. Burke would bring an extensive knowledge of public policy matters and governmental affairs as well as significant experience in outside board service. In addition, Ms. Burkes familiarity with Chubb as a result of her years of service on the Chubb board will be valuable to the ACE boards oversight of the combined company following the merger.
James I. Cash, Jr.
Emeritus Professor of Business Administration, Harvard University
Age 67
Dr. Cash currently serves as a director on the Chubb board and as a member of the Chubb boards Compensation Committee and Governance Committee. Dr. Cash is the emeritus James E. Robison Professor of Business Administration, Harvard University, and was a member of the Harvard Business School faculty from July 1976 to October 2003. He also currently serves on the board of directors of each of General Electric Company and Wal-Mart. He currently owns a private company: The Cash Catalyst, LLC. Dr. Cash serves as a special advisor or director of several private companies.
Skills and Qualifications: Dr. Cash would bring an extensive knowledge of information technology, including cyber security, strategic planning and international business operations and has significant outside board service and business experience. In addition, Dr. Cashs familiarity with Chubb as a result of his years of service on the Chubb board will be valuable to the ACE boards oversight of the combined company following the merger.
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Lawrence W. Kellner
President, Emerald Creek Group, LLC
Age 56
Mr. Kellner currently serves as a director on the Chubb board, the chair of the Chubb boards Audit Committee and a member of the Chubb boards Executive Committee and Finance Committee. Mr. Kellner is President of Emerald Creek Group, LLC, a private equity firm. He served as Chairman and Chief Executive Officer of Continental Airlines, Inc. from December 2004 through December 2009. He served as President and Chief Operating Officer of Continental Airlines from March 2003 to December 2004, as President from May 2001 to March 2003 and as a member of Continental Airlines board of directors from May 2001 to December 2009. Mr. Kellner also served as Chief Financial Officer of Continental Airlines and is a former Certified Public Accountant who spent six years at Ernst & Whinney (now Ernst & Young). He is the non-executive Chairman of the board of directors of Sabre Corporation and serves on the board of directors of each of The Boeing Company and Marriott International, Inc.
Skills and Qualifications: Mr. Kellner would bring significant experience to the ACE board through his roles as Chairman and Chief Executive Officer, Chief Operating Officer and Chief Financial Officer of a major public company and his outside board service and business activities. In addition, Mr. Kellners familiarity with Chubb as a result of his service on the Chubb board and role as chair of its Audit Committee will be valuable to the ACE boards oversight of the combined company following the merger.
James M. Zimmerman
Retired Chairman and Chief Executive Officer, Federated Department Stores, Inc. (Macys)
Age 71
Mr. Zimmerman currently serves as Lead Director of the Chubb board and a member of the Chubb boards Executive Committee and Compensation Committee. Mr. Zimmerman formerly served as Chairman and Chief Executive Officer of Federated Department Stores, Inc. (Macys). Mr. Zimmerman was Chairman of the Board of Federated from February 2003 until January 2004, Chairman and Chief Executive Officer from May 1997 to February 2003, and President and Chief Operating Officer from March 1988 to May 1997. He began his career with Federated in 1965 after graduating from Rice University in Houston, Texas. Mr. Zimmerman is also currently a member of the board of directors of Fossil, Inc. and within the last five years was a member of the board of directors of Furniture Brands International.
Skills and Qualifications: Mr. Zimmerman would bring extensive experience to the ACE board through his roles as Chairman and Chief Executive Officer of a major public company and his outside board service and business activities. In addition, Mr. Zimmermans familiarity with Chubb as a result of his service on the Chubb board and role as its Lead Director will be valuable to the ACE boards oversight of the combined company following the merger.
Explanation
In the merger agreement, ACE agreed that, subject to the receipt of necessary shareholder approval, four current directors of Chubb would join the ACE board, with terms beginning at the completion of the merger and ending at the first annual general meeting following the completion of the merger. Under the merger agreement, ACEs and Chubbs respective obligations to complete the merger are conditioned on ACEs shareholders voting to elect these four new directors. The four nominees are Sheila P. Burke, James I. Cash, Jr., Lawrence W. Kellner and James M. Zimmerman. As provided by the merger agreement, the four nominees were mutually selected by the Chief Executive Officer of Chubb, the Chief Executive Officer of ACE and the Lead Director of ACE.
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Upon the recommendation of ACEs Nominating & Governance Committee, the ACE board has nominated these four nominees for election at the ACE extraordinary general meeting with terms beginning at completion of the merger and ending at ACEs first annual general meeting following the completion of the merger.
The ACE board currently consists of 14 directors. If all four nominees are elected, the ACE board will consist of 18 directors. The election of the four additional members of the ACE board is conditioned upon the completion of the merger. If the merger does not occur, for whatever reason, the election of the four additional members of the ACE board will not become effective.
ACEs Articles of Association provide that the ACE board must consist of three to 20 members, the exact number to be determined by the general meeting of ACE shareholders.
Biographical information for each of the nominees is set forth below. There are no arrangements or understandings between any director and any other person pursuant to which any director was or is selected as a director or nominee.
There will be a separate vote on each nominee.
Information about ACEs current directors, corporate governance and director and executive compensation is included in Appendix E to this joint proxy statement/prospectus.
Voting Requirement
The affirmative FOR vote of the majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, not counting abstentions, broker non-votes or blank or invalid ballots, is required to elect each of the above nominees in this agenda item.
Recommendation
The ACE board unanimously recommends a vote FOR each of the above nominees to be elected to the ACE board, subject to completion of the merger.
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Agenda Item 5: Approval of the Increased Maximum Compensation of ACEs Board Until the Next Annual General Meeting
Agenda Item
The ACE board proposes to approve an increase, by $650,000, in the aggregate compensation for the members of the ACE board from the completion of the merger until ACEs 2016 annual general meeting to provide for compensation for the four new members to be elected at the ACE extraordinary general meeting.
Explanation
Since 2015, Swiss law requires ACE shareholders to ratify, on an annual basis and in a separate binding vote, the maximum aggregate amount of compensation that can be paid, granted or promised to members of the ACE board. At ACEs 2015 annual general meeting, ACEs shareholders approved a maximum total of $4.2 million in aggregate compensation for the members of the ACE board until ACEs 2016 annual general meeting. As described in Agenda Item 4, ACE is proposing to increase the number of directors on the ACE board from 14 to 18. The proposed increase, by $650,000, in aggregate compensation for the members of the ACE board represents a pro rata increase for four new directors for approximately six months. The six-month estimate will allow us to compensate new directors through ACEs 2016 annual general meeting even in the event of completion of the merger earlier than the anticipated timeline. If this agenda item is approved, the maximum aggregate compensation for members of the ACE board until ACEs 2016 annual general meeting will be $4.85 million; however, none of the additional aggregate compensation approved at the ACE extraordinary general meeting will be used to compensate ACEs current directors. The increase in the aggregate compensation for the members of the ACE board is conditioned on the completion of the merger. Depending on the timing of the merger, less than the entire amount approved may be used to compensate the four new directors.
For additional information regarding the compensation of the ACE board, see Director Compensation in Appendix E.
Voting Requirement
The affirmative FOR vote of a majority of the votes cast (in person or by proxy) at the ACE extraordinary general meeting, not counting abstentions, broker non-votes or blank or invalid ballots, is required to approve this agenda item.
Recommendation
The ACE board unanimously recommends a vote FOR the ACE new director compensation proposal.
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INFORMATION ABOUT THE COMPANIES
ACE Limited
Baerengasse 32
Zurich, Switzerland CH-8001
Telephone: +41 (0) 43 456 76 00
ACE Limited is the Swiss-incorporated holding company of ACE Group, one of the worlds largest multiline property and casualty insurance organizations. Zurich-based ACE and its direct and indirect subsidiaries operate in 54 countries and territories. The affiliated insurance companies of ACE Group provide distinct insurance and reinsurance products and services to a diverse group of clients ranging from multinational corporations to consumers. ACE serves multinational corporations and local businesses with property and casualty insurance and services; companies and affinity groups providing or offering accident and health insurance programs and life insurance to their employees or members; insurers managing exposures with reinsurance coverage; and individuals purchasing life, personal accident, supplemental health, homeowners, automobile, valuables, umbrella liability and other specialty insurance coverage.
William Investment Holdings Corporation
c/o ACE Group Holdings, Inc.
1133 Avenue of the Americas
New York, New York 10036
Telephone: 1-212-827-4400
Merger Sub, whose legal name is William Investment Holdings Corporation, is a newly-formed New Jersey corporation and an indirect, wholly owned subsidiary of ACE. Upon completion of the merger, in which Merger Sub will merge with and into Chubb, the separate existence of Merger Sub will terminate and Chubb will be an indirect wholly owned subsidiary of ACE.
The Chubb Corporation
15 Mountain View Road
Warren, New Jersey 07059
Telephone: 1-908-903-2000
Chubb was incorporated as a business corporation under the laws of the State of New Jersey in June 1967 and is a holding company for several separately organized property and casualty insurance companies referred to informally as the Chubb Group of Insurance Companies (the P&C Group). Chubb, through the P&C Group, is one of the largest property and casualty insurers in the United States and has a worldwide network of some 120 offices in 25 countries. Since 1882, insurance companies or predecessor companies included in the P&C Group have provided property and casualty insurance to businesses and individuals around the world. The P&C Group operates through three business units: Chubb Personal Insurance, Chubb Commercial Insurance and Chubb Specialty Insurance. Chubb Personal Insurance offers personal insurance products for homes and valuable articles (such as art and jewelry), fine automobiles and yachts, as well as personal liability insurance (both primary and excess). It also provides personal accident and limited supplemental health insurance to a wide range of customers, including businesses. Chubb Commercial Insurance offers a broad range of commercial insurance products, including multiple peril, primary liability, excess and umbrella liability, automobile, workers compensation and property and marine. Chubb Specialty Insurance offers a wide variety of specialized professional liability products for privately held and publicly traded companies, financial institutions, professional firms, healthcare and not-for-profit organizations. Chubb Specialty Insurance also offers surety products.
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This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this joint proxy statement/prospectus as Appendix A. You should read the entire merger agreement carefully as it is the legal document that governs the merger.
The ACE board and the Chubb board have approved the merger agreement. Pursuant to the merger agreement, Merger Sub will merge with and into Chubb, with Chubb continuing as the surviving corporation and a wholly owned indirect subsidiary of ACE. Upon consummation of the merger, and subject to the approval of the ACE director election proposal, four independent Chubb directors will join the ACE board, bringing the total number of ACE directors to 18. Following consummation of the merger, Chubb will continue to operate under its own brand and marketing names and, in conjunction with its integration plan, ACE will change its legal name to Chubb Limited and commence using Chubbs brand and marketing names.
In the merger, each share of Chubb common stock owned by a Chubb shareholder (except for certain shares held by ACE, Chubb, or their subsidiaries) will be converted into the right to receive 0.6019 of an ACE common share and $62.93 in cash. The value of the stock component of the consideration that Chubb shareholders will receive will not be known at the time that Chubb shareholders vote to approve the merger agreement. It is anticipated that ACE shareholders and Chubb shareholders, in each case as of immediately prior to the merger, will hold approximately 70 percent and 30 percent, respectively, of the issued and outstanding ACE common shares immediately after completion of the merger, without giving effect to any ACE common shares held by Chubb shareholders prior to the merger.
The exact value of the stock portion of the merger consideration that Chubb shareholders receive will depend on the price of ACE common shares at the time the merger is completed. Based on the closing price of ACE common shares on September 10, 2015, the last practicable date before the date of this joint proxy statement/prospectus, the value of the per share merger consideration payable to the holders of Chubb common stock was $123.57. We urge you to obtain current market quotations for ACE common shares and Chubb common stock.
For each fractional share that would otherwise be issued, ACE will pay cash in an amount equal to the fraction of an ACE common share which the holder would otherwise be entitled to receive multiplied by the average closing price of ACE common shares on the NYSE as reported by The Wall Street Journal for the five full trading days ending on the day immediately preceding the date the merger is consummated. No interest will be paid or will accrue on cash payable to holders in lieu of fractional shares.
Each of the ACE board and the Chubb board, acting independently and with the advice of senior management, regularly discusses and reviews the business, strategic direction, performance and prospects of ACE and Chubb, respectively, in the context of developments in the property and casualty insurance industry and the competitive landscape in the markets in which ACE and Chubb respectively operate and elsewhere. The senior management of both companies has also at times presented and discussed with their respective boards or individual board members various potential strategic alternatives involving possible acquisitions or business combinations that could complement and enhance the competitive strengths and strategic positions of the respective companies. In this regard, members of senior management of each of ACE and Chubb have from time to time met or otherwise communicated informally with representatives of
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other financial institutions regarding industry trends and issues and the strategic direction of their respective companies, including on occasion discussing the possible benefits and issues arising from potential business combinations or other strategic transactions.
ACE was among the institutions with which members of Chubbs senior management had informal communications from time to time, and Evan Greenberg, the Chairman and Chief Executive Officer of ACE, and John Finnegan, the Chairman, President and Chief Executive Officer of Chubb, met on an informal basis at industry events and otherwise to discuss the industry and each was generally familiar with the businesses and operations of the others company. Although the two had previously discussed the potential benefits of a strategic transaction, they had not engaged in any formal merger discussions. On June 2, 2015, Mr. Greenberg contacted a Senior Managing Director of Guggenheim Securities, whom Mr. Greenberg knew worked with Chubb on strategic matters, in order to convey ACEs interest in exploring a combination with Chubb. Mr. Greenberg noted that ACE had spent considerable time analyzing the benefits that such a transaction would bring to both parties. Mr. Greenberg acknowledged that any such transaction would need to include a price reflecting a substantial premium to Chubbs then current market price, and he indicated a willingness to pay a 25 percent premium to Chubbs trading price, in a mix of cash and stock, which ACE might, if warranted by due diligence and further discussion, be willing to increase by up to an additional 5 percent. Mr. Greenberg briefly described his vision of the combined company, including the ongoing importance of the Chubb brand and the significance of Chubbs Warren, New Jersey, headquarters, and requested that Guggenheim Securities relay to Mr. Finnegan ACEs interest. Mr. Greenberg also expressed his appreciation of Chubbs management and board of directors and what they had accomplished at Chubb, and indicated that he thought it would be important to have Mr. Finnegan continue to assist the combined company following any transaction. The Guggenheim Securities representative agreed to speak with Mr. Finnegan to relay ACEs interest. Mr. Greenberg indicated that the Guggenheim Securities representative could contact ACEs financial advisors at Morgan Stanley regarding any potential interest on the part of Chubb in engaging in discussions with ACE regarding a potential transaction. ACE then formally engaged Morgan Stanley to act as financial advisor in connection with a potential transaction.
Promptly following the meeting, the Guggenheim Securities representative reached out to Mr. Finnegan to convey the overture from ACE. In the subsequent days, Mr. Finnegan arranged a call with James Zimmerman, the Lead Director of the Chubb board, to inform him of ACEs expression of interest in a potential transaction. Mr. Zimmerman agreed that Mr. Finnegan should meet with Mr. Greenberg and then brief the full Chubb board at its upcoming regularly scheduled board meeting. Following the discussion with Mr. Zimmerman, Mr. Finnegan called the Guggenheim Securities representative and indicated that he would be willing to meet with Mr. Greenberg to better understand ACEs potential interest in a combination and vision for the combination so that he could inform the Chubb board of ACEs interest. Mr. Finnegan noted to the Guggenheim Securities representative that the Chubb board had a regularly scheduled board meeting the following week. Mr. Finnegan requested that Guggenheim Securities arrange a meeting between Mr. Greenberg and himself in advance of that regular Chubb board meeting. Mr. Finnegan also requested that Guggenheim Securities contact ACEs financial advisors to become better informed regarding ACEs view of the benefits of the transaction and vision for the combined company. The Guggenheim Securities representative then called Mr. Greenberg and relayed Mr. Finnegans response.
On June 8, Mr. Finnegan and Mr. Greenberg met, together with representatives from Guggenheim Securities and Morgan Stanley. At the meeting, Mr. Greenberg set forth his vision for the combined company in detail, including among other things, his expectation that the combination of ACE and Chubb would create a global property and casualty insurance leader and that the combined company would have greater growth and earning power than the sum of ACEs and Chubbs businesses separately. Mr. Greenberg then reiterated his strong desire for a transaction and his view regarding pricing. At the conclusion of the meeting, Mr. Finnegan noted that he would inform the Chubb board of ACEs interest and that the Chubb board would decide whether to engage in any further discussions, but noted that he did not believe a transaction at a 25 percent premium appropriately valued Chubb and the benefits of the combination and, in his view ACE
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needed to be at least at a 30 percent premium level. Mr. Greenberg responded by noting that ACE viewed a 25 percent premium on a deal of the size being proposed as a very aggressive price, and that the stock portion of the consideration would also allow the Chubb shareholders to participate in a stronger company with better prospects than Chubb on a stand-alone basis. Nonetheless, Mr. Greenberg agreed to continue to refine ACEs analysis of the deal and its ability to increase to as much as a 30 percent premium.
On June 10, at a special telephonic meeting of the ACE board, Mr. Greenberg informed the ACE board of the status of discussions relating to the transaction and indicated that ACE had engaged financial and legal advisors (Morgan Stanley and Sullivan & Cromwell LLP) to provide advice and assistance in connection with the transaction.
On June 11, at a regularly scheduled meeting of the Chubb board, Mr. Finnegan informed the other directors in an executive session of the overture from ACE. Mr. Finnegan outlined for the Chubb board the broad terms of ACEs indication of interest as described to him by Mr. Greenberg (and reflected in a letter dated June 10, 2015 from ACE to Chubb), including: a premium to Chubbs trading price of 25 percent to as much as 30 percent; ACEs vision for synergies at the combined company from revenues and cost savings, with an emphasis over the long-term on the benefits of positive revenue synergies rather than cost savings; ACEs desire for the combined company to continue under the Chubb brand; three to four of the Chubb directors to join the ACE board; ACEs desire to have Mr. Finnegan continue for a period post-closing in a role at the combined company that would include assistance and advice regarding merger integration; and ACEs intent to continue to use Chubbs Warren, New Jersey headquarters for a substantial portion of the combined companys North American headquarters function. Following discussion among the other board members and Mr. Finnegan, the Chubb board expressed its approval in retaining Guggenheim Securities to act as Chubbs financial advisor and Wachtell Lipton, Rosen & Katz (Wachtell Lipton) to act as Chubbs legal advisor. The Chubb board authorized management to work with those advisors to engage in further exploratory discussions, commence a due diligence investigation of ACE and prepare for ACEs due diligence investigation of Chubb.
Following the Chubb board meeting, Guggenheim Securities, Morgan Stanley, Sullivan & Cromwell LLP and Wachtell Lipton began to work with the management of Chubb and ACE to prepare for the due diligence and reverse due diligence efforts for the two companies.
On June 12, Sullivan & Cromwell LLP, on behalf of ACE, provided Wachtell Lipton with a draft non-disclosure agreement pursuant to which each company would keep information regarding the other party confidential, as well as a draft exclusivity agreement pursuant to which ACE requested that Chubb negotiate exclusively with ACE for a period through July 6, 2015 (with a potential extension period). Thereafter, Guggenheim Securities informed Morgan Stanley that Chubb was not prepared to entertain an exclusivity arrangement at this time because Chubb had not requested such authority from its board of directors.
On June 15, Mr. Greenberg and Mr. Finnegan spoke on this topic, and Mr. Greenberg informed Mr. Finnegan that he was not prepared to move forward other than on an exclusive basis in light of the substantial expense involved in due diligence and other transaction preparation efforts and the damage that a leak of a potential deal could have on ACE, which was a risk that would increase substantially in multiparty discussions. Mr. Finnegan stated that he would raise the possibility of an exclusive arrangement with the Chubb board, but that he could support it only if Mr. Greenberg would commit to a premium of at least 30 percent and would further commit to determine the premium, and fix the exchange ratio, based on the twenty-day volume weighted average trading price for each companys shares prior to announcement in order to ensure absolute and relative pricing did not reflect any unusual short-term change in their respective trading prices. Following further discussion, Mr. Greenberg acknowledged that Chubb would only move forward with a transaction priced at a premium of at least 30 percent and committed, subject to completion of due diligence and confirmation of the transaction synergies, to the potential pricing framework and agreed to begin to prepare for due diligence in advance of the Chubb boards consideration of the exclusivity proposal.
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On June 15, ACE and Chubb also entered into a nondisclosure agreement, and the parties began to gather and exchange due diligence materials and arranged for a series of meetings involving the heads of certain business and operational functions.
On June 18, the Chubb board held a special telephonic meeting attended by members of Chubbs management, representatives of Guggenheim Securities and representatives of Wachtell Lipton. Mr. Finnegan commenced the board meeting with an update regarding the discussions and developments that had occurred with ACE since the prior meeting, including the start of preliminary due diligence and ACEs unwillingness to proceed on a non-exclusive basis. Following this discussion, representatives of Guggenheim Securities discussed the strategic opportunity, relative pricing and the relative contributions that each company would make to the combined company, the current industry and market environment, other potentially available strategic alternatives and various financial valuation metrics. A representative of Guggenheim Securities also discussed other industry participants, including both domestic and foreign insurance companies that might potentially be considered as transaction partners based on their business lines and size, and the potential for interest in a transaction with Chubb and the ability to offer a competitive price (both in terms of form and amount of consideration). The Guggenheim Securities representative noted it is unlikely that any of such other companies would have both the interest and the ability to undertake a transaction at a competitive price in light of current strategic focuses (including recent actions by some of them reflecting a desire to move away from the U.S. market), business models that were too divergent from Chubbs, regulatory considerations, balance sheet strength, past strategic discussions and ability to sustain the trading price of any stock component of the merger consideration. Mr. Finnegan also reminded the Chubb board that Chubb had previously engaged in preliminary discussions with two companies regarding their interest in a potential transaction with Chubb and those companies had indicated potential pricing substantially below that under discussion with ACE. Following the Guggenheim Securities presentation and board discussion, Wachtell Lipton discussed the Chubb boards fiduciary duties and other legal matters. Following further discussion, the Chubb board authorized management to continue to explore the potential transaction on an exclusive basis on the terms described to the Chubb board (but without an extension period). Later that day, the parties entered into an exclusivity agreement with a term expiring on July 6, 2015 (without any extension period).
On June 19, at a special telephonic meeting of the ACE board, Mr. Greenberg provided the ACE board with an update regarding the status of discussions with Chubb since the June 10 ACE board meeting and presented the ACE board with information relating to the transaction.
Following entry into the exclusivity agreement, ACE and Chubb, with the assistance of their financial and legal advisors, continued, through June 30, their respective due diligence and reverse due diligence investigations, including with respect to their expectations for the combined company. Also during this period, the ACE and Chubb management teams, along with their respective legal and financial advisors, negotiated the definitive documentation for the potential transaction and worked on various public and internal presentation materials, including the analyst presentation and press release. The two companies and their financial advisors also continued to discuss pricing, the various sources for and amounts of synergy opportunities and the ability to realize those opportunities over time. Among other things, the parties continued to work to validate the long-term, positive (revenue) synergies of a combination, as well as the ability to achieve cost savings at the combined company.
On June 30, 2015, the ACE board held a special meeting attended by members of ACEs management, representatives of Morgan Stanley and representatives of Sullivan & Cromwell LLP. Mr. Greenberg, along with ACEs Chief Financial Officer and General Counsel, presented the material terms of the transaction, including the proposed consideration, and provided an overview of the draft merger agreement and the proposed post-merger arrangements between ACE and Mr. Finnegan. Mr. Greenberg and members of senior management also described the due diligence process between the two institutions and summarized the results of ACEs due diligence of Chubb. Representatives of Morgan Stanley reviewed with the ACE board Morgan Stanleys financial analysis, as more fully described below under the heading
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Opinion of ACEs Financial Advisor, and rendered to the ACE board its oral opinion, subsequently confirmed in writing, that, as of June 30, and based upon and subject to the various assumptions, procedures, matters, qualifications and limitations on the scope of the review undertaken by Morgan Stanley as set forth in its written opinion, the consideration to be paid by ACE pursuant to the merger agreement was fair, from a financial point of view, to ACE. Sullivan & Cromwell LLP discussed with the ACE board the legal framework for the ACE boards consideration of the transaction, based on discussions between Sullivan & Cromwell LLP and ACEs Swiss counsel, Baer & Karrer AG, and related matters. After discussion, and in light of the ACE boards review and consideration of the factors described under ACEs Reasons for the Merger; Recommendation of the ACE board, the ACE board determined that the merger and the merger agreement were consistent with, and would further, ACEs business strategies and goals and approved the merger and merger agreement. The ACE board also determined that the merger and merger agreement were in the best interests of ACE and ACEs shareholders and unanimously recommended that ACE shareholders vote in favor of the proposals to amend ACEs Articles of Association relating to authorized share capital, approve the issuance of ACE common shares pursuant to the merger agreement, elect four current directors of Chubb as new directors of ACE effective as of the completion of the merger, and increase the aggregate compensation for members of the ACE Board to provide compensation for the four new directors.
On June 30, 2015, the Chubb board held a special meeting attended by members of Chubbs management, representatives of Guggenheim Securities and representatives of Wachtell Lipton. Mr. Finnegan updated the Chubb board regarding the discussions and negotiations with ACE since the prior board meeting, including the proposed pricing, the proportions of cash and stock to be paid as merger consideration, and the determination that the number of Chubb directors to join the ACE board would be four. Mr. Finnegan and members of senior management also described the due diligence process between the two institutions and summarized the results of Chubbs due diligence of ACE. Representatives of Guggenheim Securities then reviewed with the Chubb board Guggenheim Securities financial analysis of the merger consideration, as more fully described below under the heading Opinion of Chubbs Financial Advisor, and rendered to the Chubb board its oral opinion, subsequently confirmed in writing, that, as of that date and based on and subject to various assumptions, matters considered and limitations described in the opinion, the merger consideration was fair, from a financial point of view, to the common shareholders of Chubb. Wachtell Lipton then discussed with the Chubb board the legal principles and standards applicable to its consideration of the proposed merger and reviewed the proposed merger agreement as well as the proposed post-merger arrangements between ACE and Mr. Finnegan. After discussion, and in light of the Chubb boards review and consideration of the factors described under Chubbs Reasons for the Merger; Recommendation of the Chubb board, the Chubb board unanimously determined that the merger and the other transactions contemplated by the merger agreement were advisable and in the best interests of Chubb and its common shareholders and its other constituencies, and, subject to finalization of transaction documentation consistent with the terms presented to the Chubb board, the Chubb board unanimously approved and adopted the merger and determined to recommend that Chubb common shareholders approve and adopt the merger agreement.
Later that day, following the completion of definitive transaction documentation, the parties entered into the merger agreement on June 30 and, on July 1, issued a joint press release announcing the merger.
Chubbs Reasons for the Merger; Recommendation of the Chubb Board
After careful consideration, the Chubb board unanimously determined that the merger agreement, and the transactions contemplated by the merger agreement, including the merger, were advisable, fair to and in the best interests of Chubb, its shareholders and its other constituencies, and approved and adopted the merger agreement and the other transactions contemplated by the merger agreement, including the merger. The Chubb board unanimously recommends that its shareholders vote FOR the Chubb merger agreement proposal. In reaching its decision to approve and recommend the approval of the merger agreement and the transactions contemplated by the merger agreement, the Chubb board consulted with
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certain members of Chubbs management, as well as its financial and legal advisors, and considered a number of factors, including the following material factors:
| the fact that the per share merger consideration (1) had an implied value of $125.87 using ACEs 20-day volume weighted average share price for the period ending June 30, 2015, representing an approximately 32 percent premium to the Chubb common stocks closing price of $95.14 on June 30, 2015 and (2) had an implied value of $124.13 based on ACEs closing price of $101.68 on June 30, 2015, representing an approximately 30 percent premium to the Chubb common stocks closing price of $95.14 on June 30, 2015; |
| the financial presentation of Chubbs financial advisor, Guggenheim Securities, to the Chubb board on June 30, 2015, and the separate opinion of Guggenheim Securities delivered to the Chubb board, that as of such date and based on and subject to certain assumptions, limitations, qualifications and other conditions, the merger consideration was fair, from a financial point of view, to the common shareholders of Chubb, as further described under Opinion of Chubbs Financial Advisor below; |
| the fact that the cash component of the merger consideration offers Chubb shareholders the opportunity to realize cash valued at approximately 66% of the June 30, 2015 value of the Chubb common stock providing immediate cash value; |
| the fact that the stock component of the merger consideration offers Chubb shareholders the opportunity to participate in the future growth and opportunities of the combined company; |
| the potential for Chubbs shareholders, as future ACE shareholders, to benefit to the extent of their interest in the combined company from the synergies of the merger and the anticipated pro forma impact of the merger, and the expectation that the merger will be immediately accretive to ACEs earnings per share and book value and accretive to earnings per share on a double-digit basis and accretive to return on equity within three years after the consummation of the merger; |
| the view that the shared core values of Chubb and ACE, including both companies prudent risk culture, strong commitment to client service and focus on building solid client relationships, would assist in integration and operating the combined company post-closing to the benefit of Chubb shareholders as future ACE shareholders; |
| the fact that the combined company will assume the Chubb name (see Transaction Structure above); |
| the fact that Chubbs headquarters in Warren, New Jersey, will house a substantial portion of the headquarters function for the combined companys North American division; |
| the view that the combined company will create a global leader in commercial and personal property and casualty insurance, with enhanced growth and earning power and an exceptional balance of products as a result of greater diversification and a product mix with reduced exposure to individual products or geographies; |
| the view that the combined company will remain a growth company with complementary products, distribution, and customer segments, a shared commitment to underwriting discipline and outstanding claims service, and substantially increased data to drive new, profitable growth opportunities in both developed and developing markets around the world; |
| the view that Chubb and ACE have complementary capabilities, assets and geographic footprints; |
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| the belief that the merger would accelerate the accomplishment of a variety of key elements of Chubbs strategic plan, promoting both continuity and growth and enabling the maintenance of, and even strengthening, Chubbs value proposition by drawing upon the combined companys compatible competencies, talented employees and combined resources; |
| the Chubb boards familiarity with and understanding of Chubbs business, results of operations, asset quality, financial and market position and its expectations concerning Chubbs future earnings and prospects; |
| the results of the due diligence review of ACEs businesses and operations, including the information and discussions regarding ACEs business, results of operations, financial and market position and future earnings and prospects; |
| the historical and then-current trading prices and volumes of each of Chubbs common stock and ACEs common stock; |
| the Chubb boards familiarity with and understanding of the industry and the current and prospective environment in which each of Chubb and ACE operate, including foreign, domestic and local economic conditions, the competitive and regulatory environments for insurance companies generally, and the likely effect of these factors on Chubb both with and without the merger; |
| the regulatory and other approvals required in connection with the merger, and the expectation that such approvals could be received in a reasonably timely manner and without the imposition of burdensome conditions; |
| the Chubb boards ongoing evaluation, with the assistance of its financial advisor, of strategic alternatives available to Chubb for maximizing value over the long term and the potential risks, rewards and uncertainties associated with such alternatives, and the Chubb boards belief that the proposed merger with ACE was the best value reasonably available to Chubb shareholders; |
| the Chubb boards view that, given recent trends in the P&C insurance industry, if Chubb did not enter into a transaction with ACE at this time, ACE would likely seek to enter into an alternative transformative transaction with another P&C insurance company, thereby limiting Chubbs future strategic options; |
| the terms and conditions of the merger agreement and the course of negotiations of the merger agreement, including, among other things, the per share merger consideration (see Merger Consideration and Background of the Merger above), the cash and stock mix and the fixed exchange ratio, the ability of the Chubb board, under certain circumstances, to change its recommendation to Chubb shareholders regarding the merger (see The Merger AgreementCovenants and Agreements), the conditions to closing (see The Merger AgreementConditions to the Merger), the ability of Chubb to terminate the merger agreement under certain circumstances (see The Merger AgreementTermination), the possibility that Chubb would be required to pay a termination fee under certain circumstances, as well as the Chubb boards belief that the termination fee is not likely to significantly deter another party from making a superior acquisition proposal (see The Merger AgreementEffect of Termination and Termination Fee) and that Chubbs shareholders will have an opportunity to vote on the merger and that their approval is a condition to completion of the merger (see The Merger AgreementConditions to the Merger); |
| the risk that the merger may not be consummated or that the closing may be unduly delayed, including as a result of factors outside either partys control; |
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| the potential risk of diverting management attention and resources from the operation of Chubbs business to the merger, and the possibility of employee attrition or adverse effects on client and business relationships as a result of the announcement and pendency of the merger; |
| the terms of the merger agreement that restrict Chubbs ability to solicit alternative transactions, as discussed under The Merger AgreementCovenants and Agreements; |
| the potential risks and costs associated with successfully integrating Chubbs business, operations and workforce with those of ACE, including the risk of not realizing all of the anticipated benefits of the merger or not realizing them in the expected timeframe; and |
| the other risks described under the sections titled Risk Factors and Cautionary Statement Regarding Forward-Looking Statements. |
In considering the recommendation of the Chubb board, you should be aware that certain directors and officers of Chubb may have interests in the merger that are different from, or in addition to, interests of shareholders of Chubb generally and may create potential conflicts of interest. The Chubb board was aware of these interests and considered them when evaluating and negotiating the merger agreement, the merger and the other transactions contemplated by the merger agreement, and in recommending to Chubbs shareholders that they vote in favor of the Chubb merger agreement proposal. See Interests of Chubb Directors and Executive Officers in the Merger.
This discussion of the information and factors considered by the Chubb board includes the material factors considered by the Chubb board, but it is not intended to be exhaustive and may not include all the factors considered by the Chubb board. In view of the wide variety of factors considered, and the complexity of these matters, the Chubb board did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve and adopt the merger agreement, and the transactions contemplated by the merger agreement, including the merger. Rather, the Chubb board viewed its position and recommendation as being based on the totality of the information presented to and factors considered by it, including discussions with, and questioning of, Chubbs management and its financial and legal advisors. In addition, individual members of the Chubb board may have given differing weights to different factors. It should be noted that this explanation of the reasoning of the Chubb board and certain information presented in this section is forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section titled Cautionary Statement Regarding Forward-Looking Statements. For the reasons set forth above, the Chubb board unanimously recommends that the Chubb shareholders vote FOR the Chubb merger agreement proposal.
Opinion of Chubbs Financial Advisor
Overview
Pursuant to an engagement letter dated as of June 15, 2015, Chubb retained Guggenheim Securities to act as Chubbs financial advisor with respect to the potential sale of or merger involving Chubb to any potential acquirer or with any potential merger partner. In selecting Guggenheim Securities as its financial advisor, Chubb considered that, among other things, Guggenheim Securities is an internationally recognized investment banking, financial advisory and securities firm whose senior professionals have substantial experience advising companies in, among other industries, the financial institutions industry. Guggenheim Securities, as part of its investment banking, financial advisory and capital markets businesses, is regularly engaged in the valuation and financial assessment of businesses and securities in connection with mergers and acquisitions, recapitalizations, spin-offs/split-offs, restructurings, securities offerings in both the private and public capital markets and valuations for corporate and other purposes.
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At the June 30, 2015 meeting of the Chubb board, Guggenheim Securities delivered its oral opinion, which subsequently was confirmed in writing, to the effect that, as of June 30, 2015 and based on the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the merger consideration was fair, from a financial point of view, to the common shareholders of Chubb.
This description of Guggenheim Securities opinion is qualified in its entirety by the full text of the written opinion, which is attached as Appendix C to this joint proxy statement/prospectus and which you should read carefully and in its entirety. Guggenheim Securities written opinion sets forth the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken by Guggenheim Securities. Guggenheim Securities written opinion, which was authorized for issuance by the Fairness Opinion and Valuation Committee of Guggenheim Securities, is necessarily based on economic, capital markets and other conditions, and the information made available to Guggenheim Securities, as of the date of such opinion. Guggenheim Securities has no responsibility for updating or revising its opinion based on facts, circumstances or events occurring after the date of the rendering of the opinion.
In reading the discussion of Guggenheim Securities opinion set forth below, you should be aware that such opinion:
| was provided to the Chubb board (in its capacity as such) for its information and assistance in connection with its evaluation of the merger consideration; |
| did not constitute a recommendation to the Chubb board with respect to the merger; |
| does not constitute advice or a recommendation to any holder of Chubb or ACE common shares as to how to vote in connection with the merger or otherwise; |
| did not address Chubbs underlying business or financial decision to pursue the merger, the relative merits of the merger as compared to any alternative business or financial strategies that might exist for Chubb, the financing of the merger or the effects of any other transaction in which Chubb might engage; |
| addressed only the fairness, from a financial point of view, of the merger consideration to the common shareholders of Chubb; |
| expressed no view or opinion as to (i) any other term or aspect of the merger, the merger agreement or any other agreement, transaction document or instrument contemplated by the merger agreement or to be entered into or amended in connection with the merger or (ii) the fairness, financial or otherwise, of the merger to, or of any consideration to be paid to or received by, the holders of any class of securities, creditors or other constituencies of Chubb; and |
| expressed no view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of Chubbs or ACEs directors, officers or employees, or any class of such persons, in connection with the merger relative to the merger consideration pursuant to the merger agreement or otherwise. |
In the course of performing its reviews and analyses for rendering its opinion, Guggenheim Securities:
| reviewed a draft of the merger agreement dated as of June 29, 2015; |
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| reviewed certain publicly available business and financial information regarding each of Chubb and ACE; |
| reviewed certain non-public business and financial information regarding Chubbs and ACEs respective businesses and prospects, as prepared and provided to Guggenheim Securities by Chubbs and ACEs senior management, respectively; |
| reviewed selected Wall Street equity research financial forecasts regarding each of Chubb and ACE, including certain adjustments thereto and illustrative extrapolations thereof, in each case as discussed with and approved by Chubbs and ACEs senior management, respectively (such forecasts, as so adjusted and including any such extrapolations, are referred to herein as the forecasts); |
| reviewed certain estimated incremental financial impacts (the estimated incremental financial impacts) expected to result from the merger, including certain (i) potential revenue enhancements, cost savings and other combination benefits, (ii) estimated costs to achieve such synergies and (iii) estimated financing impacts associated with the merger, in each case as prepared and provided to Guggenheim Securities by ACEs senior management and discussed with Chubbs senior management; |
| discussed with Chubbs and ACEs senior management their strategic and financial rationale for the merger as well as their views of Chubbs and ACEs respective businesses, operations, historical and projected financial results and future prospects; |
| reviewed the historical prices, trading multiples and trading volumes of the shares of common stock of Chubb and ACE; |
| compared the financial performance of Chubb and ACE and the trading multiples and trading activity of the common shares of Chubb and ACE with corresponding data for certain other publicly traded companies that Guggenheim Securities deemed relevant in evaluating Chubb and ACE; |
| reviewed the valuation and financial metrics of certain mergers and acquisitions that Guggenheim Securities deemed relevant in evaluating the merger; |
| performed dividend discount analyses based on the forecasts and the estimated incremental financial impacts; |
| reviewed the pro forma financial results, financial condition and capitalization of ACE giving effect to the merger, as prepared and provided to Guggenheim Securities by ACEs senior management and discussed with Chubbs senior management; and |
| conducted such other studies, analyses, inquiries and investigations as Guggenheim Securities deemed appropriate. |
With respect to the information used in arriving at its opinion, Guggenheim Securities notes that:
| Guggenheim Securities relied upon and assumed the accuracy, completeness and reasonableness of all industry, business, financial, legal, regulatory, tax, accounting, actuarial and other information (including, without limitation, the forecasts, the estimated incremental financial impacts, other estimates and other forward-looking information) furnished by or discussed with Chubb and ACE or obtained from reputable public sources, data suppliers and other third parties. |
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| Guggenheim Securities (i) did not assume any responsibility, obligation or liability for the accuracy, completeness, reasonableness, achievability or independent verification of, and Guggenheim Securities did not independently verify, any such information (including, without limitation, the forecasts, the estimated incremental financial impacts, other estimates and other forward-looking information), (ii) expressed no view, opinion, representation, guaranty or warranty (in each case, express or implied) regarding the reasonableness or achievability of the forecasts, the estimated incremental financial impacts, other estimates and other forward-looking information or the assumptions upon which they were based, (iii) relied upon the assurances of Chubbs and ACEs (as the case may be) senior management that they were unaware of any facts or circumstances that would have made such information (including, without limitation, the forecasts, the estimated incremental financial impacts, other estimates and other forward-looking information) incomplete, inaccurate or misleading and (iv) assumed, with the consent of Chubbs senior management, that the estimated incremental financial impacts had been reasonably prepared on bases reflecting the best then-currently available estimates and judgments of ACEs senior management as to the expected realization of such estimated incremental financial impacts. |
| Neither Chubb nor ACE furnished Guggenheim Securities with any internally generated stand-alone financial forecasts for Chubb or ACE, other than, in the case of Chubb, financial projections for 2015 dated January 26, 2015, which the management of Chubb advised Guggenheim Securities were the basis of Chubbs 2015 operating income per share guidance that Chubb publicly disclosed on January 29, 2015, and which Guggenheim Securities did not rely on in conducting its analysis (these financial projections are the same as those described in the first sentence of the first paragraph on page 98 below, under Opinion of ACEs Financial Advisor). Accordingly, at the direction of Chubbs senior management, Guggenheim Securities based its forward-looking analyses for purposes of its opinion on the forecasts. Guggenheim Securities was advised by Chubbs and ACEs respective senior management, and Guggenheim Securities assumed, that such forecasts represented a reasonable basis upon which to evaluate the business and financial prospects of Chubb and ACE, respectively. Guggenheim Securities expressed no view, opinion, representation, guaranty or warranty of any kind (in each case, express or implied) regarding (i) the reasonableness or achievability of such forecasts or the assumptions on which they were based or (ii) the selection of the specific Wall Street equity research analyst reports from which such forecasts were derived. |
| In addition, with respect to (i) the forecasts, the estimated incremental financial impacts, other estimates and other forward-looking information furnished by or discussed with Chubb and ACE, Guggenheim Securities assumed that such forecasts, estimated incremental financial impacts, other estimates and other forward-looking information had been reviewed by the Chubb board with the understanding that such information would be used and relied upon by Guggenheim Securities in connection with rendering its opinion and (ii) financial forecasts, other estimates and/or other forward-looking information obtained by Guggenheim Securities from public sources, data suppliers and other third parties, Guggenheim Securities assumed that such information was reasonable and reliable. |
Guggenheim Securities also notes certain other considerations with respect to its engagement and its opinion:
| During the course of Guggenheim Securities engagement, it was not asked by the Chubb board to, and Guggenheim Securities did not, solicit indications of interest from any potential strategic acquirers or merger partners regarding a potential transaction with Chubb, although in rendering its opinion Guggenheim Securities considered certain discussions that Chubb and/or its representatives had had with certain third parties from time to time. |
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| In arriving at its opinion, Guggenheim Securities did not perform or obtain any independent appraisal or assessment of the fair market value of the assets (including the respective investment portfolios) or liabilities (including the respective insurance-related reserves or any contingent, derivative or off-balance sheet liabilities) of Chubb or ACE or the solvency or fair value of Chubb or ACE, nor was Guggenheim Securities furnished with any such appraisals or assessments. Guggenheim Securities (i) is not an actuarial firm and, accordingly, its professionals are not experts in the evaluation of insurance-related reserves (whether with respect to potential losses, loss adjustment expenses or otherwise), (ii) did not (and did not attempt to) independently evaluate or actuarially determine Chubbs and ACEs respective insurance-related reserves or the adequacy thereof and (iii) did not (and did not attempt to) independently evaluate any actuarial assumptions with respect to such insurance-related reserves. Guggenheim Securities assumed that the insurance-related reserves included in the most recent audited annual and unaudited quarterly balance sheets of Chubb and ACE reflected the best then-currently available estimates and judgments of Chubbs and ACEs respective senior management as to the adequacy of such insurance-related reserves, and Guggenheim Securities expressed no view or opinion regarding any of the foregoing matters. |
| Guggenheim Securities did not express any view or render any opinion regarding the tax consequences to Chubb, ACE or their respective shareholders of the merger. Guggenheim Securities professionals are not legal, regulatory, tax, consulting, accounting, appraisal or actuarial experts and nothing in Guggenheim Securities opinion should be construed as constituting advice with respect to such matters; accordingly, Guggenheim Securities relied on the assessments of Chubb, ACE and their respective advisors with respect to such matters. |
| Guggenheim Securities further assumed that: |
| In all respects material to its analyses, (i) the final executed form of the merger agreement would not differ from the draft that Guggenheim Securities reviewed, (ii) Chubb and ACE will comply with all terms of the merger agreement and (iii) the representations and warranties of Chubb and ACE contained in the merger agreement were true and correct and all conditions to the obligations of each party to the merger agreement to consummate the merger will be satisfied without any waiver thereof; and |
| The merger will be consummated in a timely manner and in accordance with the terms of the merger agreement, without any limitations, restrictions, conditions, amendments or modifications (regulatory, tax-related or otherwise) that would have an adverse effect on Chubb or ACE or the merger in any way material to Guggenheim Securities analyses. |
| Guggenheim Securities did not express any view or opinion as to the price or range of prices at which the shares of common stock or other securities of Chubb and ACE may trade at any time, including, without limitation, subsequent to the announcement or consummation of the merger. |
Summary of Valuation and Financial Analyses
Overview of Valuation and Financial Analyses
This Summary of Valuation and Financial Analyses presents a summary of the principal valuation and financial analyses performed by Guggenheim Securities and presented to the Chubb board in connection with Guggenheim Securities rendering of its opinion. Such presentation to the Chubb board was supplemented by Guggenheim Securities oral discussion, the nature and substance of which may not be fully described herein.
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Guggenheim Securities performed its valuation and financial analyses based on Chubbs and ACEs respective 20-day volume-weighted average prices (the VWAP) and closing stock prices as of June 29, 2015 (the last trading day prior to the Chubb board meeting to consider the merger). As of such date, Chubb and ACE had not yet determined the ultimate merger consideration, including the precise exchange ratio for the per share stock consideration and the precise per share cash consideration components of the merger consideration, because those numbers were to be based on (and ultimately were based on) the VWAPs immediately preceding announcement of the transaction. Accordingly, for purposes of its valuation and financial analyses, Guggenheim Securities assumed that the merger consideration would be comprised of (i) 0.6010 of an ACE common share for each share of Chubb common stock plus (ii) $62.99 in cash for each share of Chubb common stock (as compared to the ultimately determined merger consideration comprised of (y) 0.6019 of an ACE common share for each share of Chubb common stock plus (z) $62.93 in cash for each share of Chubb common stock). With respect to rendering its opinion, Guggenheim Securities considered the differences between the aforementioned assumed merger consideration and the ultimately determined merger consideration to be immaterial.
Some of the valuation and financial analyses summarized below include summary data and information presented in tabular format. In order to understand fully such valuation and financial analyses, the summary data and tables must be read together with the full text of the summary. Considering the summary data and tables alone could create a misleading or incomplete view of Guggenheim Securities valuation and financial analyses.
The preparation of a fairness opinion is a complex process and involves various judgments and determinations as to the most appropriate and relevant valuation and financial analyses and the application of those methods to the particular circumstances involved. A fairness opinion therefore is not readily susceptible to partial analysis or summary description, and taking portions of the valuation and financial analyses set forth below, without considering such analyses as a whole, would in Guggenheim Securities view create an incomplete and misleading picture of the processes underlying the valuation and financial analyses considered in rendering Guggenheim Securities opinion.
In arriving at its opinion, Guggenheim Securities:
| based its valuation and financial analyses on assumptions that it deemed reasonable, including assumptions concerning general business and economic conditions, capital markets considerations and industry-specific and company-specific factors, all of which are beyond the control of Chubb, ACE and Guggenheim Securities; |
| did not form a view or opinion as to whether any individual analysis or factor, whether positive or negative, considered in isolation, supported or failed to support its opinion; |
| considered the results of all of its valuation and financial analyses and did not attribute any particular weight to any one analysis or factor; and |
| ultimately arrived at its opinion based on the results of all of its valuation and financial analyses assessed as a whole and believed that the totality of the factors considered and the various valuation and financial analyses performed by Guggenheim Securities in connection with its opinion operated collectively to support its determination as to the fairness, from a financial point of view, of the merger consideration to the common shareholders of Chubb. |
With respect to the valuation and financial analyses performed by Guggenheim Securities in connection with rendering its opinion:
| Such valuation and financial analyses, particularly those based on estimates and forecasts, are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by these analyses. |
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| None of the selected publicly traded companies used in the peer group trading valuation analysis and financial benchmarking described below is identical or directly comparable to Chubb or ACE, and none of the selected precedent merger and acquisition transactions used in the precedent merger and acquisitions transaction analysis described below is identical or directly comparable to the merger; however, such companies and transactions were selected by Guggenheim Securities because, among other reasons, they represented or involved target companies which may be considered to have some similarities, for purposes of Guggenheim Securities valuation and financial analyses, to Chubb and ACE based on Guggenheim Securities familiarity with the property and casualty insurance sector. |
| In any event, peer group trading valuation analysis and financial benchmarking and precedent merger and acquisition transaction analysis are not mathematical; rather, such analyses involve complex considerations and judgments concerning the differences in business, financial, operating and capital markets-related characteristics and other factors regarding the peer group companies and precedent merger and acquisition transactions to which Chubb, ACE and the merger were compared. |
| Such valuation and financial analyses do not purport to be appraisals or to reflect the prices at which any securities may trade at the present time or at any time in the future. |
Certain Definitions
Throughout this Summary of Valuation and Financial Analyses, the following financial terms are used in connection with Guggenheim Securities various valuation and financial analyses:
| AOCI: means accumulated other comprehensive income per the relevant companys most recently available balance sheet. |
| Book value: means reported common equity per the relevant companys most recently available balance sheet divided by such companys net diluted shares (i.e., outstanding common shares plus in-the-money stock options, restricted stock units, etc.). |
| Cash EPS: means the relevant companys net operating income, before the amortization of intangibles, on a per share basis. |
| EPS: means the relevant companys net operating income on a per share basis. |
| LTM: means latest twelve months. |
| Net operating income: means net income excluding after-tax realized investment gains/(losses). |
| NTM: means next twelve months. |
| ROACE: means return on average common equity, calculated as net operating income divided by average common equity for a given period. |
| ROATCE: means return on average tangible common equity, calculated as net operating income divided by average tangible common equity for a given period. |
| ROCE: means return on common equity, calculated as net operating income divided by the most recently reported common equity balance. |
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| ROTCE: means return on tangible common equity, calculated as net operating income divided by the most recently reported tangible common equity balance. |
| Tangible book value: means reported common equity minus intangible assets, in each case per the relevant companys most recently available balance sheet, divided by such companys net diluted shares. |
Recap of Merger Consideration
Based on the aforementioned assumed merger consideration comprised of (i) 0.6010 of an ACE common share for each share of Chubb common stock plus (ii) $62.99 in cash for each share of Chubb common stock, Guggenheim Securities calculated the assumed merger consideration to be $125.98 per share (based on ACEs 20-day VWAP of $104.75 as of June 29, 2015) and $124.09 per share (based on ACEs closing stock price of $101.60 as of June 29, 2015). Guggenheim Securities then calculated various implied merger premia and multiples as outlined in the table below:
Implied Merger Premia and Multiples | ||||||||
Based on ACEs | ||||||||
20-Day VWAP @ 6/29/15 |
Closing Stock Price @ 6/29/15 |
|||||||
Assumed Merger Consideration |
$ | 125.98 | $ | 124.09 | ||||
Implied Premium/(Discount) Relative to Chubbs: |
||||||||
Closing Stock Price @ 6/29/15 |
33.1% | 31.1% | ||||||
20-Day VWAP @ 6/29/15 |
30.0 | 28.0 | ||||||
52-Week High Stock Price |
20.0 | 18.2 | ||||||
Assumed Merger Consideration/Chubbs Book Value @ 3/31/15: |
||||||||
Book Value |
1.81x | 1.79x | ||||||
Book Value (ex AOCI) |
1.94 | 1.91 | ||||||
Tangible Book Value |
1.87 | 1.84 | ||||||
Tangible Book Value (ex AOCI) |
2.00 | 1.97 | ||||||
Assumed Merger Consideration/Chubbs Forward EPS: |
||||||||
2015E |
17.3x | 17.0x | ||||||
2016E |
16.2 | 16.0 | ||||||
2017E |
15.4 | 15.1 |
Guggenheim Securities performed its valuation and financial analyses based on common shares outstanding and fully diluted shares of 229.8 million and 232.6 million, respectively, for Chubb and 326.6 million and 333.2 million, respectively, for ACE. Such share counts were based on each companys Form 10-Q as of March 31, 2015. The foregoing share counts and the closing stock prices as of June 29, 2015 implied an equity market capitalization of $22.0 billion for Chubb and $33.9 billion for ACE. Based on the assumed merger consideration of $125.98 and $124.09 per share of Chubbs stock as outlined above, Chubbs transaction-implied equity value was $29.3 billion and $28.9 billion, respectively.
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Chubb Change-of-Control Valuation Analyses
Chubb Change-of-Control Valuation Recap. In assessing the valuation of Chubbs common stock in connection with rendering its opinion, Guggenheim Securities performed various valuation and financial analyses which are summarized in the table below and described in more detail elsewhere herein, including peer group trading valuation analysis and financial benchmarking, precedent merger and acquisition transaction analysis and dividend discount analyses. Solely for reference purposes, Guggenheim Securities also reviewed the historical trading price range for Chubbs common stock and Wall Street equity research analysts price targets for Chubbs common stock.
Chubb Change-of-Control Valuation Recap | ||||||||
Assumed Merger Consideration (Based on ACEs 20-Day VWAP) |
$125.98 | |||||||
Assumed Merger Consideration (Based on ACEs Closing Stock Price)
|
|
124.09
|
| |||||
Reference Range for Change-of-Control Valuation of Chubb |
||||||||
Primary Valuation Analyses |
Low | High | ||||||
Selected Publicly Traded Property and Casualty Insurance Companies |
$76.64 | $98.73 | ||||||
Precedent Property and Casualty Insurance Change-of-Control Transactions |
85.45 | 121.03 | ||||||
Dividend Discount Analyses |
93.35 | 101.65 | ||||||
For Reference Purposes Only |
||||||||
Chubbs Stock Price Range During Past Year |
$86.71 | $105.00 | ||||||
One-Year Wall Street Equity Research Price Targets |
98.00 | 106.00 | ||||||
Peer Group Trading Valuation Analysis and Financial Benchmarking. Guggenheim Securities reviewed and analyzed Chubbs historical stock price performance, trading valuation metrics and historical and forecasted financial performance compared to corresponding data for certain publicly traded companies in the property and casualty insurance sector that Guggenheim Securities deemed relevant for purposes of this analysis. Guggenheim Securities selected such property and casualty insurance companies primarily based on their attributes as publicly traded large-cap insurance companies with substantial US primary multi-line property and casualty operations. The following publicly traded property and casualty insurance companies were used by Guggenheim Securities for purposes of this analysis:
Selected Property and Casualty Insurance Sector Peer Group Companies (Sorted by Descending Equity Market Cap)
|
American International Group, Inc. |
Zurich Insurance Group Ltd |
The Travelers Companies, Inc. |
The Allstate Corporation |
The Hartford Financial Services Group, Inc. |
XL Group plc |
W.R. Berkley Corporation
|
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Guggenheim Securities calculated the following trading multiples for the selected property and casualty insurance sector peer group companies, ACE and Chubb based on Wall Street equity research consensus estimates, the forecasts for Chubb and ACE and each companys most recent publicly available financial filings:
Selected Property and Casualty Insurance Sector Peer Group Trading Multiples
|
| |||||||||||||||||||||||
Stock Price @ 6/29/15 as Multiple of |
||||||||||||||||||||||||
Book Value |
Tangible Book Value | EPS | ||||||||||||||||||||||
w/ AOCI | ex AOCI |
w/ AOCI |
ex AOCI | 2015E | 2016E | |||||||||||||||||||
American International Group, Inc. |
0.77x | 0.85x | 0.78x | 0.87x | 12.4x | 10.9x | ||||||||||||||||||
Zurich Insurance Group Ltd |
1.30 | 1.51 | 1.66 | 2.02 | 11.5 | 10.9 | ||||||||||||||||||
The Travelers Companies, Inc. |
1.23 | 1.27 | 1.46 | 1.52 | 10.3 | 10.1 | ||||||||||||||||||
The Allstate Corporation |
1.29 | 1.35 | 1.38 | 1.43 | 11.6 | 10.5 | ||||||||||||||||||
The Hartford Financial Services Group, Inc. |
0.91 | 0.97 | 0.94 | 1.00 | 10.7 | 9.8 | ||||||||||||||||||
XL Group plc |
0.95 | 1.08 | 1.12 | 1.31 | 11.8 | 9.9 | ||||||||||||||||||
W.R. Berkley Corporation |
1.41 | 1.46 | 1.46 | 1.51 | 14.8 | 13.3 | ||||||||||||||||||
Statistical Recap: |
||||||||||||||||||||||||
Median |
1.23x | 1.27x | 1.38x | 1.43x | 11.6x | 10.5x | ||||||||||||||||||
High |
1.41 | 1.51 | 1.66 | 2.02 | 14.8 | 13.3 | ||||||||||||||||||
Low |
0.77 | 0.85 | 0.78 | 0.87 | 10.3 | 9.8 | ||||||||||||||||||
Chubb: |
||||||||||||||||||||||||
Trading Basis |
1.35x | 1.44x | 1.39x | 1.49x | 13.0x | 12.2x | ||||||||||||||||||
Merger Basis ($125.98) |
1.81 | 1.94 | 1.87 | 2.00 | 17.3 | 16.2 | ||||||||||||||||||
Merger Basis ($124.09) |
1.79 | 1.91 | 1.84 | 1.97 | 17.0 | 16.0 | ||||||||||||||||||
ACE |
1.12 | 1.16 | 1.37 | 1.44 | 11.0 | 11.1 |
In performing its property and casualty insurance sector peer group trading valuation analysis:
| Guggenheim Securities selected reference ranges of trading multiples for purposes of valuing Chubbs common stock on a stand-alone public market trading basis as follows: (i) trading price/book value (ex AOCI) multiple range of 1.25x 1.45x; (ii) trading price/tangible book value (ex AOCI) multiple range of 1.35x 1.55x; (iii) trading price/forward EPS multiple range of 11.5x 13.5x based on 2015E; and (iv) trading price/forward EPS multiple range of 10.5x 12.5x based on 2016E. |
| The foregoing reference ranges were informed in part by various regression analyses performed by Guggenheim Securities that examined the correlation between the selected property and casualty insurance sector peer group companies respective (i) stock price/book value multiple and ROACE (in each case, both including and excluding AOCI) and (ii) stock price/tangible book value multiple and ROATCE (in each case, both including and excluding AOCI). |
| Guggenheim Securities analysis of the selected property and casualty insurance sector peer group companies resulted in an overall reference range of $76.64 to $98.73 per share for purposes of valuing Chubbs common stock on a stand-alone public market trading basis. |
| Guggenheim Securities noted that the foregoing valuation of Chubbs common stock did not reflect any acquisition premium that typically is paid in connection with change-of-control transactions such as the merger. |
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| Guggenheim Securities further noted that the assumed merger consideration was above the foregoing valuation reference range based on the peer group trading valuation analysis, which in Guggenheim Securities view supported its assessment of the financial fairness of the assumed merger consideration. |
As part of its review of the property and casualty insurance sector peer group companies, Guggenheim Securities also performed various financial benchmarking analyses based on Wall Street equity research consensus estimates and the most recent publicly available financial filings, including analyses regarding (i) forecasted net premiums written growth, (ii) forecasted near- and long-term EPS growth, (iii) forecasted operating margin metrics (i.e., loss, expense and combined ratios), (iv) forecasted ROACE and ROATCE, (v) year-over-year changes in historical investment income and (vi) the most recently available investment portfolio composition.
Precedent Merger and Acquisition Transaction Analysis. Guggenheim Securities reviewed and analyzed the valuation and financial metrics of certain selected precedent merger and acquisition transactions involving target companies in the property and casualty insurance sector with transaction values greater than $1 billion that Guggenheim Securities deemed relevant for purposes of this analysis. More specifically, Guggenheim Securities selected transactions involving target companies with substantial primary multi-line property and casualty insurance operations and excluded transactions involving target companies primarily engaged in property and casualty reinsurance or property and casualty specialty insurance. Guggenheim Securities analysis focused on transactions announced since 2008 but also included two transactions announced prior to 2008 that were deemed noteworthy due to their size and industry relevance. The following precedent merger and acquisition transactions were reviewed and considered by Guggenheim Securities for purposes of this analysis:
Selected Property and Casualty Insurance Sector Precedent M&A Transactions | ||||
Date Announced |
Acquirer |
Target Company | ||
1/9/15 |
XL Group plc | Catlin Group Limited | ||
6/10/13 |
The Travelers Companies, Inc. | The Dominion of Canada General Insurance Company | ||
5/31/11 |
Intact Financial Corp. | AXA Canada Inc. | ||
2/18/10 |
Fairfax Financial Holdings Limited | Zenith National Insurance Corp. | ||
4/16/09 |
Zurich Financial Services | AIGs US Personal Auto Insurance Group | ||
4/23/08 |
Liberty Mutual Insurance Company | Safeco Corporation | ||
5/6/07 |
Liberty Mutual Insurance Company | Ohio Casualty Corporation | ||
11/17/03 |
Travelers Property Casualty Corp. | The St. Paul Companies, Inc. |
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A summary of Guggenheim Securities analysis of each of the foregoing precedent merger and acquisition transaction multiples is presented in the table below:
Selected Property and Casualty Insurance Sector Precedent M&A Transaction Multiples | ||||||||||||||||||||||||
Transaction Price as Multiple of | ||||||||||||||||||||||||
Book Value | Tangible Book Value | EPS | ||||||||||||||||||||||
Acquirer/Target Company |
w/ AOCI | ex AOCI | w/ AOCI | ex AOCI | LTM | NTM | ||||||||||||||||||
XL Group plc / Catlin Group Limited |
1.26x | 1.19x | 1.60x | 1.49x | 8.7x | 12.3x | ||||||||||||||||||
The Travelers Companies, Inc. / Dominion of Canada |
1.32 | 1.54 | 1.46 | 1.73 | 17.3 | NA | ||||||||||||||||||
Intact Financial Corp. / AXA Canada Inc. |
1.80 | NA | NA | NA | 11.6 | NA | ||||||||||||||||||
Fairfax Financial Holdings Limited / Zenith National |
1.36 | 1.41 | 1.39 | 1.44 | NM | NM | ||||||||||||||||||
Zurich Financial Services / AIGs US Personal Auto |
0.86 | NA | 1.00 | NA | NA | NA | ||||||||||||||||||
Liberty Mutual Insurance Company / Safeco Corporation |
1.82 | 2.04 | 1.82 | 2.04 | 10.8 | 11.4 | ||||||||||||||||||
Liberty Mutual Insurance Company / Ohio Casualty Corp |
1.65 | 1.86 | 1.70 | 1.92 | 13.4 | 15.5 | ||||||||||||||||||
Travelers Property Casualty Corp. / |
1.45 | 1.59 | 1.48 | 1.63 | 11.0 | 8.7 | ||||||||||||||||||
Statistical Recap: |
||||||||||||||||||||||||
Median |
1.40x | 1.57x | 1.48x | 1.68x | 11.3x | 11.9x | ||||||||||||||||||
High |
1.82 | 2.04 | 1.82 | 2.04 | 17.3 | 15.5 | ||||||||||||||||||
Low |
0.86 | 1.19 | 1.00 | 1.44 | 8.7 | 8.7 | ||||||||||||||||||
Chubb: |
||||||||||||||||||||||||
Merger Basis ($125.98) |
1.81x | 1.94x | 1.87x | 2.00x | 17.3x | 16.2x | ||||||||||||||||||
Merger Basis ($124.09) |
1.79 | 1.91 | 1.84 | 1.97 | 17.0 | 16.0 |
In performing its precedent merger and acquisition transaction multiples analysis:
| Guggenheim Securities selected a reference range of transaction multiples for purposes of valuing Chubbs common stock on a change-of-control basis as follows: (i) transaction price/book value (ex AOCI) multiple range of 1.60x 1.80x; (ii) transaction price/tangible book value (ex AOCI) multiple range of 1.70x 1.90x; and (iii) trading price/forward EPS multiple range of 11.0x 13.0x based on NTM estimated EPS. |
| Guggenheim Securities analysis of the selected precedent merger and acquisition transactions resulted in an overall reference range of $85.45 to $121.03 per share for purposes of valuing Chubbs common stock on a change-of-control basis. |
| Guggenheim Securities noted that the assumed merger consideration was above the foregoing valuation reference range based on the precedent merger and acquisition transaction multiples analysis, which in Guggenheim Securities view supported its assessment of the financial fairness of the assumed merger consideration. |
As part of its precedent merger and acquisition transaction analysis, Guggenheim Securities also reviewed and analyzed:
| The observed transaction premia paid in connection with the selected precedent merger and acquisition transactions versus each target companys (i) undisturbed stock price one day prior to the transaction announcement or rumored transaction (as the case may be), (ii) 20-day VWAP as of such date and (iii) past year high stock price as of such date; |
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| Each target companys forecasted NTM ROCE and NTM ROTCE; and |
| Each target companys forecasted long-term EPS growth rate. |
Dividend Discount Analyses. Guggenheim Securities performed illustrative stand-alone dividend discount analyses of Chubb based on forecasted net operating income for Chubb and an estimate of its terminal/continuing value at the end of the forecast horizon. In performing its illustrative dividend discount analyses:
| Guggenheim Securities based such dividend discount analyses on the forecast for Chubb as described previously herein. |
| Guggenheim Securities estimated Chubbs cost of equity to be within a range of 7.25 percent 8.50 percent, based on, among other factors, (i) Guggenheim Securities then-current estimate of the prospective US equity risk premium range (i.e., 5.25 percent 6.25 percent), (ii) a review of Chubbs Bloomberg historical five-year average adjusted equity beta, its Bloomberg historical two-year average adjusted equity beta, its Bloomberg historical one-year average adjusted equity beta and its then-current Barra predicted equity beta (which resulted in a prospective levered equity beta reference range for Chubb of 0.800 0.900), (iii) the then-prevailing yield on the 20-year US Treasury bond as a proxy for the risk-free rate (i.e., 2.82 percent) and (iv) Guggenheim Securities investment banking and capital markets judgment and experience in valuing companies similar to Chubb. |
| In calculating Chubbs terminal/continuing value for purposes of its dividend discount analyses, Guggenheim Securities used an illustrative reference range of terminal tangible book value (ex AOCI) multiples of 1.50x 1.60x. The illustrative terminal/continuing values implied by the foregoing terminal multiple reference range resulted in implied perpetual growth rates of (0.6) percent 1.0 percent in Chubbs terminal year normalized net operating income. |
| Guggenheim Securities illustrative dividend discount analyses resulted in an overall reference range of $93.35 to $101.65 per share for purposes of valuing Chubbs common stock on a stand-alone intrinsic-value basis. |
| Guggenheim Securities noted that the assumed merger consideration was above the foregoing valuation reference range based on the illustrative dividend discount analyses, which in Guggenheim Securities view supported its assessment of the financial fairness of the assumed merger consideration. |
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ACE Stand-Alone Valuation Analyses
ACE Stand-Alone Valuation Recap. In assessing the valuation of ACEs common stock in connection with rendering its opinion, Guggenheim Securities performed various valuation and financial analyses which are summarized in the table below and described in more detail elsewhere herein, including peer group trading valuation analysis and financial benchmarking and dividend discount analyses. Solely for reference purposes, Guggenheim Securities also reviewed the historical trading price range for ACEs common stock and Wall Street equity research analysts price targets for ACEs common stock.
ACE Stand-Alone Valuation Recap | ||||||||
ACEs 20-Day VWAP @ 6/29/15 |
$104.75 | |||||||
ACEs Closing Stock Price @ 6/29/15 |
101.60 | |||||||
Reference Range for Stand-Alone Valuation of ACE |
||||||||
Primary Valuation Analyses |
Low | High | ||||||
Selected Publicly Traded Property and Casualty Insurance Companies | $95.21 | $ | 126.76 | |||||
Dividend Discount Analyses |
104.79 | 113.95 | ||||||
For Reference Purposes Only |
||||||||
ACEs Stock Price Range During Past Year |
$99.95 | $ | 117.58 | |||||
One-Year Wall Street Equity Research Price Targets |
111.00 | 130.00 |
Peer Group Trading Valuation Analysis and Financial Benchmarking. Guggenheim Securities reviewed and analyzed ACEs historical stock price performance, trading valuation metrics and historical and forecasted financial performance compared to corresponding data for certain publicly traded companies in the property and casualty insurance sector that Guggenheim Securities deemed relevant for purposes of this analysis. Guggenheim Securities utilized the same peer group companies as described above under Chubb Change-of-Control Valuation AnalysesPeer Group Trading Valuation Analysis and Financial Benchmarking.
In performing its property and casualty insurance sector peer group trading valuation analysis:
| Guggenheim Securities selected reference ranges of trading multiples for purposes of valuing ACEs common stock on a stand-alone public market trading basis as follows: (i) trading price/book value (ex AOCI) multiple range of 1.25x 1.45x; (ii) trading price/tangible book value (ex AOCI) multiple range of 1.35x 1.55x; (iii) trading price/forward EPS multiple range of 11.5x 13.5x based on 2015E; and (iv) trading price/forward EPS multiple range of 10.5x 12.5x based on 2016E. |
| The foregoing reference ranges were informed in part by various regression analyses performed by Guggenheim Securities that examined the correlation between the selected property and casualty insurance sector peer group companies respective (i) stock price/book value multiple and ROACE (in each case, both including and excluding AOCI) and (ii) stock price/tangible book value multiple and ROATCE (in each case, both including and excluding AOCI). |
| Guggenheim Securities analysis of the selected property and casualty insurance sector peer group companies resulted in an overall reference range of $95.21 to $126.76 per share for purposes of valuing ACEs common stock on a stand-alone public market trading basis. |
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| Guggenheim Securities noted that the foregoing valuation reference range based on the peer group trading valuation analysis was in-line with or above ACEs 20-day VWAP of $104.75 and its closing stock price of $101.60 (in each case as of June 29, 2015), which in Guggenheim Securities view supported its assessment of the financial fairness of the assumed merger consideration. |
Dividend Discount Analyses. Guggenheim Securities performed illustrative stand-alone dividend discount analyses of ACE based on forecasted net operating income for ACE and an estimate of its terminal/continuing value at the end of the forecast horizon. In performing its illustrative dividend discount analyses:
| Guggenheim Securities based such dividend discount analyses on the forecast for ACE as described previously herein. |
| Guggenheim Securities estimated ACEs cost of equity to be within a range of 7.50 percent 8.75 percent, based on, among other factors, (i) Guggenheim Securities then-current estimate of the prospective US equity risk premium range (i.e., 5.25 percent 6.25 percent), (ii) a review of ACEs Bloomberg historical five-year average adjusted equity beta, its Bloomberg historical two-year average adjusted equity beta, its Bloomberg historical one-year average adjusted equity beta and its then-current Barra predicted equity beta (which resulted in a prospective levered equity beta reference range for ACE of 0.850 0.950), (iii) the then-prevailing yield on the 20-year US Treasury bond as a proxy for the risk-free rate (i.e., 2.82 percent) and (iv) Guggenheim Securities investment banking and capital markets judgment and experience in valuing companies similar to ACE. |
| In calculating ACEs terminal/continuing value for purposes of its dividend discount analyses, Guggenheim Securities used an illustrative reference range of terminal tangible book value (ex AOCI) multiples of 1.50x 1.60x. The illustrative terminal/continuing values implied by the foregoing terminal multiple reference range resulted in implied perpetual growth rates of (0.9) percent 0.7 percent in ACEs terminal year normalized net operating income. |
| Guggenheim Securities illustrative dividend discount analyses resulted in an overall reference range of $104.79 to $113.95 per share for purposes of valuing ACEs common stock on a stand-alone intrinsic-value basis. |
| Guggenheim Securities noted that the foregoing valuation reference range based on the illustrative dividend discount analyses was in-line with or above ACEs 20-day VWAP of $104.75 and its closing stock price of $101.60 (in each case as of June 29, 2015), which in Guggenheim Securities view supported its assessment of the financial fairness of the assumed merger consideration. |
Estimated Incremental Financial Impacts Valuation Analyses
Guggenheim Securities performed illustrative discounted cash flow analyses of the estimated incremental financial impacts on an after-tax basis. In performing its illustrative discounted cash flow analyses:
| Guggenheim Securities based such discounted cash flow analyses on the estimated incremental financial impacts as described previously herein. |
| Guggenheim Securities utilized a discount rate range of 7.50 percent 8.75 percent based on its estimate of ACEs cost of equity as described previously herein. |
| Based on the nature of, and as relevant with respect to, each of the estimated incremental financial impacts, Guggenheim Securities utilized situation-specific terminal/continuing value methodologies and perpetual growth rate assumptions as follows: |
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| Expected/estimated cost savings: 0 percent to 1.5 percent |
| Expected/estimated revenue synergies: 1.0 percent to 3.0 percent |
| Estimated financing costs (which included the opportunity cost of cash): 0 percent to 0.5 percent |
| Guggenheim Securities illustrative discounted cash flow analyses with respect to the estimated incremental financial impacts resulted in an overall reference range of (i) approximately $5.5 billion to $10.3 billion on an aggregate basis and (ii) approximately $6.93 to $13.06 per equivalent share of Chubb common stock based on the assumed exchange ratio, which in Guggenheim Securities view supported its assessment of the financial fairness of the assumed merger consideration. |
Other Financial Reviews and Analyses
In order to provide certain context for the primary valuation and financial analyses in connection with its opinion as described above, Guggenheim Securities performed various additional financial reviews and analyses as summarized below solely for reference purposes. As a general matter, Guggenheim Securities does not consider such additional financial reviews and analyses to be determinative valuation methodologies for purposes of its opinion.
Chubb and ACE Stock Price Trading Histories. Guggenheim Securities reviewed Chubbs and ACEs respective stock price trading histories during the three years ending June 29, 2015. As a general matter, Guggenheim Securities noted a high degree of correlation between the stock prices and the trading multiples attendant to Chubbs common stock and ACEs common stock, thereby resulting in a fairly consistent market-implied exchange ratio during the past three years.
Contribution Analysis. Guggenheim Securities compared Chubbs and ACEs respective contributions to the combined company in terms of total assets, net premiums written, net premiums earned, forecasted net operating income, total common equity (both including and excluding AOCI) and tangible common equity (both including and excluding AOCI). Guggenheim Securities noted that, as a general matter, Chubbs contributions to the combined company ranged from approximately 35 percent to 40 percent depending on the specific item. Solely for reference purposes, Guggenheim Securities calculated that Chubbs shareholders would hold an equity equivalent economic stake of 45.6 percent in the combined company, assuming hypothetically that the assumed cash component of the merger consideration were converted to ACE common shares based on the assumed exchange ratio.
Review of Certain Other Precedent Merger and Acquisition Transactions. Solely for reference purposes and not as a core analysis in connection with its opinion, Guggenheim Securities also reviewed and analyzed certain precedent merger and acquisition transactions involving target companies in the property and casualty reinsurance and the property and casualty specialty insurance sectors.
Illustrative Value-Based Has/Gets Analyses. In order to help assess the overall value proposition associated with the assumed merger consideration from the perspective of Chubbs shareholders, Guggenheim Securities performed certain illustrative value-based has/gets analyses (i) on an intrinsic value basis (i.e., based on dividend discount analyses) and on a public market trading multiple basis (i.e., based on pro forma book value multiples, pro forma tangible book value multiples, pro forma EPS multiples and pro forma cash EPS multiples) and (ii) without and with estimated revenue-related synergies and estimated cost savings. Guggenheim Securities noted that such illustrative value-based has/gets analyses indicated the following:
| Intrinsic value-based has/gets analyses Chubbs shareholders would experience illustrative 15.2 percent to 18.5 percent and 31.9 percent to 32.9 percent pro forma intrinsic value |
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accretion, as calculated respectively without and with estimated revenue-related synergies and estimated cost savings. |
| Pro forma book value multiple-based and pro forma tangible book value multiple-based has/gets analyses Chubbs shareholders would experience illustrative 25.9 percent to 26.3 percent and 28.8 percent to 28.9 percent pro forma book value multiple-based and pro forma tangible book value multiple-based value accretion, as calculated respectively without and with estimated revenue-related synergies and estimated cost savings; however, Guggenheim Securities noted that such illustrative pro forma tangible book value multiple-based value accretion would require that the public equity markets look through the significant initial pro forma dilution (i.e., greater than 25 percent) to ACEs tangible book value per share as a result of the merger. |
| Pro forma EPS multiple -based has/gets analyses Chubbs shareholders would experience illustrative 22.3 percent to 29.6 percent and 25.4 percent to 33.1 percent pro forma EPS multiple-based value accretion, as calculated respectively without and with estimated revenue-related synergies and estimated cost savings. |
| Pro forma cash EPS multiple-based has/gets analyses Chubbs shareholders would experience illustrative 27.4 percent to 35.3 percent and 30.5 percent to 38.8 percent pro forma cash EPS multiple-based value accretion, as calculated respectively without and with estimated revenue-related synergies and estimated cost savings. |
Guggenheim Securities noted that the foregoing illustrative value-based has/gets analyses tended to support the headline valuation of the assumed merger consideration of $125.98 and $124.09 per share as calculated previously herein.
Pro Forma Merger Impacts on ACEs Financial Statements. Guggenheim Securities noted that ACEs senior management indicated that the merger was expected to (i) increase ACEs leverage ratios, (ii) be modestly accretive to ACEs book value per share (both with and without AOCI) and (iii) be significantly dilutive to ACEs tangible book value per share (both with and without AOCI).
The Chubb board did not provide specific instructions to, or place any limitations on, Guggenheim Securities with respect to the procedures to be followed or factors to be considered in performing its valuation and financial analyses or providing its opinion. The type and amount of consideration payable in the merger were determined through negotiations between Chubb and ACE and were approved by the Chubb board. The decision to enter into the merger agreement was solely that of the Chubb board. Guggenheim Securities opinion was just one of the many factors taken into consideration by the Chubb board. Consequently, Guggenheim Securities opinion and the underlying valuation and financial analyses should not be viewed as being determinative of the decision of the Chubb board with respect to the fairness, from a financial point of view, of the merger consideration to the common shareholders of Chubb.
Pursuant to the terms of Guggenheim Securities engagement letter: (i) Chubb has agreed to pay Guggenheim Securities a cash transaction fee of $60,000,000 upon consummation of the merger or any other change-of-control transaction or merger; (ii) a cash milestone fee of $12,000,000 became payable upon Guggenheim Securities rendering of its fairness opinion, and such cash milestone fee will be credited against the foregoing cash transaction fee; and (iii) an amount of $5,000,000 in respect of certain financial advisory fees previously paid by Chubb will also be credited against the foregoing cash transaction fee. In addition, Chubb has agreed to reimburse Guggenheim Securities for certain expenses and to indemnify Guggenheim Securities against certain liabilities arising out of its engagement.
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Aside from Guggenheim Securities current engagement by Chubb, Guggenheim Securities has not been previously engaged during the prior two years by either Chubb or ACE to provide any financial advisory or investment banking services for which Guggenheim Securities received fees. Guggenheim Securities may seek to provide Chubb, ACE and their respective affiliates with certain financial advisory and investment banking services unrelated to the merger in the future.
Guggenheim Securities and its affiliates engage in a wide range of financial services activities for Guggenheim Securities and their own accounts and the accounts of Guggenheim Securities and their customers, including: asset, investment and wealth management; investment banking, corporate finance, mergers and acquisitions and restructuring; merchant banking; fixed income and equity sales, trading and research; and derivatives, foreign exchange and futures. In the ordinary course of these activities, Guggenheim Securities or its affiliates may (i) provide such financial services to Chubb, ACE, other participants in the merger or their respective affiliates, subsidiaries, investment funds and portfolio companies, for which services Guggenheim Securities or its affiliates has received, and may receive, compensation and (ii) directly or indirectly, hold long or short positions, trade and otherwise conduct such activities in or with respect to certain bank debt, debt or equity securities and derivative products of or relating to Chubb, ACE, other participants in the merger or their respective affiliates, subsidiaries, investment funds and portfolio companies. Finally, Guggenheim Securities or its affiliates and its or their directors, officers, employees, consultants and agents may have investments in Chubb, ACE, other participants in the merger or their respective affiliates, subsidiaries, investment funds and portfolio companies.
Consistent with applicable legal and regulatory guidelines, Guggenheim Securities adopted certain policies and procedures to establish and maintain the independence of its research departments and personnel. As a result, Guggenheim Securities research analysts may hold views, make statements or investment recommendations and publish research reports with respect to Chubb, ACE, other participants in the merger or their respective affiliates, subsidiaries, investment funds and portfolio companies and the merger that differ from the views of Guggenheim Securities investment banking personnel.
Certain Unaudited Prospective Financial Information for Chubb and ACE
Important Information Regarding Financial Forecasts Utilized by Guggenheim Securities
As noted below, the financial forecasts utilized by Guggenheim Securities were based on Wall Street equity research reports and were adjusted and/or extrapolated based on Guggenheim Securities discussions with the respective senior management of Chubb and ACE. There can be no assurance that the financial forecasts presented below will be realized or that actual results will not be significantly higher or lower than those reflected in the financial forecasts. The financial forecasts cannot be considered a reliable predictor of future results and should not be relied upon as such. The financial forecasts cover multiple years and such information by its nature becomes less reliable with each successive year. Readers of this joint proxy statement/prospectus are cautioned not to place undue reliance on the financial forecasts.
The financial forecasts presented below do not take into account any circumstances or events occurring after the date of their use by Guggenheim Securities, including the announcement or completion of the merger. The financial forecasts do not take into account the effect of the possibility that the merger will occur or will fail to occur and should not be viewed as accurate or continuing in either context.
No independent registered public accountant has examined, compiled or performed any procedures with respect to the financial forecasts presented below and, accordingly, no independent registered public accountant expresses an opinion or any other form of assurance with respect thereto. The independent registered public accountant reports included in this joint proxy statement/prospectus relates to ACE and Chubbs historical financial information. They do not extend to the financial forecasts and should
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not be read to do so. In addition, the financial forecasts presented below were not prepared with a view toward compliance with published guidelines of the Securities and Exchange Commission or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information.
The inclusion of the financial forecasts in this joint proxy statement/prospectus is not deemed an admission or representation by Chubb or ACE that they are viewed by either party as material information. These financial forecasts are not included in this joint proxy statement/prospectus in order to influence any ACE or Chubb shareholders vote on any of the proposals contained in this joint proxy statement/prospectus. Rather, the financial forecasts are included in this joint proxy statement/prospectus because they were utilized to evaluate the business and financial prospects of Chubb and ACE in connection with Guggenheim Securities analysis of the fairness, from a financial point of view, of the merger consideration to the common shareholders of Chubb and not with a view towards public disclosure. None of Guggenheim Securities, Chubb or ACE intend to update or otherwise revise these financial forecasts to reflect circumstances existing since their use by Guggenheim Securities, to reflect the occurrence of unanticipated events even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.
Chubb and ACE management do not as a matter of course make public long-term financial forecasts as to future performance or earnings due to the difficulty of predicting economic and market conditions and results and the uncertainty inherent in such predictions. The financial forecasts presented below reflect numerous judgments, estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to Chubbs and ACEs respective businesses, all of which are difficult to predict and many of which are beyond the control of Chubb and ACE. Accordingly, the financial forecasts presented below constitute forward-looking information and are subject to risks and uncertainties that could cause actual results to differ, possibly materially, from the results indicated, including the various risks set forth in each of Chubbs and ACEs periodic reports and in the section of this joint proxy statement/prospectus titled Risk Factors. See also the section of this joint proxy statement/prospectus titled Cautionary Statement Regarding Forward-Looking Statements.
Description of Financial Forecasts Utilized by Guggenheim Securities
For purposes of Guggenheim Securities opinion, (i) Chubbs senior management indicated to Guggenheim Securities that the multi-year financial forecast for Chubb contained in William Blair & Company, L.L.C.s equity research report entitled Commercial InsurersExcess Capital Generation Benchmark Highlights Undervalued Opportunities dated June 12, 2015 (as adjusted based on Guggenheim Securities discussions with Chubbs senior management) represented a reasonable basis upon which to evaluate the business and financial prospects of Chubb and (ii) ACEs senior management indicated to Guggenheim Securities that the multi-year financial forecast for ACE contained in Merrill Lynch, Pierce, Fenner & Smith Incorporateds equity research report entitled ACE LimitedGood Earnings Despite Headwinds dated April 21, 2015 (as adjusted and extrapolated based on Guggenheim Securities discussions with ACEs senior management) represented a reasonable basis upon which to evaluate the business and financial prospects of ACE. In performing its valuation and financial analyses in connection with its opinion, Guggenheim Securities assumed that (i) based on its discussions with Chubbs and ACEs respective senior management and its review of the Wall Street equity research reports referenced above, net operating income was a reasonable proxy for cash available for distribution to Chubbs and ACEs respective shareholders and (ii) stock-based compensation expenses, if any, were included in the financial forecasts of net operating income for Chubb and ACE.
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A summary of the financial forecasts used by Guggenheim Securities is presented in the tables below.
Summary of the Financial Forecast for Chubb | ||||||||||||||||
Dollars in millions | 2015E | 2016E | 2017E | 2018E | ||||||||||||
Net Premiums Written |
$ | 12,862 | $ | 13,118 | $ | 13,446 | $ | 13,782 | ||||||||
Net Premiums Earned |
12,696 | 12,991 | 13,261 | 13,605 | ||||||||||||
Combined Ratio |
90.5 | % | 89.9 | % | 89.9 | % | 89.9 | % | ||||||||
Underwriting Income |
$ | 1,211 | $ | 1,308 | $ | 1,335 | $ | 1,370 | ||||||||
Investment Income |
1,261 | 1,249 | 1,237 | 1,225 | ||||||||||||
Net Operating Income |
1,646 | 1,704 | 1,716 | 1,732 | ||||||||||||
Summary of the Financial Forecast for ACE | ||||||||||||||||
Dollars in millions | 2015E | 2016E | 2017E | 2018E | ||||||||||||
Net Premiums Written |
$ | 16,281 | $ | 16,655 | $ | 17,661 | $ | 18,721 | ||||||||
Net Premiums Earned |
15,832 | 16,196 | 17,174 | 18,205 | ||||||||||||
Combined Ratio |
89.7 | % | 90.5 | % | 91.5 | % | 92.5 | % | ||||||||
Underwriting Income |
$ | 1,629 | $ | 1,538 | $ | 1,468 | $ | 1,362 | ||||||||
Investment Income |
1,948 | 1,869 | 1,936 | 2,080 | ||||||||||||
Net Operating Income |
3,032 | 2,908 | 2,916 | 2,959 |
ACEs Reasons for the Merger; Recommendation of the ACE Board
The ACE board, at a meeting held on June 30, 2015, unanimously determined that the merger and the merger agreement are consistent with, and will further, ACEs business strategies and goals and are in the best interests of ACE and ACEs shareholders and has unanimously recommended that ACE shareholders vote in favor of the proposals to (1) amend ACEs Articles of Association relating to authorized share capital, (2) amend ACEs Articles of Association to change ACEs name to Chubb Limited effective as of the completion of the merger, (3) approve the issuance of ACE common shares pursuant to the merger agreement, (4) elect four current directors of Chubb as new directors of ACE effective as of the completion of the merger, and (5) increase the aggregate compensation for members of the ACE board to provide compensation for the four new directors (see Proposals to Be Submitted to ACE Shareholders).
In reaching its decision on June 30, 2015, the ACE board consulted with its financial and legal advisors, as well as with ACEs senior management, and considered a number of factors in connection with its evaluation of the proposed transaction, including the principal factors mentioned below.
The explanation of the ACE boards reasons for the proposed transaction and all other information presented in this section are forward-looking in nature and therefore should be read in light of the factors discussed under Cautionary Statement Regarding Forward-Looking Statements.
The ACE board considered a number of factors, including the material ones set out below, as supporting its decision to enter into the merger agreement and proceed with the proposed transaction.
Strategic Considerations
| The expectation that the combination of ACE and Chubb would create a global property and casualty insurance leader; |
| The expectation that the combined company would have greater growth and earning power than the sum of ACEs and Chubbs businesses separately; |
| The expected benefits from combining the complementary strengths of ACE and Chubb in product, customer and distribution capabilities, as well as in underwriting and claims service; |
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| The opportunities from having greater scale and the ability to use substantially increased data to drive new opportunities in both developed and developing markets; |
| The expectation that the merger would be attractive from a financial perspective, would be immediately accretive to earnings per share and book value and would be accretive to earnings per share on a double-digit basis and accretive to return on equity by the third anniversary of the completion of the merger; |
| The expectation that the combined company would have greater product diversification, which would reduce exposure to cyclicality in certain product classes; |
| The expectation that the merger would result in cost savings through synergies, including $650 million of annual run-rate expense efficiencies realized by 2018; |
| The expectation that the strong cash flows and balance sheet of the combined company would support continued investments in growth initiatives while facilitating deleveraging following completion of the merger; |
| The view that ACE and Chubb share a commitment to underwriting discipline; and |
| Its knowledge of ACEs and Chubbs businesses, historical performance and condition, operations, properties, assets, regulatory issues, competitive positions, prospects and management, as well as its knowledge of the current and prospective environment in which ACE and Chubb operate. |
Other Factors Considered by the ACE Board
| ACEs past record of completing acquisitions, integrating acquired businesses and of realizing projected financial goals and benefits of acquisitions; |
| The terms and conditions of the merger agreement and the likelihood of receiving the required shareholder and regulatory approvals and of completing the merger on the anticipated schedule; |
| The nature and amount of payments and other benefits to be received by Chubb management in connection with the merger pursuant to existing Chubb compensation plans and compensation arrangements and the merger agreement; |
| The written opinion of Morgan Stanley, ACEs financial advisor, that, as of June 30, 2015, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its opinion, the consideration to be paid by ACE pursuant to the merger agreement was fair, from a financial point of view, to ACE; and |
| The scope of the due diligence investigation of Chubb conducted by ACEs management and outside advisors and the results of that investigation. |
The ACE board also considered a variety of uncertainties and risks and other potentially negative factors concerning the merger agreement and the merger, including the following (not in any relative order of importance):
| The risk that the merger might not be completed in a timely manner or at all and the attendant adverse consequences for ACEs and Chubbs businesses as a result of the pendency of the merger; |
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| The risk that regulatory, governmental or antitrust authorities might seek to impose conditions on or otherwise prevent or delay the merger, or impose restrictions or requirements on the operation of the businesses of the combined company after completion of the merger, or regulatory changes that could impact Chubbs businesses on a stand-alone basis; |
| The risk that Chubb shareholders fail to approve the transaction and/or ACE shareholders fail to approve the issuance of ACE common shares or the other shareholder approvals required under the merger agreement; |
| The risks associated with the occurrence of events that may materially and adversely affect the operations or financial condition of Chubb and its subsidiaries, which may not entitle ACE to terminate the merger agreement; |
| The risk that the potential benefits, savings and synergies of the merger may not be fully or partially achieved, or may not be achieved within the expected timeframe; |
| The challenges and potential difficulties relating to integrating the operations of ACE and Chubb; |
| The risk of diverting ACEs and Chubbs respective management focus and resources from other strategic opportunities and from operational matters while working to implement the merger, and other potential disruption associated with combining and integrating the companies, and the potential effects of such diversion and disruption on the businesses and customer relationships of ACE and Chubb; |
| The ownership dilution to current ACE shareholders as a result of the issuance of ACE common shares pursuant to the merger agreement; |
| Risks relating to the fact that, because the exchange ratio related to the stock portion of the merger consideration to be paid to Chubb shareholders is fixed, the value of the stock portion of the merger consideration to be paid by ACE will fluctuate between the signing of the merger agreement and the completion of the merger; |
| The effects of general competitive, economic, political and market conditions on ACE, Chubb or the combined company; and |
| Various other risks associated with the combination and the businesses of ACE, Chubb and the combined company, some of which are described under the section titled Risk Factors. |
The ACE board concluded that the potentially negative factors associated with the merger were outweighed by the potential benefits that it expected ACE and its shareholders to achieve as a result of the merger. Accordingly, the ACE board unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement.
The foregoing discussion of the information and factors considered by the ACE board is not intended to be exhaustive, but includes the material factors considered by the ACE board. In view of the variety of factors considered in connection with its evaluation of the merger agreement and the transactions contemplated by the merger agreement, the ACE board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The ACE board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The ACE board based its recommendation on the totality of the information presented.
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Opinion of ACEs Financial Advisor
ACE retained Morgan Stanley to act as its financial advisor and to provide a financial opinion in connection with the proposed merger. ACE selected Morgan Stanley to act as its financial advisor based on Morgan Stanleys qualifications, expertise and reputation and its knowledge of and experience in recent transactions in the property and casualty insurance industry and its knowledge of ACEs business and affairs. At the meeting of the ACE board on June 30, 2015, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that, as of such date, and based upon and subject to the various assumptions, procedures, matters, qualifications and limitations on the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the consideration to be paid by ACE pursuant to the merger agreement was fair from a financial point of view to ACE.
The full text of the written opinion of Morgan Stanley, dated as of June 30, 2015, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion, is attached to this joint proxy statement/prospectus as Appendix D. ACE shareholders are encouraged to read the opinion carefully and in its entirety. Morgan Stanleys opinion was rendered for the benefit of the ACE board, in its capacity as such, and addressed only the fairness from a financial point of view of the consideration pursuant to the merger agreement to ACE as of the date of the opinion. Morgan Stanleys opinion did not address any other aspect of the merger or related transactions, including the prices at which ACE common shares will trade following consummation of the merger or at any time, or any compensation or compensation agreements arising from (or relating to) the merger which benefit any of Chubbs officers, directors or employees, or any class of such persons. The opinion was addressed to, and rendered for the benefit of, the ACE board and was not intended to, and does not, express an opinion or a recommendation as to how shareholders of Chubb or ACE should vote at the shareholders meetings of ACE and Chubb to be held in connection with the merger or act on any matter with respect to the merger or related transactions. The summary of the opinion of Morgan Stanley set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion.
In connection with rendering its opinion, Morgan Stanley, among other things:
1. | Reviewed certain publicly available financial statements and other business and financial information of Chubb and ACE, respectively; |
2. | Reviewed certain internal financial statements and other financial and operating data concerning Chubb and ACE, respectively; |
3. | Reviewed certain financial projections prepared by the management of Chubb and reviewed certain publicly available research analyst reports and financial projections relating to the business and financial prospects of Chubb (the Chubb projections); |
4. | Reviewed certain financial projections prepared by the management of ACE (the ACE projections); |
5. | Reviewed information relating to certain strategic, financial and operational benefits anticipated from the merger, prepared by the management of ACE; |
6. | Discussed the past and current operations and financial condition and the prospects of Chubb with senior executives of Chubb; |
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7. | Discussed the past and current operations and financial condition and the prospects of ACE, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with senior executives of ACE; |
8. | Reviewed the pro forma impact of the merger on ACEs earnings per share and certain other financial metrics, including book value per share and return on equity; |
9. | Reviewed the reported prices and trading activity for shares of Chubb common stock and ACE common shares; |
10. | Compared the financial performance of Chubb and ACE and the prices and trading activity of shares of Chubb common stock and ACE common shares with that of certain other publicly-traded companies comparable with Chubb and ACE, respectively, and their securities; |
11. | Reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; |
12. | Participated in certain discussions and negotiations among representatives of Chubb and ACE and their financial and legal advisors; |
13. | Reviewed the merger agreement and certain related documents; and |
14. | Performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate. |
With respect to item 3 above, the financial projections prepared by the management of Chubb that were reviewed by Morgan Stanley as part of the Chubb projections were projections for 2015 dated January 26, 2015, which the management of Chubb advised Morgan Stanley were the basis of Chubbs 2015 operating income per share guidance that Chubb publicly disclosed on January 29, 2015. In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by Chubb and ACE, and formed a substantial basis for its opinion. With respect to the Chubb projections and the ACE projections and with respect to the information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective managements of Chubb and ACE of the future financial performance of Chubb and ACE. At ACEs direction, Morgan Stanleys analysis relating to the business and financial prospects of Chubb and ACE for purposes of Morgan Stanleys opinion was made on the bases of the Chubb projections and ACE projections, respectively. Morgan Stanley was advised by ACE, and assumed, with ACEs consent, that the Chubb projections and the ACE projections were reasonable bases upon which to evaluate the business and financial prospects of Chubb and ACE, respectively. Morgan Stanley expressed no view as to the Chubb projections and the ACE projections or the assumptions on which they were based, including the selection of the research analyst reports and financial projections from which the Chubb projections were derived. In addition, Morgan Stanley assumed that the merger would be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions and that the final merger agreement would not differ in any material respects from the draft thereof furnished to Morgan Stanley. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions would be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley is not a legal, tax, regulatory or actuarial advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of ACE and Chubb and their legal, tax, regulatory or actuarial
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advisors with respect to legal, tax, regulatory or actuarial matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of Chubbs officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of shares of Chubb common stock in the transaction. Morgan Stanley expressed no opinion as to the relative proportion of the ACE common shares and cash included in the consideration. Morgan Stanleys opinion did not address the relative merits of the merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or were available, nor did it address the underlying business decision of ACE to enter into the merger agreement. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Chubb or ACE, nor was Morgan Stanley furnished with any such valuations or appraisals. Morgan Stanleys opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of June 30, 2015. Events occurring after June 30, 2015 may affect Morgan Stanleys opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm the opinion.
Summary of Financial Analyses
The following is a brief summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion to the ACE board dated June 30, 2015. The following summary is not a complete description of Morgan Stanleys opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data (including ACEs and Chubbs respective 20-day VWAP and closing stock prices) as it existed on or before June 29, 2015, which was the last trading day prior to the date of the meeting of the ACE board to consider and approve the merger agreement, and is not necessarily indicative of current market conditions. As of such date, the merger consideration had not yet been finally determined, because the exchange ratio for the per share stock consideration and the per share cash consideration were to be based on the respective VWAPs for Chubb and ACE immediately preceding the announcement of the transaction. Accordingly, for purposes of its financial analyses, Morgan Stanley assumed an implied total consideration of $124.05 comprised of (i) cash consideration of $61.73 per share of Chubb common stock and (ii) the implied value of the stock portion of the merger consideration of $62.32 based on ACEs closing stock price on June 29, 2015 of $101.60 and a fixed exchange ratio of 0.6134 of an ACE common share for each share of Chubb common stock (referred to in this section of this joint proxy statement/prospectus as the assumed implied total consideration). The assumed implied total consideration compares to $124.13 implied by the merger consideration as finally determined comprised of (x) cash consideration of $62.93 per share of Chubb common stock and (y) the implied value of the stock portion of the merger consideration of $61.20 based on ACEs closing stock price on June 30, 2015 of $101.68 and the fixed exchange ratio of 0.6019 of an ACE common share for each share of Chubb common stock. In rendering its opinion, Morgan Stanley considered the difference between the merger consideration it assumed in its analyses as described above and the finally determined merger consideration to be immaterial. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanleys opinion. Furthermore, mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using the data referred to below.
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Trading Range and Research Targets
To provide a perspective on the current trading price of shares of Chubb common stock, Morgan Stanley reviewed the historical trading range of shares of Chubb common stock for various periods. Morgan Stanley also reviewed one-year share price targets for shares of Chubb common stock prepared and published by equity research analysts, which reflect each analysts estimate of the future public market trading price of shares of Chubb common stock. Morgan Stanley discounted such share price targets to present value (as of June 29, 2015) by applying a one-year discount period at an illustrative discount rate of 6.5 percent, which was selected based on Morgan Stanleys professional judgment and taking into consideration, among other things, Chubbs assumed cost of equity calculated utilizing a capital asset pricing model, which is a financial valuation method that takes into account both returns in equity markets generally and volatility in a companys common stock. Morgan Stanley noted that the low and high trading prices for shares of Chubb common stock for the last twelve months ending June 29, 2015 were $86.40 and $105.30, respectively. Morgan Stanley also noted a range of share price targets for shares of Chubb common stock as of June 29, 2015, discounted as described above, of approximately $86.38 to $107.04 per share.
The public market trading price targets published by securities research analysts do not necessarily reflect current market trading prices for shares of Chubb common stock, and these estimates are subject to uncertainties, including the future financial performance of Chubb and future financial market conditions.
Comparable Company Analysis
Morgan Stanley performed a comparable company trading analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley reviewed and compared, using publicly available information, certain current and historical financial information for Chubb with corresponding current and historical financial information, ratios and public market multiples for publicly traded companies in the insurance industry that shared certain similar business and operating characteristics to Chubb. The following list sets forth the selected publicly traded comparable companies that were reviewed in connection with this analysis:
| ACE Limited |
| American Financial Group, Inc. |
| Arch Capital Group Ltd. |
| CNA Financial Corporation |
| Markel Corporation |
| The Travelers Companies, Inc. |
| W.R. Berkley Corporation |
| XL Group PLC |
The above companies were chosen based on Morgan Stanleys knowledge of the industry and because these companies have businesses that may be considered similar to Chubbs. Although none of such companies are identical or directly comparable to Chubb, these companies are publicly traded companies with operations or other characteristics, such as lines of business, markets, business risks, growth prospects, maturity of business and size and scale of business, that for purposes of its analysis Morgan Stanley considered similar or reasonably comparable to those of Chubb.
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For purposes of this analysis, Morgan Stanley analyzed the following statistics of each of these companies, based on closing share prices on June 29, 2015 and publicly available financial data, for comparison purposes:
| the ratio of share price to book value per share based on the book value and the number of shares of such companys common stock outstanding on fully diluted bases, as of March 31, 2015; |
| the ratio of share price to estimated earnings per share for calendar year 2015 (based on publicly available equity research estimates); and |
| the ratio of share price to estimated earnings per share for calendar year 2016 (based on publicly available equity research estimates). |
The statistics for each of these companies are summarized as follows:
Share Price | ||||||||||||
Book Value per Share at March 31, 2015 |
2015 Estimated Earnings per Share |
2016 Estimated Earnings per Share |
||||||||||
ACE Limited |
1.13x | 11.0x | 10.7x | |||||||||
American Financial Group, Inc. |
1.18x | 12.1x | 11.6x | |||||||||
Arch Capital Group Ltd. |
1.44x | 16.2x | 16.0x | |||||||||
CNA Financial Corporation |
0.83x | 11.3x | 10.9x | |||||||||
Markel Corporation |
1.42x | 24.9x | 31.4x | |||||||||
The Travelers Companies, Inc. |
1.25x | 10.3x | 10.1x | |||||||||
W.R. Berkley Corporation |
1.48x | 14.7x | 13.4x | |||||||||
XL Group PLC |
0.95x | 11.8x | 9.9x |
The results of this analysis are summarized as follows:
Share Price | ||||
Book Value Per Share at March 31, 2015 |
2015 Estimated Earnings per Share | |||
Maximum |
1.48x | 24.9x | ||
Median |
1.21x | 11.9x | ||
Minimum |
0.83x | 10.3x |
Based on the analysis of the relevant metrics for each of the comparable companies, Morgan Stanley selected a representative range of financial multiples of the comparable companies and applied this range of multiples to the relevant Chubb financial statistic. Morgan Stanley determined as a result of this analysis that the reference ranges that it would use in its analysis were approximately:
| 1.30x-1.50x for the share price versus March 31, 2015 book value per share, which indicates an implied per share valuation range of $90.33 to $104.23 per share; and |
| 11.0x-14.0x for the share price versus estimated earnings per share for calendar year 2015, which indicates an implied per share valuation range of $80.96 to $103.04 per share. |
No company utilized in the comparable company analysis is identical to Chubb. In evaluating comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of ACE and Chubb, such as the impact of competition on the businesses of Chubb and the industry generally, industry growth and the absence of any adverse material change in the
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financial condition and prospects of Chubb or the industry or in the financial markets in general. As with the other data described in this section of this joint proxy statement/prospectus, mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable company data.
Selected Precedent Transactions Analysis
In connection with its analysis, Morgan Stanley compared publicly available statistics for the following selected precedent property and casualty insurance industry transactions:
Implied Consideration per Share at Announcement/ |
||||||||||||||||||||
Announcement Date |
Acquiror | Target | Transaction Size ($ in billions) |
Book Value per Share at Announcement |
Tangible Book Value per Share at Announcement |
NTM Estimated Earnings Per Share |
||||||||||||||
Recent Property & Casualty Transactions |
|
|||||||||||||||||||
June 10, 2015 |
Tokio Marine |
HCC | $ | 7.5 | 1.90x | 2.51x | 19.5x | |||||||||||||
May 3, 2015 |
Fosun | Ironshore | $ | 2.3 | 1.25x | 1.31x | N/A | |||||||||||||
February 16, 2015 |
Fairfax | Brit | $ | 1.9 | 1.47x | 1.57x | 10.5x | |||||||||||||
January 9, 2015 |
XL Group | Catlin | $ | 4.1 | 1.25x | 1.54x | 12.2x | |||||||||||||
Other Strategic Property & Casualty Transactions |
|
|||||||||||||||||||
July 23, 2008 |
Tokio Marine |
Philadelphia Consolidated |
$ | 4.7 | 2.81x | 2.81x | 16.7x | |||||||||||||
April 23, 2008 |
Liberty Mutual |
Safeco | $ | 6.2 | 1.84x | 1.84x | 11.5x | |||||||||||||
May 7, 2007 |
Liberty Mutual |
Ohio Casualty | $ | 2.7 | 1.72x | 1.83x | 16.7x | |||||||||||||
January 12, 1999 |
ACE | CIGNA Property & Casualty Business |
$ | 3.5 | 1.73x | 2.18x | N/A | |||||||||||||
June 19, 1998 |
Berkshire | General Re | $ | 22.3 | 2.53x | 2.85x | 21.0x |
Based on publicly available information, including publicly available equity research estimates, Morgan Stanley noted for each transaction reviewed:
| the ratio of the implied consideration per share at announcement to the book value per share at announcement, |
| the ratio of the implied consideration per share at announcement to the tangible book value per share at announcement, and |
| the ratio of the implied consideration per share at announcement to the average NTM earnings per share estimates. |
The following table presents the results of this analysis:
Low |
Median |
Mean |
High | |||||
Book Value Per Share |
1.25x | 1.73x | 1.83x | 2.81x | ||||
Tangible Book Value Per Share |
1.31x | 1.84x | 2.05x | 2.85x | ||||
Estimated NTM Earnings Per Share |
10.5x | 16.7x | 15.4x | 21.0x |
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Based on its professional judgment and taking into consideration, among other things, the observed multiples for the selected transactions, Morgan Stanley:
| applied multiples ranging from 1.60x to 1.90x to Chubbs March 31, 2015 book value per share and derived a reference range of implied equity value per share of Chubb common stock of $111.18 to $132.02; |
| applied multiples ranging from 1.70x to 2.20x to Chubbs March 31, 2015 tangible book value per share and derived a reference range of implied equity value per share of Chubb common stock of $114.71 to $148.45; and |
| applied multiples ranging from 14.0x to 19.0x to Chubbs estimated NTM earnings per share as of June 29, 2015 and derived a reference range of implied equity value per share of Chubb common stock of $108.01 to $146.59. |
Morgan Stanley also reviewed, based on publicly available information as published by Thomson Reuters, the premiums paid in certain United States acquisition transactions across all industries. The analyses excluded terminated transactions, employee stock ownership plan transactions, self-tenders, spin-offs, share repurchases, minority interest transactions, exchange offers, recapitalizations and restructurings. Morgan Stanley considered premiums paid in announced transactions with a transaction value of $1 billion or more that involved United States publicly traded target companies over the course of the fifteen year period ending March 31, 2015. In the transactions reviewed, the average premium paid over the closing stock price four weeks prior to the earliest of public announcement, announcement of a competing bid and market rumors of the applicable transaction was 35 percent.
Based on the foregoing and the premiums paid in selected precedent transactions, Morgan Stanley applied a premium to the closing price per share of Chubb common stock on June 29, 2015, the last trading day before approval of the merger by the ACE board, ranging from 25.0 percent to 35.0 percent and derived a reference range of implied equity values per share of Chubb common stock of $118.34 to $127.80.
No company or transaction utilized in the precedent transaction analyses is identical to Chubb, ACE or the merger. In evaluating the selected precedent transactions, Morgan Stanley made judgments and assumptions with regard to general business, market and financial conditions and other matters, which are beyond the control of Chubb and ACE, such as the impact of competition on the business of Chubb, ACE or the industry generally, industry growth and the absence of any adverse material change in the financial condition of Chubb, ACE or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being compared.
Synergy Valuation Analysis
Morgan Stanley also performed an illustrative synergy valuation analysis based on synergies estimates provided by the management of ACE. For purposes of this analysis, Morgan Stanley reviewed the preliminary, projected ranges of potential cost savings, estimated costs to achieve the high and low ends of this range of potential cost savings, and other synergies, in each case as provided by the management of ACE.
Based on the foregoing, Morgan Stanley calculated the net capitalized value of the cost savings by applying a multiple of 12.0x to annual run-rate cost savings and then subtracting one-time integration costs. Morgan Stanley then calculated the capitalized value of the other synergies by applying a multiple of 12.0x to the projected run-rate earnings impact of the merger. Based on this analysis, the estimated total synergies value per share of Chubb common stock was $30.72 to $43.21.
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Discounted Cash Flow Analysis
Morgan Stanley performed a discounted cash flow analysis, which is designed to provide an implied value of a company by calculating the present value of the estimated future cash flows and terminal value of the company. In preparing its analysis, Morgan Stanley relied upon certain publicly available research analyst financial projections for calendar years 2015 to 2017, and extrapolated such projections for 2018 to 2020 (such extrapolations being reviewed and endorsed by ACEs management as reasonable for Morgan Stanleys use in its analysis) based on consistent growth and operating assumptions as implied by such publicly available research analyst financial projections (the Chubb Street case). The management of Chubb advised Morgan Stanley that the Chubb Street case represented a reasonable basis upon which to evaluate the business and financial prospects of Chubb. Morgan Stanley calculated a range of implied equity values per share of Chubb common stock based on estimates of the distributable cash flows that Chubb was forecasted to have the capacity to distribute from the second half of 2015 through 2020 and estimated terminal values for Chubb. Distributable cash flows were projected based on maintaining written premiums to tangible equity consistent with historical levels, with excess tangible equity distributed as a dividend. Morgan Stanley estimated a range of terminal values by extrapolating estimated book value for year-end 2020 and multiplying this estimated book value by illustrative terminal price to book ratio multiples ranging from 1.30x to 1.45x. Present values of dividends and terminal values were calculated using a range of discount rates between 6.0 percent to 7.0 percent, which range was selected based on Morgan Stanleys professional judgment and taking into consideration, among other things, Chubbs assumed cost of equity calculated utilizing a capital asset pricing model. The cost of equity reflects a 2.5 percent 10-year U.S. treasury rate as of June 29, 2015, 6.0 percent assumed market risk premium, and 0.664 U.S. local predicated Barra Beta. This analysis indicated an implied per share valuation range for Chubb of $97.11 to $109.66, as compared to $94.67, the closing price of Chubbs shares on June 29, 2015.
Pro Forma Merger Analysis
Using the Chubb Street case and the ACE projections, making certain adjustments to reflect assumptions regarding synergies, allocation of excess purchase price to intangibles and the related amortization, financing costs and share repurchases and assuming a closing at year-end 2015, Morgan Stanley performed a pro forma analysis of the financial impact of the merger on ACEs estimated book value per share and tangible book value per share, for year-end 2015 through 2018, and ACEs estimated earnings per share, return on average equity and return on average tangible equity, for calendar years 2016 through 2018. Based on this analysis, but excluding non-recurring integration costs in 2016 through 2018 and potential purchase accounting impacts other than the estimated amortization related to new intangible assets created in the transaction, the proposed merger would be:
| accretive to ACEs estimated book value per share for year-end 2015 through 2018; |
| dilutive to ACEs estimated tangible book value per share for year-end 2015 through 2018; |
| accretive to ACEs estimated earnings per share for calendar years 2016 through 2018; |
| accretive to ACEs estimated return on average equity in calendar year 2018, but dilutive to ACEs estimated return on average equity for calendar years 2016 and 2017; and |
| accretive to ACEs estimated return on average tangible equity for calendar years 2016 through 2018. |
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General
Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described should not be taken to be Morgan Stanleys view of the actual value of Chubb or ACE. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond the control of Chubb or ACE. Any estimates contained in Morgan Stanleys analyses are not necessarily indicative of future results of Chubb or ACE or actual values, which may be significantly more or less favorable than those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness of the consideration pursuant to the merger agreement from a financial point of view to ACE and in connection with the delivery of its oral opinion to the ACE board subsequently confirmed in writing. These analyses do not purport to be appraisals or to reflect the prices at which shares of ACE or Chubb might actually trade.
The consideration was determined through arms-length negotiations between ACE and Chubb and was approved by the ACE board. Morgan Stanley provided advice to ACE during these negotiations. Morgan Stanley did not, however, recommend any specific consideration to ACE or that any specific consideration constituted the only appropriate consideration for the merger.
Morgan Stanleys opinion and its presentation to the ACE board was one of many factors taken into consideration by the ACE board in deciding to approve the merger agreement. Consequently, the analyses described above should not be viewed as determinative of the view of the ACE board with respect to the consideration or of whether the ACE board would have been willing to agree to different consideration. Morgan Stanleys opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.
Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Morgan Stanleys securities business is continuously engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services that include the valuation of businesses and securities in connection with mergers and acquisitions. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of ACE, Chubb, or any other company, or any currency or commodity, that may be involved in this transaction, or any related derivative instrument.
As compensation for Morgan Stanleys services relating to the merger, ACE has agreed to pay Morgan Stanley a fee of $38 million if the merger is consummated. ACE has also agreed to reimburse Morgan Stanley for its reasonable out of pocket expenses incurred in performing its services, up to $100,000. In addition, ACE has agreed to indemnify Morgan Stanley and its affiliates, their respective officers, directors, employees and agents and each other person, if any, controlling Morgan Stanley or any of its affiliates against any losses, claims, damages or liabilities related to or arising out of Morgan Stanleys engagement, including all reasonable expenses.
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In the two years prior to the date of its opinion rendered in connection with the merger, Morgan Stanley and its affiliates have provided financial advisory and financing services to ACE and its affiliates and have received fees of approximately $1.2 million in the aggregate in connection with such services. In the two years prior to the date of its opinion rendered in connection with the merger, Morgan Stanley and its affiliates have provided financial advisory and financing services to Chubb and its affiliates and have received fees of approximately $34,000 in the aggregate in connection with such services. In addition, it is anticipated that Morgan Stanley or one or more of its affiliates may provide or arrange financing in connection with the consummation of the merger, for which Morgan Stanley will receive fees from ACE. Morgan Stanley may also seek to provide other financial advisory and financing services to ACE and Chubb in the future and would expect to receive fees for the rendering of these services.
Based on the number of outstanding shares of Chubb common stock as of September 10, 2015, the cash portion of the merger consideration will equal approximately $14.3 billion. ACE intends to pay the cash consideration using cash on hand, cash sourced from certain of its insurance company subsidiaries and Chubb and one of Chubbs insurance company subsidiaries, and debt financing. ACE intends to fund approximately $6 billion of the merger consideration through dividends from certain of its U.S. and non-U.S. insurance company subsidiaries. ACE also intends to fund approximately $3 billion of the merger consideration through dividends that ACE expects to receive from Chubb in connection with the merger or from a short-term loan of approximately $3 billion, which will be promptly repaid using such dividends. The majority of the dividends from Chubb is expected to be sourced from cash and liquid assets held at Chubb, with the remaining amount being sourced from a U.S. insurance company subsidiary of Chubb. Certain of the dividends from ACEs and Chubbs insurance company subsidiaries will be subject to prior regulatory approvals. ACE also intends to source an additional $5.3 billion from the issuance of senior unsecured notes with various maturities pursuant to an existing shelf registration statement to which ACE INA Holdings Inc., an indirect wholly owned subsidiary of ACE, is a registrant. Like the outstanding debt of ACE INA Holdings Inc., these notes would be guaranteed by ACE. There is no financing condition under the merger agreement, which means that if the conditions to closing are satisfied, ACE is obligated to complete the merger whether or not it has sufficient funds to pay the cash consideration under the merger agreement.
Management and Board of Directors of ACE After the Merger
Upon completion of the merger, the current directors and executive officers of ACE are expected to continue in their current positions, other than as may be publicly announced by ACE in the normal course. Upon completion of the merger, Mr. Paul Krump will serve as Executive Vice President of Global Underwriting and Claims for ACE and will join ACEs Executive Committee, Mr. Dino Robusto will serve as Executive Vice President of ACE and Co-President of the North America Insurance division of ACE and will join ACEs Executive Committee and Mr. Harold Morrison, Jr. will serve as Senior Vice President of ACE and Executive Vice President and Chief Field Officer for the North America Insurance division of ACE. Subject to shareholder approval of the ACE director election proposal, upon completion of the merger, Sheila P. Burke, James I. Cash, Jr., Lawrence W. Kellner and James M. Zimmerman will serve as directors on the ACE board. Information about Sheila P. Burke, James I. Cash, Jr., Lawrence W. Kellner and James M. Zimmerman is available under Proposals to Be Submitted to ACE ShareholdersAgenda Item 4: Election of Four Additional Members of the ACE Board. Information about the current directors of ACE is included in Appendix E. Information about the current executive officers of ACE and Messrs. Krump, Robusto and Morrison can be found in the documents listed under Where You Can Find More Information.
Interests of Chubb Directors and Executive Officers in the Merger
In considering the recommendation of the Chubb board that you vote to approve the merger agreement, you should be aware that Chubbs executive officers and non-employee directors have economic
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interests in the merger that are different from, or in addition to, those of Chubbs shareholders generally. The Chubb board was aware of and considered those interests, among other matters, in reaching its decisions to (i) approve the merger agreement and the transactions contemplated thereby and (ii) recommend that the shareholders of Chubb approve the merger agreement proposal. The transactions contemplated by the merger agreement will be a change in control for purposes of the Chubb executive compensation and benefit plans described below.
Certain Assumptions
Except as otherwise specifically noted, for purposes of quantifying the potential payments and benefits described in this section, the following assumptions, as well as those described in the footnotes to the table in the section titled Quantification of Potential Payments and Benefits to Chubbs Named Executive Officers in Connection with the Merger below, were used:
| The relevant price per share of Chubb common stock is $121.26, which is the average closing price per share of Chubbs common stock as quoted on the NYSE over the first five trading days following the first public announcement of the merger on July 1, 2015; |
| The effective time of the merger is July 27, 2015, which is the assumed date of the effective time of the merger solely for purposes of the disclosure in this section; and |
| Each executive officer of Chubb was terminated by Chubb without cause or due to an in-voluntary termination or resigned due to a constructive termination (as such terms are defined in the relevant plans and agreements), in each case, immediately following the assumed effective time of the merger on July 27, 2015. |
| The value of all Chubb restricted stock unit awards that are performance share awards is estimated assuming achievement of the applicable performance goals at target, including performance awards that have a performance period ending in 2015 because the actual level of achievement has not yet been determined by the Chubb boards organization and compensation committee (OCC) with respect to those Chubb restricted stock unit awards. |
Equity Compensation
Chubb Options
At the effective time of the merger, each option to purchase shares of Chubb common stock, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, including those held by the executive officers of Chubb, will be converted into an option to purchase, on the same terms applicable under such Chubb option immediately prior to the effective time of the merger, but subject to the modifications described below, the number of ACE common shares (rounded down to the nearest whole number of shares) equal to the product of (i) the number of shares of Chubb common stock underlying each option immediately prior to the effective time of the merger multiplied by (ii) the equity award conversion amount (as defined below). Each such adjusted option will have an exercise price per ACE common share equal to (1) the exercise price per share of Chubb common stock underlying such Chubb option immediately prior to the effective time of the merger, divided by (2) the equity award conversion amount (rounded up to the nearest whole cent). The equity award conversion amount is equal to: (a) 0.6019 (the stock portion of the per share merger consideration) plus (b) $62.93 (the cash portion of the per share merger consideration) divided by the average closing price of ACE common shares on the NYSE as reported by The Wall Street Journal for the five full trading days ending on the day immediately preceding the date the merger is consummated. All Chubb options held by the Chubb executive officers and non-employee directors as of the date of this joint proxy statement/prospectus are fully vested.
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Chubb Restricted Stock Units and Performance Unit Awards (collectively, the restricted stock unit awards)
At the effective time of the merger, each restricted stock unit award in respect of shares of Chubb common stock that is outstanding immediately prior to the effective time of the merger, including those held by the executive officers of Chubb, will be converted into an adjusted restricted stock unit award or adjusted performance unit award, as applicable (collectively, the adjusted restricted stock unit awards), with the same terms applicable under such Chubb restricted stock unit award immediately prior to the effective time of the merger (excluding performance-based vesting terms), but subject to the modifications described below, and relating to the number of ACE common shares equal to the product of (i) the number of shares of Chubb common stock subject to such restricted stock unit award immediately prior to the effective time of the merger (determined, with respect to any awards subject to performance-based vesting terms, based on (a) with respect to the performance period ending in calendar year 2015, the greater of target or actual performance, and (b) with respect to the performance periods ending after 2015, target performance), multiplied by (ii) the equity award conversion amount, with any fractional shares rounded to the nearest whole number of shares. Any accrued but unpaid dividend equivalents with respect to any Chubb restricted stock unit award will be assumed and become an obligation with respect to the adjusted restricted stock unit award.
Pursuant to the terms of the applicable Chubb equity compensation plans, the outstanding unvested restricted stock unit awards may be either accelerated in full and cancelled for a payment in respect thereof, or assumed and adjusted for an award in respect of the acquirers common stock having substantially equivalent terms and conditions as the original Chubb restricted stock unit award and additional terms and conditions that provide for accelerated vesting of such award on an involuntary termination without cause or a constructive termination following the change of control (an alternative award). In accordance with the terms of the applicable Chubb equity compensation plans, at the effective time of the merger, the equity award agreements in respect of outstanding Chubb restricted stock unit awards held by Chubb executive officers (other than Mr. Finnegan, whose awards already provide for vesting upon certain terminations of employment), will be modified to provide for full vesting upon termination due to involuntary termination other than for cause (generally as defined in the Chubb equity plans) or a constructive termination (with respect to the executive officers (other than those who have agreements containing applicable terms), generally defined to mean a material diminution in duties, responsibilities or position (but not a change in reporting lines or a change in the duties of the person to whom an employee reports), a decrease in base salary or a material decrease in annual target incentive compensation opportunity (cash and equity awards in the aggregate) or relocation of more than 50 miles from the employees primary office location, in each case from those in effect immediately prior to the completion of the merger). Accordingly, if following the completion of the merger an executive officers employment is terminated due to an involuntary termination other than for cause or a constructive termination, outstanding converted restricted stock units would fully vest upon such termination.
Chubb Deferred Stock Units
At the effective time of the merger, each deferred stock unit award in respect of shares of Chubb common stock that is outstanding as of immediately prior to the effective time of the merger, which are only held by the non-employee directors of Chubb and are fully vested and nonforfeitable, will be converted into a deferred stock unit award, with the same terms applicable under the Chubb deferred stock unit award immediately prior to the effective time of the merger, relating to the number of ACE common shares equal to the product of (i) the number of shares of Chubb common stock subject to the award immediately prior to the effective time of the merger, multiplied by (ii) the equity award conversion amount, with any fractional shares rounded to the nearest whole number of shares. Any accrued but unpaid dividend equivalents with respect to any Chubb deferred stock unit award will be assumed and become an obligation with respect to the adjusted deferred stock unit award.
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Chubb Deferred Units
At the effective time of the merger, each share of Chubb common stock in respect of a deferred unit obligation, and each obligation to pay cash measured based on the value of Chubb common stock, under a Chubb deferred compensation plan or certain executive retirement plans, in each case, as of immediately prior to the effective time of the merger (each, a Chubb deferred unit), including those held by the executive officers and non-employee directors of Chubb, will be deemed to be invested in ACE common shares, with the number of ACE common shares subject to any such Chubb deferred unit to be equal to the product of (x) the number of shares of Chubb common stock subject to such Chubb deferred unit as of immediately prior to the effective time of the merger, multiplied by (y) the equity award conversion amount, with any fractional shares rounded to the nearest whole number of shares. Any accrued but unpaid dividend equivalents with respect to any Chubb deferred units will be assumed and become an obligation with respect to the adjusted deferred share unit. All deferred units held by Chubb executive officers and non-employee directors as of the date hereof are fully vested and nonforfeitable.
See the section titled Quantification of Potential Payments and Benefits to Chubbs Named Executive Officers in Connection with the Merger for an estimate of the amounts that would become payable to each of Chubbs named executive officers in respect of their unvested stock-based awards. Based on the assumptions described above under Certain Assumptions and the additional assumptions used for purposes of estimating amounts for named executive officers, the estimated aggregate amount that would become payable to Chubbs seven executive officers who are not named executive officers in respect of their unvested Chubb restricted stock unit awards (including performance-based awards, but other than the portion of any such time-based awards held by executive officers who are retirement-eligible as of July 27, 2015, the vesting of which would accelerate solely upon retirement whether prior to, on or after, the merger) is approximately $12,996,899. No Chubb executive officers hold unvested Chubb stock-based awards other than Chubb restricted stock unit awards, and no Chubb non-employee directors hold unvested Chubb stock-based awards of any type.
For more information on equity holdings of Chubbs non-employee directors and executive officers, see the table entitled Security Ownership of Certain Beneficial Owners and Management of Chubb Common Stock.
Payments Upon Termination of Employment Under Individual Agreements
John D. Finnegan
In connection with the merger, on June 30, 2015, Mr. Finnegan entered into a letter agreement with ACE (the letter agreement), which describes the terms of his employment with ACE and its subsidiaries following the effective time of the merger. Provided that Mr. Finnegan continues to be employed with Chubb through the effective time of the merger, the letter agreement will become effective upon, and subject to, the effective time of the merger and will supersede his employment agreement and change in control agreement with Chubb except as specifically provided in the letter agreement.
ACE Letter Agreement with John D. Finnegan. Under the letter agreement, Mr. Finnegan will serve as the Executive Vice Chairman for External Affairs of North America and as an advisor (primarily with respect to the business operations conducted by Chubb prior to the completion of the merger) to the ACE chief executive officer and, as requested, to the Chairman, Insurance North America of ACE, until December 31, 2017, reporting to the ACE chief executive officer.
The letter agreement provides for annual total direct compensation (inclusive of annual base salary, which will equal 85% of the annual base salary of the ACE chief executive officer) of $15 million in respect of each of 2016 and 2017; however, total direct compensation in any such year is limited to 85% of the
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total direct compensation of the ACE chief executive officer for any such year. With respect to 2016, Mr. Finnegans total direct compensation will be paid (i) with respect to annual base salary, in cash consistent with ACEs ordinary payroll practices and (ii) with respect to the remainder of 2016 total direct compensation, (a) 50% in cash delivered to Mr. Finnegan generally in February 2017 (except upon certain terminations of employment), and (b) 50% in restricted stock units in respect of ACE common shares, which will vest and settle, generally subject to his continued service, on December 31, 2017. With respect to 2017, Mr. Finnegans total direct compensation will be paid (i) with respect to annual base salary, in cash consistent with ACEs ordinary payroll practices and (ii) with respect to the remainder of 2017 total direct compensation, in cash delivered to Mr. Finnegan generally in February 2018 (except upon certain terminations of employment).
The letter agreement also provides that an amount equal to $20,475,000 (the amount of cash severance that Mr. Finnegan would have been entitled to receive under his change in control agreement with Chubb upon a termination of employment other than for cause or due to constructive termination within three years following a change in control) as well as the value of Mr. Finnegans previously accrued and vested supplemental retirement benefits (frozen to future accruals pursuant to the letter agreement) will be funded in a rabbi trust to be paid to Mr. Finnegan upon his future separation from service. The letter agreement further provides that Mr. Finnegan will receive benefits and perquisites consistent with those provided generally to ACE executive management committee members as well as certain benefits and perquisites, including administrative support and transportation benefits, on the same basis as applicable prior to the closing of the merger.
If Mr. Finnegans employment is terminated without cause or by Mr. Finnegan for good reason during the term of the letter agreement, he will be entitled to receive: (i) any unpaid annual compensation from the date of termination through the remainder of the term (in cash or equity, depending on the date of termination), generally not subject to the cap described above, (ii) full vesting of all outstanding equity awards, (iii) continued receipt of certain benefits and perquisites for the remainder of the term, (iv) three years of continued health and welfare benefits and, thereafter, retiree health benefits, (v) financial counseling for two years, and (vi) up to $100,000 of outplacement services. Mr. Finnegans existing employment agreement and change in control agreement with Chubb provide for a tax gross-up for any excise tax imposed by reason of Sections 4999 and 280G of the Code, and this provision will continue to apply following the closing of the merger. Pursuant to the letter agreement, Mr. Finnegan will also be subject to a two-year post-termination non-competition covenant and non-solicitation of employees, customers and clients covenant.
Under the letter agreement, (i) cause is generally defined to mean Mr. Finnegans (a) willful and continued failure to substantially perform his duties, (b) willful and gross misconduct in connection with the performance of his duties that is materially and demonstrably injurious to ACE, or (c) conviction of, or plea of guilty or no contest to, a felony, and (ii) good reason is generally defined to mean (a) the assignment to Mr. Finnegan of duties inconsistent with his position, diminution in his duties, responsibilities, or position/title, or a change of his reporting person, (b) failure by ACE to provide the compensation, benefits and perquisites under the letter agreement, (c) relocation of more than 25 miles from Warren, New Jersey or substantially increased business travel, (d) purported termination of employment other than as provided in the letter agreement, or (e) failure of any successor to ACE to assume the letter agreement.
Superseded Chubb Employment Agreement and Change in Control Agreement with John D. Finnegan. Mr. Finnegan is party to an employment agreement and a change in control employment agreement with Chubb, which we refer to collectively as the Finnegan agreements. Read together, the Finnegan agreements set forth Mr. Finnegans employment terms following a change in control. As described above, except as specifically provided in the letter agreement, the Finnegan agreements will be superseded by the letter agreement when it becomes effective at the completion of the merger.
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Under the Finnegan agreements, upon a termination of employment other than for cause, death or disability, or upon a constructive termination (as such terms are defined in the Finnegan agreements), in each case, within the three-year period following a change in control, Mr. Finnegan would be entitled to receive: (i) any earned but unpaid annual cash bonus for the fiscal year immediately preceding the fiscal year in which the date of termination occurs, (ii) a pro-rated annual cash bonus through the date of termination for the year in which the date of termination occurs, (iii) three times the sum of Mr. Finnegans then-current annual base salary and highest annual cash bonus award over the past three years (including any annual cash bonus payable for the year in which the date of termination occurs), (iv) three years of continued health and welfare benefits (or, if shorter, until a new employer provides these benefits) under the applicable employee welfare plans and, thereafter, retiree health benefits (however, Mr. Finnegan would be eligible for such retiree health benefits upon any separation from service, whether prior to, on or after the effective time of the merger), (v) full vesting of all out-standing equity awards, (vi) up to $100,000 of outplacement services, and (vii) certain other severance benefits. The Finnegan agreements provide for a tax gross-up for any excise tax imposed on the payments and benefits to Mr. Finnegan by reason of Sections 4999 and 280G of the Code. The Finnegan agreements also subject Mr. Finnegan to confidentiality, and two-year post-termination non-competition and non-solicitation covenants.
See the section titled Quantification of Potential Payments and Benefits to Chubbs Named Executive Officers in Connection with the Merger for an estimate of the amounts that would become payable to Mr. Finnegan under the Finnegan agreements, based on the assumptions set forth therein.
Richard G. Spiro
Mr. Spiro is party to a change in control agreement with Chubb, which sets forth Mr. Spiros employment terms following a change in control (the Spiro agreement). Under the Spiro agreement, upon a termination of employment other than as a result of his death, disability, retirement, voluntary termination or termination for cause or if Mr. Spiro is constructively terminated, in each case, within the two-year period following a change in control, Mr. Spiro would be entitled to receive a severance payment equal to two times the sum of his then-current annual base salary and the average of the annual cash bonuses for the three calendar years preceding the change in control, subject to certain limitations that do not apply under the circumstances. Mr. Spiro would also be entitled to continuation of health and welfare benefits for two years following the date of termination.
See the section titled Quantification of Potential Payments and Benefits to Chubbs Named Executive Officers in Connection with the Merger for an estimate of the amounts that would become payable to Mr. Spiro under the Spiro agreement, based on the assumptions set forth therein.
Chubb Severance Plan
Chubb maintains a severance plan for the benefit of all of its employees, which generally provides for severance upon a qualifying termination of employment (other than due to performance issues) equal to two weeks of base salary per year of service (subject to a minimum of four weeks of base salary and maximum of 52 weeks of base salary), determined based on the employees number of years of service as of the date of termination. The Chubb severance plan also provides for a discretionary outplacement services benefit upon a qualifying termination of employment. The executive officers of Chubb, other than Messrs. Finnegan and Spiro, are eligible to receive severance benefits under the severance plan.
In connection with the merger, Chubb may amend the Chubb severance plan to provide (i) that a qualifying termination of employment under the severance plan includes an involuntary termination other than for cause or a constructive termination (for the executive officers who participate in the plan, the definitions described above for the equity award termination vesting would also apply under the severance plan), (ii) for mandatory outplacement benefits at customary levels, and (iii) for subsidized COBRA coverage during the applicable severance period.
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See the section titled Quantification of Potential Payments and Benefits to Chubbs Named Executive Officers in Connection with the Merger for an estimate of the amounts that would become payable to Chubbs named executive officers under the Chubb severance plan, other than Messrs. Finnegan and Spiro who do not participate in such plan, based on the assumptions set forth therein. Based on the assumptions described above under Certain Assumptions and the additional assumptions used for purposes of estimating amounts for named executive officers, the estimated aggregate value of the amounts that would become payable and the benefits that would be provided to Chubbs seven executive officers who are not named executive officers under the Chubb severance plan is approximately $2,894,761. No Chubb non-employee directors are entitled to payments or benefits upon their termination of service.
Fiscal Year 2015 Cash Bonus Awards
Chubb and ACE have agreed that the cash bonus incentives under the Chubb Annual Incentive Plan (the bonus plan) for the 2015 fiscal year, including with respect to our executive officers, will be determined prior to the effective time of the merger by the OCC, taking into account the information available based on performance through the latest reasonably practicable date prior to the OCCs determination (annualized to reflect a full 12 months of performance, if necessary), and that the aggregate 2015 bonus pool will be no less than $195 million (which is the aggregate bonus pool in respect of the 2014 fiscal year). Bonuses for the 2015 fiscal year will otherwise be determined in accordance with the terms of the bonus plan in the ordinary course consistent with past practice, including with respect to allocation of the bonus pool. Chubb and ACE have agreed that any employee, including any Chubb executive officer, whose employment is terminated due to an involuntary termination or constructive termination (as defined under the Chubb severance plan) following the effective time of the merger but prior to the payment of 2015 bonuses will be paid the full bonus amount awarded. As actual Chubb performance is not known at this time, we cannot determine the amount, if any, that an executive officer will be entitled to receive under the bonus plan for the 2015 fiscal year.
Fiscal Year 2016 Equity Awards
Chubb and ACE have agreed that the OCC may grant 2016 annual equity awards (granted, except in the case of certain employees outside of the United States, in the form of restricted stock units subject to service-based vesting, unless otherwise determined by the OCC, with any such service-based restricted stock units cliff vesting on the third anniversary of the grant date) in respect of Chubbs 2015 fiscal year, with an aggregate grant date fair value of approximately $100 million (which is the aggregate value of equity awards granted in respect of the 2014 fiscal year) prior to the effective time of the merger. Individual allocations of such awards will be done in the ordinary course and based on actual performance with respect to 2015. Chubb and ACE have agreed that these equity awards, including those held by executive officers of Chubb, will vest in full upon an involuntary termination or constructive termination (as defined under the Chubb severance plan) following the effective time of the merger. As actual Chubb performance with respect to 2015 is not known at this time, we cannot determine the amount, if any, that an executive officer will be entitled to receive with respect to 2016 annual equity awards.
New Arrangements with ACE
In connection with, and following, the execution of the merger agreement, ACE has engaged, and expects to continue to engage, in discussions with certain of Chubbs executive officers about potential roles with the combined company after the effective time of the merger. At the time of execution of the merger agreement, ACE entered into a letter agreement with John D. Finnegan, Chubbs chief executive officer, which letter agreement is summarized in detail above (see Payments Upon Termination of Employment Under Individual AgreementsJohn D. FinneganACE Letter Agreement with John D. Finnegan). Since the execution of the merger agreement, ACE has announced that after the effective time of the merger (i) Mr. Paul
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Krump will serve as Executive Vice President for Global Underwriting and Claims for ACE and will join ACEs Executive Committee, (ii) Mr. Dino Robusto will serve as Executive Vice President of ACE and Co-President of the North America Insurance division of ACE and will join ACEs Executive Committee, and (iii) Mr. Harold Morrison, Jr. will serve as Senior Vice President of ACE and Executive Vice President and Chief Field Officer for the North America Insurance division of ACE. As of the date of this joint proxy statement/prospectus, none of Mr. Krump, Mr. Robusto, or Mr. Morrison has entered into any agreement or arrangement with ACE in connection with such appointments.
There is at this time no assurance that the discussions between ACE and certain of Chubbs executive officers will result in any additional agreements with ACE and what the terms and conditions of any such agreements would be.
In addition, in connection with the merger, Chubb and ACE may provide cash-based and/or equity-based retention awards for the benefit of certain Chubb executive officers. As of the date of this joint proxy statement/prospectus, one such retention award has been allocated to a Chubb executive officer (Mr. Mark P. Korsgaard). Mr. Korsgaards retention award agreement provides that, effective upon, and subject to the closing of the merger, and subject to Mr. Korsgaards continued employment through such date, Mr. Korsgaard will be eligible to receive a retention award in the form of ACE restricted stock with a grant date value of $825,000. The restricted stock will vest on the 18-month anniversary of the closing date of the merger, subject to Mr. Korsgaards continued employment through the vesting date. However, if prior to the vesting date Mr. Korsgaards employment is terminated by reason of his death or disability, or due to involuntary termination without cause or constructive termination (as defined under the Chubb severance plan), the restricted stock will vest in full as of the date of termination, subject to Mr. Korsgaards execution and non-revocation of a release (other than upon termination due to death or disability). For additional details on the retention program, see the discussion in the section titled The Merger AgreementCovenants and AgreementsEmployee Matters below.
As discussed in the section titled Management and Board of Directors of ACE After the Merger, subject to shareholder approval of the ACE director election proposal, upon completion of the merger, Sheila P. Burke, James I. Cash, Jr., Lawrence W. Kellner and James M. Zimmerman will serve as directors on the ACE board. The compensation paid to these directors for their service on the ACE board will be the same as the compensation paid to other ACE non-employee directors.
Indemnification and Insurance
Pursuant to the terms of the merger agreement, Chubb non-employee directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors and officers liability insurance policies following the effective time of the merger. Such indemnification and insurance coverage is further described in the section titled The Merger AgreementCovenants and AgreementsIndemnification and Directors and Officers Insurance.
Quantification of Potential Payments and Benefits to Chubbs Named Executive Officers in Connection with the Merger
The information set forth in the table below is intended to comply with Item 402(t) of the SECs Regulation S-K, which requires disclosure of information about certain compensation for each named executive officer of Chubb that is based on, or otherwise relates to, the merger (merger-related compensation). For additional details regarding the terms of the payments and benefits described below, see the discussion above.
As described above, Mr. Finnegan has entered into a new letter agreement with ACE that will become effective upon the effective time of the merger. The merger-related compensation described below
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is based on the existing Finnegan agreements with Chubb, and does not include amounts payable under the new letter agreement with ACE following the effective time of the merger (including (i) post-closing salary, annual incentive compensation, and other compensation and benefits to be provided under the letter agreement, and (ii) severance payable to Mr. Finnegan upon a qualifying termination after the effective time of the merger pursuant to the letter agreement). For additional details regarding the terms of the payments and benefits that Mr. Finnegan will be entitled to receive under his new letter agreement with ACE, as well as terms of the payments and benefits described below, see the discussion above. This disclosure assumes that all executive officers (other than Messrs. Finnegan and Spiro) are eligible to receive the benefits under the Chubb severance plan, as amended.
The amounts shown in the table below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described below and in the footnotes to the table, and do not reflect certain compensation actions that may occur before the effective time of the merger, including the grants of 2016 equity awards and awards under the retention program (if any). For purposes of calculating such amounts, in addition to the assumptions described in the footnotes to the table below, the following assumptions were used:
| The relevant price per share of Chubb common stock is $121.26, which is the average closing price per share of Chubbs common stock as quoted on the NYSE over the first five trading days following the first public announcement of the merger on July 1, 2015; |
| The effective time of the merger is July 27, 2015, which is the assumed date of the effective time of the merger solely for purposes of the disclosure in this section; and |
| Each named executive officer of Chubb was terminated by Chubb without cause or due to an involuntary termination or resigned with good reason or due to a constructive termination (as such terms are defined in the relevant plans and agreements), in each case, immediately following the assumed effective time of the merger on July 27, 2015. |
Golden Parachute Compensation
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| |||||||||||||||||||
Name |
Cash ($)(1) | Equity ($)(2) | Perquisites / Benefits ($)(3) |
Tax Reimbursement ($)(4) |
Total ($) | |||||||||||||||
John D. Finnegan |
23,609,247 | 33,352,802 | 170,683 | 23,354,743 | 80,487,475 | |||||||||||||||
Richard G. Spiro |
5,319,600 | 10,751,275 | 21,098 | - | 16,091,973 | |||||||||||||||
Paul J. Krump |
840,000 | 7,537,912 | 21,392 | - | 8,399,304 | |||||||||||||||
Dino E. Robusto |
840,000 | 7,537,912 | 22,952 | - | 8,400,864 | |||||||||||||||
Harold L. Morrison, Jr. |
725,000 | 5,818,668 | 17,492 | - | 6,561,160 |
(1) | Cash. Consists of the following: (i) under the Finnegan agreements, Mr. Finnegan is entitled to (a) cash severance equal to three times his annual salary as of July 27, 2015 and the highest of his last three annual or current non-equity incentive compensation awards (the relevant bonus amount) and (b) a pro-rated annual cash bonus through July 27, 2015 based on the relevant bonus amount; (ii) under the Spiro agreement, Mr. Spiro is entitled to two years of compensation based on Mr. Spiros annual salary as of July 27, 2015 and the average of his last three annual non-equity incentive compensation awards; and (iii) based on their years of service with Chubb, each of Messrs. Krump, Robusto and Morrison are entitled to severance equal to the maximum of 52 weeks of base salary under the Chubb severance plan, in each case, as described above. All such amounts are double trigger and payable only upon a qualifying termination of employment following the effective time of the merger. |
(2) | Equity. Consists of the value of unvested Chubb restricted stock unit awards held by the named executive officers that are converted into ACE awards at the effective time of the merger, the vesting of |
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which will be accelerated upon a qualifying termination following the effective time of the merger in accordance with the terms of the applicable Chubb award agreements, equity compensation plans and the Finnegan agreements. This column does not include the value of the portion of any unvested time-based Chubb restricted stock unit awards held by a named executive officer who is retirement-eligible as of July 27, 2015, the vesting of which would accelerate solely upon such named executive officers retirement whether prior to, on or after, the merger. No named executive officers hold unvested Chubb stock-based awards other than Chubb restricted stock unit awards. The value of all Chubb restricted stock unit awards that are performance share awards is estimated assuming achievement of the applicable performance goals at target, including performance awards that have a performance period ending in 2015, because the actual level of achievement has not yet been determined by the OCC with respect to such awards. All such amounts are double trigger and payable only upon a qualifying termination of employment following the effective time of the merger. For further details regarding the treatment of Chubb equity awards in connection with the merger, see Interests of Chubb Directors and Executive Officers in the MergerEquity Compensation, above. The value of each such benefit is shown in the following table: |
Name |
Unvested Restricted Stock Unit Awards ($) |
Unvested Performance Share Awards ($) |
Total ($) | |||||||||
John D. Finnegan |
4,967,049 | 28,385,753 | 33,352,802 | |||||||||
Richard G. Spiro |
2,687,728 | 8,063,547 | 10,751,275 | |||||||||
Paul J. Krump |
1,130,413 | 6,407,500 | 7,537,912 | |||||||||
Dino E. Robusto |
1,130,413 | 6,407,500 | 7,537,912 | |||||||||
Harold L. Morrison, Jr. |
862,650 | 4,956,017 | 5,818,668 |
(3) | Perquisites/Benefits. Consists of the following: (i) for Mr. Finnegan, (a) outplacement benefits; (b) three years of life insurance; and (c) three years of medical and dental benefits; (ii) for Mr. Spiro, (a) two years of life insurance premiums; and (b) two years of medical and dental benefits coverage; and (iii) for Messrs. Krump, Robusto, and Morrison, Jr.: (a) one year of employer-paid COBRA premiums; and (b) outplacement benefits. All such amounts are double trigger and payable only upon a qualifying termination of employment following the completion of the merger. |
The value of each such benefit is shown in the following table: |
Name |
Continued Health & Welfare Benefits ($) |
Life Insurance Continuation ($) |
Outplacement Services ($) |
Total ($) | ||||||||||||
John D. Finnegan |
32,760 | 37,923 | 100,000 | 170,683 | ||||||||||||
Richard G. Spiro |
17,568 | 3,530 | - | 21,098 | ||||||||||||
Paul J. Krump |
13,692 | - | 7,700 | 21,392 | ||||||||||||
Dino E. Robusto |
15,252 | - | 7,700 | 22,952 | ||||||||||||
Harold L. Morrison, Jr. |
9,792 | - | 7,700 | 17,492 |
(4) | Tax Reimbursement. The amount in this column represents the single-trigger tax gross-up that Mr. Finnegan is entitled to receive under his change in control agreement in the event that payments and benefits received by him are subject to the golden parachute excise tax imposed under Section 4999 of the Code on golden parachute payments. This calculation is an estimate for purposes of this joint proxy statement/prospectus only and is subject to the assumptions set forth herein. For purposes of this calculation, no portion of the restricted stock unit awards that are performance share awards that would |
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accelerate upon a change in control has been treated as reasonable compensation for services rendered prior to the change in control, and no value has been attributed to non-competition covenants. |
Regulatory Reviews and Approvals
Insurance Regulatory Approvals
The insurance laws and regulations of the states of Connecticut, Delaware, Indiana, New Jersey, New York, Texas and Wisconsin, jurisdictions where insurance company subsidiaries of Chubb are domiciled, generally require that, prior to the acquisition of control of an insurance company domiciled or commercially domiciled in those respective jurisdictions, the acquiring company must obtain the approval of the insurance regulators of those jurisdictions. Each of the aforementioned insurance regulators may disapprove the acquisition if the regulator determines, in some cases, after a public hearing, that the application submitted to obtain prior approval does not demonstrate compliance with the standards set forth in the applicable insurance laws and regulations. These standards generally require that the acquired insurer would, following the acquisition, be able to continue to satisfy licensing requirements; the effect of the acquisition would not lessen competition or create a monopoly in that state; ACEs financial condition would not jeopardize the acquired insurer or prejudice the interest of its policyholders; ACEs plans for the acquired insurer are fair and reasonable to the insurers policyholders, and the competence, experience and integrity of the persons who would manage the acquired insurer are such that it would be in the best interest of the acquired insurers policyholders and the public to permit the acquisition; and the acquisition will not be hazardous or prejudicial to the insurance-buying public. Between August 7 and August 13, 2015, ACE made the filings requesting such approval with the insurance regulators of the states of Connecticut, Delaware, Indiana, New Jersey, New York, Texas and Wisconsin.
The insurance laws and regulations of multiple states where insurance company subsidiaries of Chubb are authorized to conduct insurance business require the filing of pre-acquisition notifications regarding the potential competitive impact of an acquisition of control of an insurance company authorized in those jurisdictions in which the requirement to make such notifications is triggered (and not otherwise exempted) under applicable law. Such notifications generally must be made at least 30 days before completion of the acquisition (which period may be terminated earlier by the applicable states insurance regulator or extended on a one-time basis for up to an additional 30 days). On September 2 and September 3, 2015, ACE made such notifications with the insurance regulators of the states of Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, the District of Columbia, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maryland, Minnesota, Missouri, New Hampshire, New Jersey, New Mexico, Nevada, North Dakota, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia and Wisconsin.
The insurance and competition laws and regulations of Argentina, Australia, Bermuda, Brazil, Canada, Chile, China, Colombia, Hong Kong, Japan, Korea, Malaysia, Mexico, Singapore and the United Kingdom, jurisdictions where insurance company subsidiaries of Chubb are domiciled or where branches of insurance company subsidiaries of Chubb are active, generally require that, in connection with the acquisition of control of such insurance companies, the acquiring company must provide notice to or seek approval from the relevant governmental authorities in such jurisdictions.
To the extent ACE will fund a portion of the cash component of the merger consideration through dividends from one or more of ACEs and/or Chubbs insurance company subsidiaries, ACE and/or Chubb may be required to seek approval from the relevant governmental authority in the jurisdiction in which such insurance company subsidiaries are domiciled (see Financing above).
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Department of Justice, Federal Trade Commission and U.S. Antitrust Authorities
Completion of the merger is subject to certain governmental or regulatory clearance procedures, including the early termination or expiration of the waiting period under the HSR Act and the approval of the insurance regulators of certain jurisdictions.
Under the provisions of the HSR Act, transactions such as the merger may not be completed until the expiration of a 30-day waiting period following the filing of completed notification reports with the Antitrust Division and the FTC, unless a request for additional information or documentary material is received from the Antitrust Division or the FTC, or unless early termination of the waiting period is granted by the reviewing agencies. ACE and Chubb filed notification reports under the HSR Act with the Antitrust Division and the FTC on September 2.
At any time before or after the merger, the Antitrust Division or the FTC could take action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the merger or seeking divestiture of businesses or assets of ACE, Chubb or their respective subsidiaries. Private parties, foreign competition authorities and state attorneys general also may bring an action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, of the result.
Other Approvals
Other than the filings described above, neither ACE nor Chubb is aware of any regulatory approvals required to be obtained, or waiting periods required to expire, to complete the merger. If the parties discover that other approvals or waiting periods are necessary, they will seek to obtain or comply with them. If any additional approval or action is needed, however, ACE or Chubb may not be able to obtain it, as is the case with respect to the other necessary approvals. Even if ACE or Chubb obtain all necessary approvals, conditions may be placed on any such approval that could cause either ACE or Chubb to abandon the merger.
Timing
Although ACE and Chubb expect these regulatory authorities to approve of the merger, there is no assurance whether or when ACE and Chubb will obtain all required regulatory approvals, or that those approvals will not include terms, conditions or restrictions that may have an adverse effect on ACE or Chubb.
ACE and Chubb have agreed to cooperate with each other and use their respective reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and governmental entities that are necessary or advisable to consummate the merger, as discussed in the section titled The Merger AgreementCovenants and AgreementsRegulatory Matters. Neither party is, however, required to take, or commit to take, any action or agree to any condition or restriction that would reasonably be likely to have a material and adverse effect on ACE and its subsidiaries, taken as a whole, giving effect to the merger (with such materiality measured on a scale relative to Chubb and its subsidiaries, taken as a whole).
ACE prepares its financial statements in accordance with GAAP. The merger will be accounted for using the acquisition method of accounting. ACE will be treated as the acquirer for accounting purposes.
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NYSE Market Listing; Delisting and Deregistration of Chubb Common Stock
ACE common shares to be issued in the merger will be listed for trading on the NYSE. If the merger is completed, Chubb common stock will be delisted from the NYSE and deregistered under the Exchange Act, and Chubb will no longer be required to file periodic reports with the SEC. Prior to completion of the merger, Chubb has agreed to cooperate with ACE to take such steps as may be necessary or appropriate under applicable laws and the rules and policies of the NYSE to enable such delisting and deregistration.
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The following summary discusses certain material terms of the merger agreement. You should also read in its entirety the section titled The Merger for a discussion of other material information about the merger and the merger agreement. The following description of the merger agreement is subject to, and is qualified in its entirety by reference to, the merger agreement, a copy of which is attached as Appendix A to this joint proxy statement/prospectus and incorporated herein by reference. We urge you to read the merger agreement in its entirety, as it is the legal document governing the merger. This section is not intended to provide you with any factual information about ACE or Chubb. Such information can be found elsewhere in this joint proxy statement/prospectus and in the public filings ACE and Chubb make with the SEC, as described in the section titled Where You Can Find More Information.
Explanatory Note Regarding the Merger Agreement
This summary, and the copy of the merger agreement attached to this joint proxy statement/prospectus as Appendix A, are included solely to provide investors with information regarding the terms of the merger agreement. They are not intended to provide any other factual information about ACE or Chubb or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the merger agreement were made only for purposes of that agreement and as of specific dates, were solely for the benefit of the parties to the merger agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the merger agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of ACE or Chubb, or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in the periodic and current reports and statements ACE and Chubb file with the SEC. The representations and warranties, covenants and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this joint proxy statement/prospectus and in the documents incorporated by reference into this joint proxy statement/prospectus. For more information regarding these documents incorporated by reference, see the section titled Where You Can Find More Information.
At the effective time of the merger, Merger Sub, an indirect, wholly owned subsidiary of ACE, will merge with and into Chubb, with Chubb surviving the merger as a wholly owned subsidiary of ACE. As a result of the merger, there will no longer be any publicly held shares of Chubb common stock and Chubb shareholders will no longer have any direct interest in the surviving corporation. Chubb Shareholders will receive ACE common shares as part of the merger consideration and will only participate in the surviving corporations future earnings and potential growth through their ownership of ACE common shares. All of the other incidents of direct stock ownership in Chubb, such as the right to vote on certain corporate decisions, to elect directors and to receive dividends and distributions from Chubb, will be extinguished upon completion of the merger. Upon completion of the merger, shares of Chubb common stock will represent the right to receive the merger consideration. See the section titled The MergerMerger Consideration.
The merger will occur no later than three business days after the satisfaction or waiver of all closing conditions, unless otherwise agreed to in writing by the parties. The merger will be completed and become
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effective as of the date and time specified in the certificate of merger to be filed with the Secretary of State of the State of New Jersey. The parties will file the certificate of merger after the satisfaction or waiver of the closing conditions in the merger agreement. As of the date of this joint proxy statement/prospectus, the parties expect that the merger will be effective during the first calendar quarter of 2016. However, there can be no assurance as to when or if the merger will occur.
Effect of the Merger on Chubb Stock-Based Awards
Chubb Options
At the effective time of the merger, each option to purchase shares of Chubb common stock, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger will be converted into an option to purchase, on the same terms applicable under such Chubb option immediately prior to the effective time of the merger, but subject to the modifications described below, the number of ACE common shares (rounded down to the nearest whole number of shares) equal to the product of (i) the number of shares of Chubb common stock underlying each option immediately prior to the effective time of the merger multiplied by (ii) the equity award conversion amount (as defined below). Each such adjusted option will have an exercise price per ACE common share equal to the quotient (rounded up to the nearest whole cent) obtained by dividing (1) the exercise price per share of Chubb common stock underlying such Chubb option immediately prior to the effective time of the merger by (2) the equity award conversion amount. The equity award conversion amount is equal to: (i) 0.6019 (the stock portion of the per share merger consideration) plus (ii) $62.93 (the cash portion of the per share merger consideration) divided by the average closing price of ACE common shares on the NYSE as reported by The Wall Street Journal for the five full trading days ending on the day immediately preceding the date the merger is consummated.
Chubb Restricted Stock Units and Performance Unit Awards (collectively, the restricted stock unit awards)
At the effective time of the merger, each restricted stock unit award in respect of shares of Chubb common stock that is outstanding immediately prior to the effective time of the merger will be converted into an adjusted restricted stock unit award or performance unit award, as applicable (the adjusted restricted stock unit awards), with the same terms applicable under such Chubb restricted stock unit award immediately prior to the effective time of the merger (excluding performance-based vesting terms), but subject to the modifications described below, and relating to the number of ACE common shares equal to the product of (i) the number of shares of Chubb common stock subject to such restricted stock unit award immediately prior to the effective time of the merger (determined, with respect to awards subject to performance-based vesting terms, based on (A) with respect to the performance periods ending in calendar year 2015, the greater of target or actual performance, and (B) with respect to the performance periods ending after 2015, target performance), multiplied by (ii) the equity award conversion amount, with any fractional shares rounded to the nearest whole number of shares. Any accrued but unpaid dividend equivalents with respect to any Chubb restricted stock unit award will be assumed and become an obligation with respect to the adjusted restricted stock unit award.
Modifications to Chubb Options and Restricted Stock Unit Awards Pursuant to the Chubb Equity Compensation Plans
Pursuant to the terms of the Chubb equity compensation plans under which unvested stock-based awards would be outstanding at the effective time of the merger, upon a change in control of Chubb (as defined in the applicable Chubb equity compensation plans), the outstanding awards under such plans may be either accelerated in full and cancelled for a payment in respect thereof, or assumed and adjusted for an award in respect of the acquirers common stock having substantially equivalent terms and conditions as the original Chubb award and additional terms and conditions that provide for accelerated vesting of such
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award on an involuntary termination without cause or a constructive termination following the change in control (an alternative award). In accordance with the terms of the applicable Chubb equity compensation plans, at the effective time of the merger, the equity award agreements in respect of outstanding Chubb stock options and restricted stock unit awards held by Chubb continuing employees will generally be modified to provide for full vesting upon termination due to involuntary termination other than for cause (generally, as defined in the Chubb equity compensation plans) or a constructive termination, generally defined to mean, (i) for certain levels of employees only, a material diminution in duties, responsibilities or position (but not a change in reporting lines or a change in the duties of the person to whom an employee reports), (ii) a decrease in base salary or a material decrease in annual target incentive compensation opportunity (cash and equity awards in the aggregate) from that in effect immediately prior to the closing date of the merger or (iii) relocation of more than 50 miles from the employees primary office location immediately prior to the closing date of the merger. Accordingly, if following the completion of the merger a Chubb employees employment is terminated due to an involuntary termination other than for cause or a constructive termination, unvested converted equity awards would fully vest upon such termination.
In addition, at the effective time, equity award agreements in respect of outstanding Chubb stock options and restricted stock unit awards held by Chubb continuing employees may be amended so that any non-competition covenants in the Chubb award agreements would not apply upon an involuntary termination or constructive termination.
Chubb Deferred Stock Units
At the effective time of the merger, each deferred stock unit award in respect of shares of Chubb common stock that is outstanding as of immediately prior to the effective time of the merger will be converted into a deferred stock unit award, with the same terms applicable under the Chubb deferred stock unit award immediately prior to the effective time of the merger, and relating to the number of ACE common shares equal to the product of (i) the number of shares of Chubb common stock subject to the award immediately prior to the effective time of the merger, multiplied by (ii) the equity award conversion amount, with any fractional shares rounded to the nearest whole number of shares. Any accrued but unpaid dividend equivalents with respect to any Chubb deferred stock unit award will be assumed and become an obligation with respect to the adjusted deferred stock unit award.
Chubb Deferred Units
At the effective time of the merger, each share of Chubb common stock in respect of a deferred unit obligation, and each obligation to pay cash measured based on the value of Chubb common stock, under a Chubb deferred compensation plan or certain executive retirement plans, in each case, that is outstanding as of immediately prior to the effective time of the merger (each, a Chubb deferred unit), will be deemed to be invested in ACE common shares, with the number of ACE common shares subject to any such Chubb deferred units to be equal to the product of (x) the number of shares of Chubb common stock subject to such Chubb deferred units as of immediately prior to the effective time of the merger, multiplied by (y) the equity award conversion amount, with any fractional shares rounded to the nearest whole number of shares. Any accrued but unpaid dividend equivalents with respect to any Chubb deferred units will be assumed and become an obligation with respect to the adjusted deferred share unit.
Representations and Warranties
The merger agreement contains representations and warranties made by Chubb to ACE relating to a number of matters, including the following:
| corporate organization, qualification to do business, standing and power, subsidiaries and insurance subsidiaries; |
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| capitalization; |
| requisite corporate authority to enter into the merger agreement and to complete the contemplated transactions; |
| absence of conflicts with organizational documents, applicable laws or certain agreements as a result of entering into the merger agreement or completing the merger; |
| regulatory consents and approvals necessary in connection with the merger; |
| filing of material documents with regulatory agencies and the SEC and the accuracy of information contained in certain final documents filed with the SEC; |
| certifications required to be filed under Sarbanes-Oxley; |
| Chubbs financial statements filed with the SEC and their conformity with U.S. GAAP and SEC requirements; |
| the absence of undisclosed liabilities; |
| statutory financial statements, and reserving practices, of Chubbs insurance subsidiaries; |
| brokers and finders fees related to the merger; |
| the absence of a material adverse effect since December 31, 2014; |
| legal and regulatory proceedings; |
| taxes and tax returns; |
| employee compensation and benefits matters; |
| compliance with applicable law; |
| material and certain other contracts; |
| agreements with regulatory agencies; |
| derivatives; |
| environmental matters; |
| insurance maintained by Chubb; |
| investment assets; |
| insurance matters; |
| reinsurance and coinsurance matters; |
|