Swiss insurer M&A is baby-step in right direction

Helvetia Baloise Holding AG

22/04/2025 12:12

The author is a Reuters Breakingviews columnist.  The opinions expressed are her own.

By Aimee  Donnellan

LONDON, April 22 (Reuters Breakingviews) - A Swiss insurer mashup is sparking much-needed consolidation. On Tuesday, $11 billion Baloise BALN.S and $12 billion Helvetia HELN.S agreed to merge to create Switzerland’s second largest insurance group, with a 20% market share. Over 2 billion Swiss francs of synergies and greater heft in a fragmented market will deliver benefits, eventually. But investors may have preferred a cleaner and faster exit.

After being left underwhelmed by Baloise’s recent strategic plan, its shareholders, which include activist Cevian Capital, had needed something to get excited about. An all-share tie-up with Helvetia delivers a modicum of that. The two companies reckon the combination could generate savings of 350 million Swiss francs each year before taxes, around two-thirds of which will come from slashing the companies’ 22,000-strong workforce. Taxed, capitalised and discounting 500 million Swiss francs of accompanying costs, that leaves around 2 billion Swiss francs of synergies, 47% of which will go to Baloise investors.

A greater chunk of the Swiss market could also boost profits. Berenberg analysts reckon that by joining forces the top five insurers in the Alpine country will have a 75% market share, enabling heftier pricing power in less profitable sectors like motor insurance. The new entity could also be more focused on the domestic market – a key demand from Cevian, which wants the company to sell off some of its international businesses.

Even so, Baloise’s goodies aren’t all that exciting. The reduction in headcount will take time – the companies have given themselves until 2029. And Helvetia’s largest shareholder Patria Genossenschaft, a mutual which owns 34% of the company, may protest significant job cuts.

Meanwhile, some of the goodies look better for management than shareholders. Bulking itself up into a group with $25 billion of sales makes it harder for $101 billion Zurich Insurance Group ZURN.S, which Bloomberg reported considered a bid last year for Baloise, to swoop. That might suit current Helvetia Chief Executive Fabian Rupprecht and Baloise boss Michael Müller, who will respectively become CEO and deputy CEO of the new group. But the cosiness behind the so-called merger of equals deprives Baloise investors of a takeover premium.

With Baloise shares up nearly 40% in the last year, Zurich CEO Mario Greco would be reluctant to overpay. And Baloise’s 500 million Swiss francs of 2025 net income, as assumed in LSEG-compiled analyst estimates, imply only a 5% return on investment if he lobbed in a bid with a 30% premium. But given the Zurich boss has 10% of the Swiss life and non-life market and runs a much bigger company, there may be scope for big synergies of his own. And shareholders might prefer a generous cash offer that offers a speedy exit to what’s currently on the table.

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CONTEXT NEWS

Helvetia and Baloise said on April 22 that they plan to merge, creating Switzerland’s second-largest insurance group with a market share in the country’s life and non-life sectors of 20%.

Helvetia CEO Fabian Rupprecht will take the helm of the new firm and Baloise investors will receive 1.0119 Helvetia shares for each one they currently hold.

Helvetia investors will own 53% of the combined company, roughly corresponding to the split between the two companies implied by its 9.5 billion Swiss franc market capitalisation on April 21, and Baloise’s 8.4 billion Swiss francs.

In addition to the companies’ existing cost improvement plans, the merger is expected to generate annual savings of around 350 million Swiss francs ($433 million) before taxes.

Merger-related job reductions will be implemented before 2029 and whenever possible be achieved through natural attrition and early retirement, the companies said.

They anticipate closing the deal in the fourth quarter.

Shares in Baloise were up 3.18% at 191.6 Swiss francs by 0737 GMT while Helvetia shares were up 4.1% at 188.5 Swiss francs.

Graphic: A Zurich-Baloise deal would forge a similarly sized insurer to a Helvetia tie-up https://reut.rs/4jBXH2i

 (Editing by George Hay and Oliver Taslic)

 ((For previous columns by the author, Reuters customers can click on DONNELLAN/
Aimee.Donnellan@thomsonreuters.com))