SoftBank Group Corp. is edging closer to a deal to buy a stake in Swiss Re AG that would value the reinsurer at as much as 37 billion Swiss francs ($39 billion), according to people with knowledge of the matter.
Billionaire Masayoshi Son’s SoftBank is holding talks to buy a 25 percent stake at about 100 Swiss francs to 105 Swiss francs a share, the people said, declining to be identified as the deliberations are confidential.
At 105 francs apiece, the deal would represent a 16 percent premium over Swiss Re shares’ close on Feb. 7 — before the company confirmed a Wall Street Journal report that it was in talks — and value the holding at about $9.6 billion.
The terms of the potential deal are still fluid and may change, or the companies may fail to reach an agreement, the people said.
A Swiss Re representative wasn’t immediately available to comment.The deal would help Son reshape Japanese mobile-phone carrier SoftBank into a technology investor, mirroring the actions of business titans including Warren Buffett who have buttressed their conglomerates with healthy cash flows from reinsurance.
There may also be a strategic logic. The purchase potentially would create an in-house insurer for SoftBank's many stakes in the so-called gig economy, from Uber Technologies Inc. to WeWork Cos. Son could even potentially disrupt the$700 billion motor insurance market that is the most important business line for reinsurers. SoftBank is probably the world's biggest investor in ride-hailing companies: Besides Uber, it has stakes in China's Didi Chuxing, India's Ola and Singapore's Grab.
The Japanese technology investor could also bring online heft to Swiss Re's digital strategy. SoftBank already has stakes in U.S. startup Lemonade Insurance Agency LLC and China's ZhongAn Online P&C Insurance Co. It's pouring money into startups spun out of Ping An Insurance (Group) Co., perhaps the most innovative of China's insurers. With big data crucial in analyzing losses and risks at insurers, Swiss Re could do worse than connect with these players.
Another explanation that may be less reassuring for SoftBank investors is that Son simply can't control his hunger for deals. On Wednesday, the billionairesigned an agreement with Saudi Arabia to build a $200 billion solar power development that's far larger than any other project.
Swiss Re’s chief executive officer last month said the company would welcome a long-term investor. In a business where results can change radically from one year to the next, “it’s not a bad thing to have an anchor shareholder,” Christian Mumenthaler said at a conference in Zurich. The reinsurer last month said it plans to raise its dividend and return an additional $1 billion to shareholders. The Zurich-based insurer has hoarded money in recent years when there were relatively few disaster claims.
SoftBank has raised $93 billion out of a planned $100 billion for the world’s biggest private equity pool, and has taken stakes in businesses including ride-hailing, chipmaking and office sharing. The $500 billion reinsurance industry is experiencing a flurry of dealmaking as companies come on the market after a rash of natural disasters depressed valuations and an influx of competitors made it harder to raise rates.
France’s Axa SA this month agreed to buy XL Group Ltd. for $15.3 billion in cash to capture a bigger slice of the U.S. property and casualty market, while American International Group Inc. in January decided to buy the Bermuda-based reinsurer Validus Holdings Ltd. for $5.56 billion in cash.
It's this pool of funds that may be the key attraction for Son. As a minority investor, SoftBank wouldn't be in a position to direct Swiss Re's investment strategy. But it may have influence. SoftBank is seeking a board seat, and Swiss Re in February welcomed the prospect of such an "anchor shareholder" after being approached by the Japanese company.
Using the float is a model set by Warren Buffett that many Asian billionaires have sought to emulate. The U.S. investor used cash flows from insurance to help fund deals that turned Berkshire Hathaway Inc. into a $500 billion powerhouse.