S&P Puts Germany’s Union on CreditWatch Pending Merger

Standard & Poor’s Ratings Services has placed its “A-” long-term counterparty credit and insurer financial strength ratings on Germany’s UNION Versicherungs-AG (Union) on CreditWatch with developing implications, after it announced its planned merger with BA-CA Versicherung AG (BA-CAV; not rated) into a single entity.

S&P noted that it was still undetermined as to “which of the two will emerge as the successor legal entity.” It explained the CreditWatch placement with developing implications indicates “that the ratings might be affirmed, raised, or lowered.”

“Although we acknowledge the economic sense of the merger, as the two entities are already largely run as a single unit, Standard & Poor’s will evaluate the potential risks of the merger on the financial strength of the combined entity,” stated credit analyst Wolfgang Rief. S&P said that in its view “the planned single brand as BA-CAV will have a positive effect on the competitive position and cost synergies should be achieved.”

Rief noted, however, that “the variety of potential different outcomes are largely influenced by the future capitalization of the merged company in relation to that of Union’s current position and the future support provided by its shareholders.”

S&P also noted: “The owners of the new Union and BA-CA entity will remain unchanged, but the merger will affect the size of their shareholdings. The merger will leave Wiener Städtische (which currently owns 45 percent of Union and 90 percent of BA-CAV) as the majority owner, while the Bank Austria Creditanstalt AG (A+/Stable/A-1) shareholding will be 10 percent as it currently holds the same size stake in both Union and BA-CA. In the longer term, a potential acquisition of the majority ownership by the ERGO group (which currently owns 45 percent of Union) has been cited as a possibility.”

The rating agency indicated that it will “meet with Union’s management and owners to evaluate the effects of the new structure on the financial strength of the combined operation and on its strategic importance.

The CreditWatch status is expected to be resolved by the end of the second quarter 2007, by which time completion of the deal and receipt of regulatory approval are expected.”