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0001193125-15-243377.txt : 201507020001193125-15-243377.hdr.sgml : 2015070220150701212535ACCESSION NUMBER:0001193125-15-243377CONFORMED SUBMISSION TYPE:425PUBLIC DOCUMENT COUNT:20FILED AS OF DATE:20150702DATE AS OF CHANGE:20150701
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COMPANY DATA:COMPANY CONFORMED NAME:CHUBB CORPCENTRAL INDEX KEY:0000020171STANDARD INDUSTRIAL CLASSIFICATION:FIRE, MARINE & CASUALTY INSURANCE [6331]IRS NUMBER:132595722STATE OF INCORPORATION:NJFISCAL YEAR END:1231
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COMPANY DATA:COMPANY CONFORMED NAME:CHUBB CORPCENTRAL INDEX KEY:0000020171STANDARD INDUSTRIAL CLASSIFICATION:FIRE, MARINE & CASUALTY INSURANCE [6331]IRS NUMBER:132595722STATE OF INCORPORATION:NJFISCAL YEAR END:1231
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425
Filed by The Chubb Corporation
pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: The Chubb Corporation
Commission File No.: 1-8661
Date:July 1, 2015
The following is a transcript of a conference call held on July1, 2015 relating to the announcement of the proposedmerger between The Chubb Corporation and ACE Limited.
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EDITED TRANSCRIPT
ACE - ACE Ltd and Chubb Corp Joint Conference Call to Discuss the
Definitive Agreement of ACE Ltd Acquiring Chubb Corp
EVENT DATE/TIME: JULY 01, 2015 / 12:30PM GMT
OVERVIEW:
ACE announced that Co. and The Chubb Corporation have unanimously
approved a definitive agreement under which ACE will acquire Chubb.
Under the agreement, Chubb shareholders willreceive aggregate
consideration valued at $124.13 per Chubb share in stock and cash
or approx. $28.3b.
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
CORPORATE PARTICIPANTS
Helen Wilson ACE Ltd - IR
Evan Greenberg ACE Ltd - Chairman& CEO
John Finnegan Chubb - Chairman,President& CEO
Phil Bancroft ACE Ltd - CFO
CONFERENCE CALLPARTICIPANTS
Cliff Gallant Nomura - Analyst
Jay Gelb Barclays Capital -Analyst
Ryan Tunis Credit Suisse - Analyst
Charles Sebaski BMO CapitalMarkets - Analyst
Paul Newsome Sandler ONeill - Analyst
Meyer ShieldsKBW - Analyst
Thomas Mitchell Miller Tabak - Analyst
John Heagerty AtlanticEquities - Analyst
Josh Shanker Deutsche Bank - Analyst
Larry GreenbergJanney Capital Markets - Analyst
Jay Cohen BofA Merrill Lynch - Analyst
PRESENTATION
Operator
Welcome to the ACE-Chubb conference call. This call is being
recorded.
(Operator Instructions)
Now for opening remarks and introductions, Ill turn the call over
to Helen Wilson, Investor Relations. Please, go ahead.
Helen Wilson - ACE Ltd - IR
Thank you. Good morning. This call is being webcast. A replay
willbe available on ACEs website. Earlier today, we issued a news
release announcing a definitive agreement under which ACE will
acquire Chubb. A copy of the release and the slides we are
presenting today are available in the Investor Relationssections of
ACEs and Chubbs websites at ACEgroup.com and Chubb.com. At the
conclusion of our prepared remarks, we will open the call for
Q&A.
Before we begin to discuss the details of this transaction, I would
like to remind everyone that during the call we will make
forward-looking statements. Pleaserefer to the cautionary statement
regarding forward-looking statements and the description of where
to find additional information and disclosures regarding
participants and solicitations that are included in our press
release issued this morningand on slides 2 and 3 in the
accompanying investor presentation for additional details. Our
speakers on todays call are Evan Greenberg, Chairman and Chief
Executive of ACE and John Finnegan, Chairman, President and Chief
Executive of Chubb.Now, its my pleasure to turn the call over to
Evan.
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2
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Evan Greenberg - ACE Ltd - Chairman& CEO
Good morning.Thank you for joining us on such short notice. I am
delighted, simply thrilled, to have the opportunity to share this
historic moment with you, as we announce the joining together of
two of the great companies in our industry. This is a
combinationoccurring out of strength. We are both great on our own,
but the complementary and compelling strategic nature of this
combination is the opportunity to create so much more together.
This is a growth story. Let me take a little time and describe
thecompelling rationale for bringing together ACE and Chubb, again,
two world-class insurance companies.
Im going to begin on slide 4. This kind of captures itall, with in
a very general fashion. This transaction simply advances our
strategy in a meaningful way and represents an outstanding
opportunity to create significant value for both ACE and Chubb
shareholders, our companies and ourpolicyholders. We are combining
two great, high-quality underwriting companies to create a very
well-balanced, broadly diversified, global leader in property and
casualty insurance with greater earning power and substantial
future value creationopportunities.
Our companies have complementary and exceptional strengths in
product, distribution, customer segments and underwriting cultures.
Where one of us isnot present, the other is. Where one of us is
strong, the other is even stronger. Add to that, the increased data
and insight we will gain paired with our respective skills and
experience, will drive profitable new growth opportunities in
bothdeveloped and developing markets around the world. The combined
Company will be so well-balanced with a greater presence and
capabilities in product areas that have less exposure to the
commercial P&C cycle.
In addition, we will have a substantially greater invested asset
base that will benefit from an eventual rise in interest rates. ACE
and Chubb have complementary cultures. We areboth underwriting
companies and share a passion and discipline for underwriting
excellence, as well as outstanding client service. This
underwriting passion and discipline have consistently produced
world-class levels of profitability. We areconfident we will only
make each other better.
As we look more closely at the financial benefits of the
combination, we expect to realize significant efficienciesin the
shorter-term and greater revenue growth medium-term that will drive
returns and create opportunities to invest in our business in terms
of more technology, products, people, and geographic presence,
further improving our competitive profile.Consistent with our track
record and disciplined approach to M&A, this transaction
creates significant value for shareholders. First, through
immediate accretion to earnings and book value per share. Looking
out, the transaction is projected toproduce double-digit EPS
accretion. Its ROE accretive and will generate a double-digit ROI
by year three. Additionally, the ROI will exceed the companies cost
of capital by year two and tangible book value per share will
return to itscurrent level in three years.
Finally, with aggregate total shareholder equity of nearly $46
billion and assets of $150 billion, the balance sheet of the
combinedcompany will have exceptional size and strength. In a word,
we will be so well-positioned to take advantage of both growth
opportunities and significant efficiencies to deliver greater
growth and earning power together than the sum of the twocompanies
separately.
Let me now spend a few minutes reviewing the terms of the
transaction. As you see on slide 5, under the agreement, Chubb
shareholders willreceive aggregate consideration valued at $124.13
per share in stock and cash or approximately $28.3 billion. This is
the equivalent of $125.87 per Chubb share using ACEs 20-day volume
weighted average share price for the period endingJune30, 2015.
Specifically, Chubb shareholders will receive an aggregate
consideration mix of approximately 50% stock and 50% cash, which
equates to $62.93 per share in cash and 0.6019 shares of ACE
stock.
The consideration represents a 30% premium to Chubbs closing price
of $95.14 on June30. On a pro forma, fully diluted basis, ACE
shareholders will own 70% of thecombined entity and Chubb
shareholders will own 30%. We expect the transaction to close
during the first quarter of 2016 following the receipt of customary
regulatory and shareholder approvals. The combined organization
will operate under the Chubbname, an acknowledgment of the
distinctiveness and recognition of its brand particularly in the
US. Our companies share a great mutual respect. We are both
conservative in how we take and manage risk and how we manage our
balance sheets.
Chubb has so many talented people who will be a great addition to
the ACE family. I and my colleagues look forward to welcoming them
and working with them. Upon completion of thetransaction, I will
serve as Chairman and CEO of the combined company. John Finnegan,
Chubbs
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Chairman, President and CEO will serve as Executive Vice Chairman
for External Affairs of North America and will assist me with
integration efforts.
I look forward to working with John. I also look forward to leading
this new organization together with ACEs current Executive
management team and colleaguesfrom Chubb.
Four Chubb Directors will join the ACE Board. The combined company
will remain a Swiss company with principal offices in Zurich.
Chubbsheadquarters in Warren, New Jersey will house a substantial
portion of the headquarters functions for the combined companies
North American division, as well as a number of our major
businesses; while ACE will continue to maintain asignificant
presence in Philadelphia, where its current North American division
headquarters is located.
As I mentioned earlier, we intend to finance the cashportion of the
transaction through an aggregate cash consideration of $14.3
billion funded by cash on hand and new senior debt. The cash
consideration is a combination of $9 billion of cash on hand
between both companies and $5.3 billion of newlong-term debt.
Regarding the stock consideration, we will be issuing 137million
shares of ACE to Chubb shareholders with a fixed exchange ratio of
0.6019 ACE shares for each Chubb share based on ACEs closing price
yesterday of $101.68,which I consider cheap. This consideration
represents approximately $13.9 billion. With that, I will now turn
the call over to John.
John Finnegan - Chubb -Chairman, President& CEO
Thank you, Evan. You and your team have built a great company at
ACE. Were delighted to be partnering with you to create anew leader
in the global commercial, specialty and personal P&C industry.
We believe this transaction will deliver strong intermediate and
longer-term value to Chubb shareholders. As Evan mentioned, Chubb
shareholders will receive totalconsideration of $124.13 per Chubb
share and cash and ACE stock, representing a 30% premium to Chubbs
closing stock price yesterday, June30. Following the close, Chubb
shareholders will own 30% of the combined company, giving them
ameaningful stake in an even stronger global P&C leader.
When Evan and I first discussed the possibility of an ACE-Chubb
combination, we both saw a lot ofpotential benefits. But as our
discussion progressed, it became increasingly clear that the
strategic fit, immediate value creation and superb prospects for
the combined company would in fact be compelling. We have
complementary capabilities, assetsand geographic footprints;
combined with a larger, stronger balance sheet, we will be even
better positioned to compete and win in the market environment in
which size, global reach and differentiated capabilities are
increasingly key to long-termsuccess.
At Chubb, we have great respect for ACE and its management team. Im
pleased and proud that ACE has recognized the strength of Chubbs
brand andthe attributes of quality and service it represents and
has chosen to adopt the Chubb name and brand for the combined
company. ACE has also committed to add four of Chubbs independent
Directors to the Board of the new company. In conclusion,we are
convinced that this is a compelling transaction for Chubb. Now, I
will turn the call back over to Evan.
Evan Greenberg - ACE Ltd - Chairman& CEO
Thank you, John. Again, what makes this transaction exceptional is
that its both strategically compelling and financially compelling
because of theattractive shareholder returns. As outlined on slide
8, we expect the transaction will be immediately accretive to EPS
and book value per share. By year three, the transaction will be
accretive to EPS on a double-digit basis and will be accretive
toROE. It is anticipated that the ROI, again, will exceed ACEs cost
of capital within two years resulting in a double-digit return by
year three. Tangible book value per share will return to its
current level in three years.
We expect goodwill payback will be realized in approximately 5.5
years. Looking at further at future value creation and savings, we
expect to realize approximately $650million of annual run rate
expense savings by 2018. These savings will result from duplication
in corporate overhead, functional areas and overlap in operations.
We will improve the competitive profile of the combined enterprise.
The company alsoexpects to achieve meaningful growth that will
result in substantial additional revenue. After all, this is the
strategic purpose of the transaction.
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Together, we will grow revenue and earnings more quickly than the
sum of the two companies separately. We expect by year five
earnings accretion will bebalanced between revenue and
expense-related synergies. The efficiencies created will provide
greater flexibility for the company to invest in people,
technology, product, distribution and geographic presence, again,
ultimately enhancing thecompetitive profile of the company.
Slide 9 demonstrates how well our two companies fit together and
how our complementary strengths will create a company withsuperior
product offerings, many of which are less sensitive to the
commercial P&C industry cycle. In the US, where Chubb has a
major presence, the combination makes us a leading insurer of
commercial business in the large corporate segment tothe middle
market with a broad variety of coverages. Chubbs strong
distribution relationships in the US, through independent agents,
will complement our traditional strength in P&C
brokerage.
Outside of the US, ACE is a premier global P&C insurer with a
presence in 54 countries and a broad product, customer and
distribution capability. Chubb is a more US-centriccompany with
operations in 25 countries which will complement and significantly
deepen ACEs global presence and capabilities. Globally, depending
on where we find opportunity, the combined company will serve
commercial customers of all sizesfrom the largest corporations with
complex multi-national exposures to the middle market and small
commercial companies.
The company will have a significant andcomplementary presence in
personal lines that serve the insurance needs of individuals and
their families. In addition, the combined company will have a
leading position in professional lines globally, as well as one of
the largest excess andsurplus lines in specialty product portfolios
in the industry.
Let me give you simply a glimmer through three simple anecdotal
examples of how our strengthscomplement each other. First, Chubb
will enhance ACEs product and underwriting expertise in the upper
middle market. Secondly, ACE will provide more products,
particularly specialty, to serve middle market clients. Third,
together ourstrengths will enable the combined entity to pursue
both the small and micro markets around the world.
Importantly, another reason for this this combinationis so
attractive is our shared commitment to underwriting profitability
and superior financial performance. As you can see on the chart on
slide 10, both of our companies combined ratio has exceeded our
global and North American peer set overthe past 10 years. This is a
testament to a common, relentless, disciplined approach to
underwriting standards. Complementing sustained long-term
underwriting profit, the combined company will also benefit from a
substantially larger fixedincome-oriented invested asset base, as
interest rates rise.
As I said, ACE and Chubb together will create a global P&C
leader with highly complementarybusiness lines, distribution
channels, customer segments and underwriting culture. As you can
see on slide 11, the combined organization will have a number of
leadership positions in the industry. It will be the number one
global P&C insurancecompany by P&C underwriting income, the
number two US publicly traded P&C insurer and the fourth
largest global insurer by book value and operating income.
I mentioned this briefly before, but together we will become the
second-largest commercial lines insurer in the US and the leader in
high net worth personal linescoverages. ACE is deeply committed to
and has a great track record building and managing businesses in
Asia and Latin America. Together, our presence will be further
enhanced in these fast-growing developing markets where together,
our companieswrite $7 billion in total premium.
Slide 12 is a great visual depiction and provides a breakdown of
the increased size and breadth of our product offerings and howeach
organization will contribute to the combined companies business
segment. As I said, the combined company will have a broad product
offering for commercial customers of all sizes. This includes
professional lines such as: D&O andprofessional liability; risk
management; all forms of excess and primary casualty; workers comp;
property; marine; aviation; and energy.
In commercial lines, Chubbhas a larger US professional lines and
surety business, contributing 62% to the combined companies net
premiums. While ACE has a greater international presence,
contributing nearly 75% of net premiums. Otherwise, the
contributions forcommercial lines are quite balanced. On the
personal insurance side, you can see Chubbs much larger
contribution in US high net worth with nearly 70% of the combined
companies net premiums. On the other side of the coin, the
combinedcompanies personal lines business internationally as well
as our global A&H and life areas benefit primarily from
contributions from ACE.
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Together, the combined company will be substantial in size and
strength by any measure, as outlined on slide 13. For example, as
of December31,2014, on an aggregate basis, gross premiums exceeded
$37 billion and operating income exceeded $5 billion. The combined
company had cash and invested asset investments of approximately
$107 billion and total assets of approximately $150 billion.
Slide 14 provides another way to look at the combined companies
extensive diversification by both geographic presence and business
line. I happen to likethat slide a lot. But turning to slide 15, we
have always emphasized the importance of maintaining a conservative
and flexible capital structure. As a combined company, on a pro
forma basis, at 12/31/15, shareholder equity would be nearly
$44billion with total capital of about $57 billion. In terms of
leverage, the combined company will have a pro forma
debt-to-capital ratio of 20%, which we expect to decrease over
time.
In summary, this transaction offers a highly compelling story for
our combined shareholder base as well as the clients we serve and
our distribution partners across the globe. AtACE, we have a clear
long-term strategy that we have patiently pursued both organically
and through acquisitions. We have built with determination a
presence and capability to produce sustained long-term growth and
peer-leading shareholder returns.We are first and foremost
builders. Insurance is a long-term business. We are patient.
Consummating this transaction will certainly accelerate our growth
and earning power.
We have been good stewards of shareholder capital through the
years, as the slide on the last page demonstrates. Through industry
cycles and major risk-related events, ACE hasperformed at a
consistently high level including good book value per share growth
and strong operating ROEs. Its a track record that stands up well
over any reasonable period of time on both an absolute and relative
basis.
Upon closing of this transaction, we will have created a global
P&C industry leader with superior product, customer and
distribution channel capabilities, greater growth inearning power
and substantial opportunities for value creation. I am very
enthusiastic, in fact, beyond words about the benefits that this
transaction will bring ACE and Chubb and all of our stakeholders.
Thank you again for your time today. I willnow turn the call back
over to Helen.
Helen Wilson - ACE Ltd - IR
Thank you.At this point, well be happy to take your
questions.
QUESTIONS AND ANSWERS
Operator
(Operator Instructions)
Cliff Gallant, Nomura.
Cliff Gallant - Nomura - Analyst
Congratulations. Its quite a deal, very compelling. I was
wondering, when you think about just the management of such a large
organization, could you compare the managementstructure of ACE to
that of Chubb? Organizationally, what kind of changes do think
youre going to have to make to the Chubb organization? Then,
secondarily below that, what have you done to identify key people
at Chubb that you need to keep?How do you incentivize them to
stay?
Evan Greenberg - ACE Ltd - Chairman& CEO
Sure. First of all, there is nothing more important to John and me
than retaining the best across the two organizations. This
combination is going to create more opportunitybecause of the
growth potential for the good people across both organizations. We
know who our good people are.
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
We have a lot of respect and a lot of regard for them. We are a
meritocracy. We reward performance. All those great performers, we
will motivate andretain them to the team. The management structures
of both companies are a bit different but they make sense for each
organization. While we are making plans for integration, its
premature to discuss exactly how the organization will look. Butit
will follow - I can tell you that the organization structure will
follow common sense strengths of each company.
Cliff Gallant - Nomura - Analyst
Okay. When I think of both companies - you dont sell cookie-cutter
products. Theres always a specialty aspect to both companies. Its
always been a strength of thefranchise. But when you get - can you
get to a point where you are so big that you lose some of that
strength? I would think there might be opportunities for niche
players to try to nip at your heels a bit. Maybe one off, thats not
a big deal,but collectively it could be meaningful.
Evan Greenberg - ACE Ltd - Chairman& CEO
You know what? That will always happen. When ACE was - 10 years
ago, when I could manage ACE from line of sight; one hand you could
ensure underwriting excellence in a verydeliberate, clear fashion.
As ACE got bigger, Ive hear that question over and over and over
again. How do you manage - I mean weve talked about it for years.
How do you - as the organization will grow on a global basis, how
do continueto manage underwriting excellence and quality excellence
across all of your business lines, across the globe?
I think we have demonstrated that we have themanagement talent. We
have the organizational structure in how we organize ourselves. We
behave like a small company though we are large. We have the
ability in terms of the flow of information in all the checks and
balances that we have. You knowwhat? Chubb has the same thing. As
we put this together, Im not worried about that part. When you get
at the part of people nipping at our heels, well, this is a
competitive market. It is a market-oriented economy. If you are
good and you havecapabilities and youre compelling in the
marketplace, then have at it.
We always welcome competition. Im not concerned about that. But
when you look atthe combination here, in products, even that we
overlap in, there are so many areas - like, take professional
lines. ACE is great at the upper middle market and the large
account. Chubb in particular at the middle market and into the
upper middle.So its complimentary to us. When you look at it on an
international basis, you find the same thing. Thats just one small
example. Frankly, we are just going to cover more of the
marketplace landscape together. Were going to benimble. Were going
to be efficient. We are going to be entrepreneurial. Were going to
maintain that hallmark of ACE.
Cliff Gallant - Nomura - Analyst
Impressive. Congratulations. Thank you.
Evan Greenberg - ACE Ltd -Chairman& CEO
Thank you very much.
Operator
Jay Gelb, Barclays.
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Jay Gelb - Barclays Capital - Analyst
Congratulations on the deal.First, I just want to see if we could
get your perspective on what the initial dilution the tangible book
value per share is?
Phil Bancroft - ACE Ltd - CFO
Bear with me, Jay. I will be right with you.
Evan Greenberg - ACE Ltd -Chairman& CEO
Jay, well get that for you in a minute.
JayGelb - Barclays Capital - Analyst
Okay. Thanks. Then one of the things I wanted to touch base on and
Im sure we will see this in the proxy. Can you tell us abit about
the - how the transaction came about? Was this ACE approaching
Chubb? Was Chubb shocked at all?
Evan Greenberg - ACE Ltd - Chairman& CEO
Well, these things happen when the moment is right for both. We
approached them a few weeks ago. We put the deal together rapidly
but thoughtfully. Because it madeso much sense to both sides for
all our constituents.
Jay Gelb - Barclays Capital - Analyst
Okay. Then, if you could give us a bit more insight on the
potential revenue synergies? Why you feel those would come about in
the combination?
Evan Greenberg - ACE Ltd - Chairman& CEO
Oh, yes. ACE, when I look at it - Imgoing to give you a little
broader vision of this. When I look at the combination where it is
so compelling to me about - its about complementary strengths that
will drive that. I look at Chubb in the United States, such a great
middle marketcompany with a large agency distribution. Its selling
traditional middle market product and some specialties. ACE has
been building a retail middle market specialty presence. Well
combine that with Chubbs middle market. We will putso much more
product that ACE has broadly across the organization through that
distribution to those Chubb customers that we can add more product
offering; that we can add to the agents who have within their
portfolios more product to servecustomers that they have
today.
On another side of the coin, ACE is good in the large account and
upper middle market. We are very good. But some of our
productofferings arent as broad as they could be. Chubbs
capabilities will add to that. Just think commercial auto and
workers comp, where ACE is not great and present in that. That will
benefit us. When I look across the globe, but includingthe United
States, weve been endeavoring in the small commercial and micro
business, both on a wholesale and a retail basis. Chubb, itself,
has been contemplating that. Together, we will drive into those
markets on a global basis in a verymeaningful way between
ourselves.
When I look at some of the overlap in businesses, particularly -
and Id said this earlier. If you take professional linesor some of
the other businesses - we actually - we overlap but we dont overlap
that much. Were both extremely present in the area but one is more
dominant or more present in the larger end and the other more
present in the smaller end.That will be complementary to us. I
think that gives you a few examples.
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Jay Gelb - Barclays Capital - Analyst
It does. Thank you, Evan.Phil, I dont know if you have that -
Phil Bancroft - ACE Ltd - CFO
Ido. That dilution is about 29%. Initially, we expect that to
recover to the same level in about three years.
Evan Greenberg - ACE Ltd - Chairman& CEO
In three years.
Jay Gelb - Barclays Capital - Analyst
When you have a chance, if you could give us the components of
that. That would be helpful.
Phil Bancroft - ACE Ltd - CFO
Okay.
Evan Greenberg - ACE Ltd - Chairman& CEO
Sure.
Operator
Ryan Tunis, Credit Suisse.
Ryan Tunis - Credit Suisse - Analyst
My first question is just on the pro forma tax rate ofthe combined
entity. Should we be thinking about the Chubb earnings as
tax-affected at what were used to modeling for ACE?
John Finnegan - Chubb - Chairman,President& CEO
No. I would expect you to use the rate that you would have used for
Chubb. We dont see any significant change in our tax rate.
Ryan Tunis - Credit Suisse - Analyst
So no tax efficiencies from the Chubbdeal despite the fact youre
keeping the same jurisdiction for domicile?
John Finnegan - Chubb - Chairman, President& CEO
Thats right. Maybe some around the margin -
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Evan Greenberg - ACE Ltd - Chairman& CEO
Around themargin, nothing material.
Ryan Tunis - Credit Suisse - Analyst
Then I guessjust thinking about the Firemans Fund deal. One thing I
think thats sort of interesting about this one, is you guys have
spent the better part of the last few years trying to build a
competitor to Chubb. I guess, are you more confidentnow than you
have been that you cant really build an agency juggernaut in
personal lines to compete with Chubb there in high net worth
personal lines?
EvanGreenberg - ACE Ltd - Chairman& CEO
Of course not. Are you kidding me? We have built a good personal
lines business and a good business in the high networth thats a
dynamic open area within the personal lines marketplace. I think
ACE did a great job with it. Weve been building. I think the
combination of the two will be compelling.
Ryan Tunis - Credit Suisse - Analyst
Understood.
Evan Greenberg - ACE Ltd - Chairman& CEO
A lot of compatibilities. It will be inefficiencies.
Ryan Tunis - Credit Suisse - Analyst
Got you.
Evan Greenberg - ACE Ltd - Chairman& CEO
Weve been good competitors.
Ryan Tunis - Credit Suisse - Analyst
I guess the last one is just - any earlyreaction to the Chubb
reserves? Was there any contemplation of recovery built into their
- in your valuation for Chubb?
Evan Greenberg - ACE Ltd -Chairman& CEO
Would you say that again?
John Finnegan - Chubb -Chairman, President& CEO
The answer is no.
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Ryan Tunis - Credit Suisse - Analyst
No? Okay. Thats all forme, thanks.
Operator
Charles Sebaski, BMO Capital Markets.
Charles Sebaski - BMO Capital Markets - Analyst
Just, I have a question on the high net worthpersonal business. I
know, Evan, after the Firemans Fund, you talked about the growth
potential for you guys in the US in that space. Now with the
combination of Chubb and its market-leading position, whats the
growth potential in thatspace given the now - scale of the combined
entity?
Evan Greenberg - ACE Ltd - Chairman& CEO
Good question. We sized that marketplace as in excess of $40
billion or more. There are lots of companies that are serving the
high net worth space from: Allstate - you saw themtalking about it
in the paper the other day, to State Farm, to ACE and Chubb and AIG
and a whole plethora of players. I see tremendous opportunity. I
mean, you see what we are combined, about $5 billion. I see
tremendous growth opportunity in thatarea.
Charles Sebaski - BMO Capital Markets - Analyst
Excellent. Then on thecost saves on the future $650 million that
you identified, is this just standard fixed cost overlap? Or
anything in particular on where that might be coming from?
Evan Greenberg - ACE Ltd - Chairman& CEO
On the cost overlap, look,it comes from - we have redundancies in
so many functional areas, everything is two by two, both
domestically and internationally. Understand, that this transaction
- the first compelling nature of it is not the cost efficiencies.
Its thegrowth opportunities that we see. But at the same time, we
see a great opportunity to improve our competitive profile, while
at the same time preserving and coveting the cultures and the
franchised strengths that make each company great. But thesimple
fact is, there is tremendous redundancy between the two across
functional areas, across corporate overhead areas and within
structures - statutory structures. So were going to create an
elegant organization over time.
Charles Sebaski - BMO Capital Markets - Analyst
Then finally I guess, just regard to the debtand the financial
leverage. I know the pro forma is a bit higher than either company
was running solo. Do you think this organization just will have the
opportunity to run a bit higher debt leverage? Or do you think it
comes back down over time justconceptually? Wed appreciate any
thoughts.
Evan Greenberg - ACE Ltd - Chairman& CEO
When you look at the - Im going to let Phil answer it. But when you
look at the cash generation and earning power generation of this
company and think about that flexibility-
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Phil Bancroft - ACE Ltd - CFO
Even at the outset, were wellwithin the range that will be targeted
for our ratings level. So were not concerned about the leverage. As
Evan says, we would expect it to drop over time.
Charles Sebaski - BMO Capital Markets - Analyst
Thank you very much for theanswers.
Operator
Paul Newsome, Sandler ONeill.
Paul Newsome - Sandler ONeill - Analyst
Congratulations on the deal. Quite amazing. Iwanted to ask - some
of the assumptions with respect to accretion of the deal or just
the success of the deal. Are - any of those underlying assumptions
dependent on a particular market environment for the industry? Or -
youve alreadymentioned interest rates. But if you could kind of go
through your thoughts as to what the sensitivity we should look at
for how well this all works out in the end depending upon what
happens with pricing and things of that nature?
Evan Greenberg - ACE Ltd - Chairman& CEO
Hey, Paul, youve known me a longtime. I am a realist. I hardly make
strategy and plans based on what I wish things would be. We face
reality and what it is. We all know where the marketplace is today.
We understand the surplus capital, the amount of capital that is
sloshingaround. We understand the moderate economic to low economic
growth in the world, the kind of interest rate environment were
in.
We understand the shape ofthe balance sheets of the industry. We
understand what drives cycles. So we face reality. I can guarantee
you, as we looked at the few years out of this thing and looking
out a prolonged period. We looked out, one, two, three, four, five
years. Youdont do something like this - its not a bolt-on where
youre looking at it for a year or two. But were realists, as we
looked at it. Our assumptions were based all around that.
Paul Newsome - Sandler ONeill - Analyst
Well, thats fantastic. Could you - what dothink of as the current
cost of ACEs capital at the moment?
Evan Greenberg - ACE Ltd - Chairman& CEO
I think of it as roughly 8.5%.
Paul Newsome - Sandler ONeill - Analyst
Okay. Congratulations on the deal. I think you got a great price
for Chubb.
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Evan Greenberg - ACE Ltd - Chairman& CEO
Hey, thanks alot.
Operator
Meyer Shields, KBW.
Meyer Shields - KBW - Analyst
Evan, you mentioned a couple times that this will enhance
yourcompetitive positioning. I think thats clearly true, but I was
wondering whether there are specific expectations in terms of
pricing that this allows? In other words, can you maintain your
current returns at pricing 2% below where you are now?Or 5%? Or
something like that?
Evan Greenberg - ACE Ltd - Chairman& CEO
Meyer, I didnt think of it that way. Its a far messier marketplace
than that. It all varies by line of business and by geography. The
one thing you know, we will notallow premium underwriting to
destroy book value. So we will always underwrite to an underwriting
profit. One of the things I want to tell you that I think a lot
about, the combined data of both organizations along with the
skills and experience incomplementary areas - you just imagine
it.
If we manage this right, over a period of time, its going to give
us so much more insight into risk and intodissecting risk into more
granular cohorts. Given our skills and insights of underwriters,
the ability to use those insights - to use that data. Then with the
distribution power of the two and the geographic presence of them -
well, there you go.Thats the way to think about it. Its a fools
game to think about, well, I have this - maybe Ive got another 0.5
point or 1 point because I took out some expense and that will -
thats a fools game.
Meyer Shields - KBW - Analyst
Okay. No, thats helpful. That makes sense. Does the muchlarger
investment portfolio allow for any change in allocation by
class?
Evan Greenberg - ACE Ltd - Chairman& CEO
Its premature to say that. But as you can imagine as we put the two
portfolios together and given the construct of ACE as Chubb comes
in, our corporate structure, et ceteraand where assets and capital
are located, there will be a thoughtful view on allocation of the
invested asset. As you know, we are both conservative in how we
manage it. We take - we both have operated under a philosophy that
we take a lot of riskon the liability side of the balance sheet. We
are levered on the liability side. So therefore, its both
policyholder and shareholder money were investing. We will do that
- well continue to do that in a conservative way.
Meyer Shields - KBW - Analyst
Okay, perfect. Thanks so much.
Evan Greenberg - ACE Ltd - Chairman& CEO
Youre welcome.
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Operator
Thomas Mitchell, Miller Tabak.
Thomas Mitchell - Miller Tabak - Analyst
First of all, I know its a little early tothink about it, but is
there any reason to think that you would continue share repurchases
after the closing of the deal given the amount of debt you are
taking on?
Phil Bancroft - ACE Ltd - CFO
We dont expect to for some time.Well manage the capital as it
emerges. But as I said, we all believe that the combined companies
will generate a significant amount of capital. Well manage it over
time. But for the near-term, we dont see any buybacks.
Evan Greenberg - ACE Ltd - Chairman& CEO
You know what? It is premature. We will --you said that right. We
will update you following the close.
Thomas Mitchell - Miller Tabak - Analyst
Okay. Thank you.
Evan Greenberg - ACE Ltd - Chairman& CEO
Youre welcome.
Operator
John Heagerty, Atlantic Equities.
John Heagerty - Atlantic Equities - Analyst
Just on slide 6, you have got some statements on deck, you think
cash on hand is $9 million. I was wondering where thats coming from
because when I looked at the combinedbalance sheet, I get about $1
billion worth of cash on hand. So I was wondering if some of thats
undrawn debt commitments.
Phil Bancroft - ACE Ltd - CFO
Its not literally cash. Its undeployed capital in both of the
companies. So right -- while we have our undeployed capital
invested in our investmentportfolio, its available to use for
acquisitions or buybacks or whatever.
John Heagerty - Atlantic Equities - Analyst
Okay.
14
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Evan Greenberg - ACE Ltd - Chairman& CEO
You cantsee it but were telling -- we know where it is.
John Heagerty - Atlantic Equities - Analyst
Thanks. The cost of debt you are expecting for the $5.3
billion?
Phil Bancroft - ACE Ltd - CFO
In the 3.5% range.
John Heagerty - Atlantic Equities - Analyst
Thanks. Then last one, just on the ROE accretion -- So, the EPS
accretion youre talking -- pointing to in that year three.
Wondering what number youre using for thatbecause I look at
consensus on Bloomberg, theres only one number up there. Or if its
only one analyst providing a number?
Evan Greenberg - ACE Ltd -Chairman& CEO
Yes. Were not providing that number.
JohnHeagerty - Atlantic Equities - Analyst
So --
Evan Greenberg - ACE Ltd -Chairman& CEO
So, youll figure it out. We gave you what were going to give you.
We told you it will be ROE accretive, but were notputting a
number.
John Heagerty - Atlantic Equities - Analyst
But how aboutEPS accretion side?
Evan Greenberg - ACE Ltd - Chairman& CEO
Were not giving you the number. Weve given you what we --
JohnHeagerty - Atlantic Equities - Analyst
You did give us double-digits but we still dont have a starting
point, do we?
15
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Evan Greenberg - ACE Ltd - Chairman& CEO
Well,youll figure that out, wont you. That is up to you. Weve given
you what were going to give you. No arguments here, John. You have
another question?
John Heagerty - Atlantic Equities - Analyst
No. Thats all. Thanks.
Evan Greenberg - ACE Ltd - Chairman& CEO
Youre welcome.
Operator
Josh Shanker, Deutsche Bank.
Josh Shanker - Deutsche Bank - Analyst
Congratulations on a landmark deal. I was curiouslooking through
Chubbs financial statements to some extent -- you said youve been
working on this for a couple of weeks but youre very confident
about the cost savings. Can you talk about the process you went
through on identifyingthe cost savings? How much is going to occur
in the underwriting part of the business versus corporate expenses
and whatnot? Do you have any granularity there?
Evan Greenberg - ACE Ltd - Chairman& CEO
No, Josh, weve givenas much as we are going to give on that. But
what you can imagine is, this isnt our first time going around
this. We are quite experienced at M&A. We understand how to do
analysis in this regard. We have experienced people in doing
that.We have a very good process both pre-acquisition, during
acquisition transition and post-acquisition. We are quite
thoughtful in how we imagine all this. Thats as far as Im going to
go now on that subject.
Josh Shanker - Deutsche Bank - Analyst
No, that is fine. Legally, are there any things goingto be to think
about in the Swiss domicile given the proportion of business in the
United States? Or the changing of the name? Are there any
considerations that we should be aware of?
Evan Greenberg - ACE Ltd - Chairman& CEO
No, theres not. Theres nothing-- it will be status quo.
Josh Shanker - Deutsche Bank - Analyst
Okay. Thankyou very much.
16
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Evan Greenberg - ACE Ltd - Chairman& CEO
Yourewelcome.
Operator
Larry Greenberg, Janney Capital.
Larry Greenberg - Janney Capital Markets - Analyst
Congratulations to both organizations.Clearly, you both believe
that the time is right to combine given where each of your
respective organizations are in their life cycles. Im just
wondering if you could put the timing of this deal in context in
terms of property casualtyindustry structure today. Is there
something about the industry today that makes this a more
compelling transaction than perhaps it would have been 5 years ago
or 10 years ago?
Evan Greenberg - ACE Ltd - Chairman& CEO
Yes. Thats a good question. I thinkthere is, to me. The industry --
the world is more globalized than it was a decade ago. That is
simply a trend that is going to continue. When you look at
financial markets, how theyve globalized. Technology and what it
does to allow knowledgeand people and data to move around the world
so rapidly. When you look at what technology has done in so many
industries and is doing in ours to give an opportunity to create
insights, new businesses, different exposures and an ability to
manage andhave a competitive advantage with the insights around all
of that.
When you look at the value particularly because of the way the
world is moving online of brandsand the meaning of brands and how
they are created and how they are recognized. To me, those are just
a few examples of, were not in the same world today that we were a
decade ago. The playbook you use today is not the same one that you
wouldhave used precisely then. Were in a world of low growth. Were
in a world of low inflation. Were in a world where economic
realities of countries are interconnected to each other. I think
that is a world that were going to bein for quite some time. I
think thats a reality that we need to face. I think all of that is
part of the backdrop, in my own thinking, when I think about the
compelling, strategic nature of this transaction.
Larry Greenberg - Janney Capital Markets - Analyst
Thank you.
Evan Greenberg - ACE Ltd - Chairman& CEO
Youre welcome.
Helen Wilson - ACE Ltd - IR
Okay, operator, well take questions from one more
person,please.
Operator
Jay Cohen, Bank of America Merrill Lynch.
17
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
Jay Cohen - BofA Merrill Lynch - Analyst
Yes, a couple ofquestions. I guess, one is will the Chubb business
be available to be seeded through ABR rate?
Evan Greenberg - ACE Ltd - Chairman& CEO
Oh, I dont -- well, yes, is the answer in the general term. But I
have to be honest, Ive hardly thought about that.
Jay Cohen - BofA Merrill Lynch - Analyst
Okay. I guess a question for John Finnegan. Thequestion came up
about where we are in the cycle, but the question for you really
is, why now for Chubb? Was there anything particular that caused
you to sell to ACE?
John Finnegan - Chubb - Chairman, President& CEO
No. I think that the answer is thatafter discussion, Evans proposal
made a lot of sense. We worked hard at it. We came up with what we
thought was a compelling transaction. We werent driven by timing in
particular. I think, as Evan says, there are some more reasons
todaythat you might want to do a merger of this type than maybe
five years ago. But we werent out shopping it, this was a proposal
that came to us. We thought it was a very good one. So it was
driven more by the nature of the proposal, the natureof the company
were merging with and the economics of the deal and the strategy
going forward.
Jay Cohen - BofA Merrill Lynch - Analyst
Got it. Thanks for the answer. Good luck with everything.
John Finnegan - Chubb - Chairman,President& CEO
Thanks a lot, Jay.
Helen Wilson - ACE Ltd - IR
Thank you everyone for joining us this morning. Thank you. Good
day.
Operator
Ladies and gentlemen, this does conclude your conference for today.
We do thank you for your participation.
18
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JULY 01, 2015 / 12:30PM, ACE - ACE Ltd and Chubb Corp Joint
Conference Call to Discuss the Definitive Agreement of ACE Ltd
AcquiringChubb Corp
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this communication may be deemed to be forward-looking statements under certain securities laws, including thesafe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about the expected effects of the acquisition of Chubb by ACE, theexpected timing of the acquisition and other statements other than in relation to historical facts. Forward-looking statements are typically identified by words such as believe, expect, foresee,forecast, anticipate, intend, estimate, goal, plan and project and similar expressions of future or conditional verbs such as will, may,should, could, or would.
By their very nature, forward-looking statements require us to makeassumptions and are subject to inherent risks and uncertainties, many of which are outside the control of ACE and Chubb. Forward-looking statements speak only as of the date they are made and, except as required by law, neither party assumes anobligation to update the forward-looking statements contained in this communication. Any annualized, pro forma, projected and estimated numbers in this communication are used for illustrative purposes only, are not forecasts and may not reflectactual results. We caution readers not to place undue reliance on these statements as a number of important factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factorsinclude, but are not limited to, the possibility that the proposed transaction does not close when expected or at all because required regulatory, shareholder or other approvals are not received or other conditions to the closing are not satisfiedon a timely basis or at all, or that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the strength of the economy and competitive factors in the areas where ACE and Chubb do business; theimpact of changes in the laws and regulations regulating insurance services and enforcement thereof; the effects of competition in the markets in which ACE and Chubb operate; judicial or regulatory judgments and legal proceedings; ACEs abilityto complete the acquisition and integration of Chubb successfully; and other factors that may affect future results of ACE and Chubb.
We caution that the foregoing list of important factors is not exhaustive. Additional informationabout these and other factors can be found in ACEs 2014 Annual Report on Form 10-K and Chubbs 2014 Annual Report on Form 10-K, each filed with the U.S. Securities and Exchange Commission (the SEC) and available at theSECs website (http://www.sec.gov).
IMPORTANT ADDITIONAL INFORMATION
In connection with the proposed transaction, ACE will file with the SEC a Registration Statement on Form S-4 that will include a Joint ProxyStatement of ACE and Chubb, and a Prospectus of ACE, as well as other relevant documents concerning the proposed transaction. The proposed transaction involving ACE and Chubb will be submitted to ACE and Chubb shareholders for their consideration.This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. SHAREHOLDERS OF ACE AND CHUBB ARE URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXYSTATEMENT/PROSPECTUS REGARDING THE TRANSACTION WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholderswill be able to obtain a free copy of the definitive joint proxy statement/prospectus, as well as other filings containing information about ACE and Chubb, without charge, at the SECs website (http://www.sec.gov). Copies of the joint proxystatement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to ACE Limited, 17 Woodbourne Avenue, Hamilton, HM08,Bermuda, Attention: Investor Relations, 441-299-9283,or to The Chubb Corporation, 15 Mountain View Road, P.O. Box 1615, Warren, New Jersey 07061, Attention: Investor Relations, 908-903-2365.
PARTICIPANTS IN THE SOLICITATION
ACE,Chubb, their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding ACEs directors and executive officers isavailable in ACEs proxy statement for its 2015 Annual General Meeting of Shareholders filed with the SEC on April8, 2015, and ACEs Annual Report on Form10-K for the year endedDecember31, 2014, which was filed with the SEC on February27, 2015. Information regarding Chubbs directors and executive officers is available in Chubbs proxy statement for its 2015 Annual Meeting of Shareholders filed withthe SEC on March13, 2015, and Chubbs Annual Report on Form10-K for the year ended December31, 2014, which was filed with the SEC on February26, 2015. Other information regardingthe participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials filed with the SEC. Freecopies of this document may be obtained as described in the preceding paragraph.
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