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Press release STOREBRAND ACQUIRES SPP TO CREATE THE LEADING NORDIC LIFE INSURANCE AND PENSIONS PROVIDER Storebrand has entered into an agreement with Handelsbanken for the purchase of Handelsbanken’s subsidiary, the life insurance and pensions provider SPP, for a total cash consideration of SEK18.0 billion (€1.9 billion/NOK15.3 billion)1. The purchase price will be reduced to SEK16.0 billion (€1.7 billion /NOK13.6 billion) subject to Swedish regulatory approval for a special dividend of SEK2.0 billion (€0.2 billion /NOK1.7 billion) to be paid by SPP to Handelsbanken prior to closing of the transaction. The combination of Storebrand and SPP will create the leading life insurance and pension provider in the Nordic region with 2006 pro-forma premium income of NOK 27 billion. The key entities included in the transaction are SPP Livförsäkring with subsidiaries as well as Handelsbanken Life & Pensions (formerly Euroben) and SPP Fonder. In addition, Storebrand has a two year option to acquire Handelsbanken’s remaining occupational pension business in Handelsbanken Liv. Storebrand’s largest shareholders have been informed about the transaction in advance Executive comments "Over the last few years, Storebrand has systematically worked on building up a solid platform for its future growth and development. With the Board’s decision to acquire SPP, Storebrand is taking an important step that gives the company a more international and robust platform for profitable growth,” said Leiv L. Nergaard, Chairman of Storebrand. "This is a truly transforming transaction for Storebrand with substantial benefits for shareholders, customers and employees alike. The transaction brings leadership in Nordic life and pensions, increased scale with continued clear strategic focus, reduced risk profile and enhanced growth prospects. I am very excited about working together with SPPs customers and employees to realise the potential of the combined company," said Idar Kreutzer, Storebrand CEO. “Assurances on future pensions need to be handled with great care. That is why the most important aspect of this transaction was to find the right buyer. Handelsbanken always prioritises what is best for its customers. This transaction does not diminish our customer offering. On the contrary, it creates customer value - more options, more competitive solutions and more competence,” said Pär Boman, Handelsbanken CEO. Key financials The net purchase price of NOK13.6 billion represents a multiple of 1.1x estimated market consistent embedded value2 and 14.4x 1H 2007 annualised earnings. Expected annual cost synergies of approx. NOK100 million pre-tax with full effect in 2010 and tax benefits of more than NOK100 million with full effect in 2008. Normalised IFRS earnings per share are more than 5% accretive in 20093. Storebrand intends to finance the cash purchase price of NOK13.6-15.3 billion as follows: - Rights issue of NOK9.0-10.7 billion, to be fully underwritten by JPMorgan and UBS 1 Exchange rates of SEK/EUR 9.37 and NOK/EUR 7.94 used throughout the press release, though numbers are subject to rounding 2 Based on Storebrand estimated market consistent embedded value combined for SPP Livförsäkring AB and Handelsbanken Life and Pensions Limited of NOK14.0 billion Press release - Bridge loan of NOK4.6 billion, fully underwritten by JPMorgan and UBS,to be replaced by subordinated debt. Earnings in SPP and the other entities to be acquired will be retained by Storebrand. Storebrand has agreed to pay interest on the purchase price (equal to 90 days STIBOR) in the period from signing to closing. Overview of SPP SPP is a leading Swedish life insurance and pension provider with a 10.3% market share in the competitive segment of the Swedish occupational pensions market in 2006. SPP is strong in the conventional segment with a 12.6% market share) as well as in the tick-the-box market with a 6.3% market share. In addition, SPP has a 3.5% market share in the private pension segment. SPP was acquired by Handelsbanken in 2000 as a mutual company and was subsequently de- mutualised on January 1, 2006. SPP is active in all segments of the Swedish occupational pension market (defined benefit, defined contribution, unit-linked and disability) and has the ability to provide a one stop shop for all the pension needs of its customers, providing a strong competitive advantage. As the pensions market becomes increasingly dynamic, SPP’s extensive experience and customer base in all sectors is expected to provide scope for increasing its market share. SPP has a very strong brand and customer franchise in Sweden. SPP also has long standing relationships with unions, particularly white collar unions, and employer organisations such as Svenskt Näringsliv. Furthermore, the company has a strong position in fee driven business, in particular pensions consulting and administration, and specialized products for example for expatriates. The SAS pilot contract of SEK7.6 billion of assets under management that SPP received in May 2007 is a testament to the Company’s strength in offering advanced corporate pension solutions. SPP has strong distribution capabilities via a highly experienced sales force as well as separate specialist organisations for municipalities and international business. The direct and internet distribution channels are also important and SPP is currently reinvigorating its participation in the broker channel, providing it with access to all key distribution channels. SPP currently has approximately 600 employees in total, of which approximately 440 are currently employed by SPP and the remaining approximately 160 are currently formally employed by Handelsbanken but are envisaged to be employed by SPP post the transaction. SPP had premium income of SEK 7.4 billion in 2006 of which SEK 4.3 billion was from traditional life and SEK3.1 billion from unit-linked. At the end of June 2007 SPP had assets under management (AuM) of SEK155.7 billion, of which SEK94.5 billion were traditional life assets, SEK31.0 billion were unit-linked assets and SEK 30.2 billion were in mutual funds. SPP demonstrated strong sales momentum in H1 2007 with APE sales up 26% 1H07 vs 1H06, driven by increased marketing, re-establishment of broker channel distribution and attractive underlying market conditions. Transaction rationale Storebrand believes SPP offers an excellent opportunity to create the leading Nordic life insurance and pension provider. The acquisition of SPP creates the best positioned player in the Nordic occupational pensions market, building on the skill sets, experience, market position and Press release product offering of both entities. The combined group will have a strong dual home market structure with a 12.6% market share in Sweden and 39% in Norway for occupational pensions. The combined entity will also be well positioned to participate in further consolidation of the Nordic life insurance and pensions sector. Storebrand believes that a combination of the two businesses provides the opportunity to capitalize on the skill set and experience of the two companies. For example, Storebrand can use its experience in managing broker relationships to significantly strengthen SPP’s distribution capabilities in the Swedish market. Storebrand’s more than 15 years of experience in the transfer market in Norway will also be of great help to SPP when the Swedish market opens up for transfers of occupational pensions expected in 2008. The transaction also enables both Storebrand and SPP to broaden its life and pension product range. In addition, Storebrand will further build on SPP’s strong brand to expand the retail offering and asset management business. Given the complementary nature of the operations and the growth prospects going forward, the expectation is that there will be no redundancies as a result of this transaction. Significant synergy and value creation potential Storebrand has undertaken a thorough due diligence process focussed on the identification of key risks, assessment of synergies and development of a detailed integration plan. Cost synergies: Cost synergies are expected to be approx. NOK100 million pre-tax per annum (with estimated average tax rate of 14%) and to be phased in 35% in 2008, 75% in 2009 and 100% in 2010. The cost synergies will come primarily from consolidating the IT infrastructure and from shared IT development, from consolidating HR, finance and other shared services, as well as from shared and coordinated product development and the integration of Storebrand Sweden into SPP. Furthermore, Storebrand intends to introduce Storebrand’s operational improvement program and increase the level of automation in SPP’s processes. Tax benefits: Storebrand also expects to extract more than NOK100 million in tax synergies per annum from utilising tax positions, including tax losses carried forward. The tax synergies are expected to have full effect already from 2008. Revenue synergies: Specific opportunities to rapidly grow SPP’s revenue base represent an additional minimum NOK100 million in annual new business profit. The improved market position will come primarily from three sources: (1) developing the broker distribution channel by using Storebrand’s experience from Norway, (2) increase sales from SPP’s own sales force through best of breed sales force management, and (3) increased sales in the “tick-the-box” market through intensified marketing efforts of SPP’s products. Investment management synergies: Furthermore, the integration of SPP into Storebrand’s asset and liability management (ALM) processes and principles which is expected to lead to increasing investment returns with an expected annual profit impact of approx. NOK 85 million from 2008. The value will come from better diversification through improved asset allocation and risk budgeting, reduced risk management costs through long term optimisation and increased returns from the profit sharing model through optimised risk/return management. This amount does not include the value of additional new business volumes given the more attractive product offering. Press release Capital synergies: The acquisition of SPP will also provide capital synergies through a number of diversification benefits. The acquisition will materially diversify Storebrand’s geographic focus. Storebrand will also significantly diversify its product portfolio with defined benefit, defined contribution and unit-linked assets accounting for 66%, 21% and 13% post the transaction compared to 88%, 7% and 5% respectively before the transaction. The transaction is also expected to provide a number of market related diversification benefits due to low correlations between financial drivers in Norway and Sweden. Solvency II reporting will quantify the benefits arising from these diversification benefits. Embedded value and valuation Based on information provided to us by Handelsbanken during the due diligence process we have, together with our actuarial advisor Watson Wyatt, estimated the market consistent embedded value (MCEV) and value of new business of SPP Livsförsäkring and Handelsbanken Life & Pensions Limited (formerly Euroben). These estimates take into account Storebrand’s plans with respect to IT investments, anticipated changes to commission arrangements and other anticipated expenses. The combined MCEV of the combined businesses being acquired is estimated at NOK14.0 billion of which NOK 6.9 billion represents the NAV (including the excess capital of NOK1.7 billion) and NOK7.1 billion represents the value of business in force (net of cost of capital). The new business value for 2006 is estimated to NOK215 million (net of cost of capital). The gross purchase price of NOK15.3 billion represents a Price/MCEV multiple of 1.1x based on these assumptions and a P/E multiple of 14.4x based on 1H 2007 annualised earnings before pre-closing dividend. Based on the net purchase price of NOK13.6 billion the corresponding Price/MCEV multiple is 1.1x and the P/E multiple is 13.6x. After the closing of the transaction and with full access to SPP information underlying the embedded value assumptions, Storebrand will further analyse the estimates of embedded value for SPP in order to fully align the methodology applied with Storebrand’s own embedded value reports and re-confirm the assumptions used. 4 Financial effects The transaction is expected to be marginally EPS accretive in 2008 and more than 5% EPS accretive in 20095 including cost synergies and tax benefits before amortisation of the acquired value-in-force and other deal related intangible assets. Including the amortisation of the value- in-force and other deal related intangible assets the transaction is expected to be approx. 10% EPS dilutive in 2009. Transaction structure 4 All financial effects calculations are based on the net purchase price of NOK13.6 billion and Storebrand share price of NOK89.7 as of August 31, 2007. 5 Including VIF amortisation, the EPS will be 10-15% dilutive in 2009. Press release The key entity that Storebrand is acquiring in this transaction is SPP Livsförsäkring AB including its subsidiaries. One of SPP Livsförsäkring AB’s subsidiaries is SPP Liv Pensionstjänst AB which, together with its subsidiary SPP Konsult AB, advises Swedish corporates on occupational pensions. Storebrand will also acquire Handelsbanken Life & Pensions Limited (formerly Euroben), which is a Dublin based entity offering corporates tailor-made pension plan solutions, and SPP Fonder AB, with SEK57 billion of assets under management. Both Handelsbanken Life & Pensions Limited and SPP Fonder AB are currently owned by Handelsbanken Liv. Furthermore, Storebrand will also acquire Handelsbanken’s 50% preference share interest in Nordben Life & Pension Insurance Co (“Nordben”) which is a Guernsey based life and pension company. SPP Livsförsäkring AB currently owns 50% of Nordben’s share capital, and this stake will hence also be part of the transaction. Storebrand currently owns 25% of both the share capital and the preference shares in Nordben. As part of the transaction, Storebrand also has a two year call option to acquire Handelsbanken Liv’s remaining occupational pension portfolio. There will be an asset management agreement in place between SPP and Handelsbanken for a transitional period whereby Handelsbanken will continue to manage SPP’s investment assets for one year. Selected Handelsbanken funds will be distributed by Storebrand and Handelsbanken funds will be a part of Storebrand’s unit-linked portfolio offering. Storebrand has undertaken a thorough integration planning process and already has an integration management structure in place. Full integration with Storebrand is expected to be completed within a year from completion of the transaction. Closing conditions The transaction is subject to Storebrand’s shareholders approving the rights issue, approval of the transaction by the Storebrand Committee of Representatives, required regulatory approvals, and no termination of the underwriting for the rights issue. Handelsbanken has the right to terminate the agreement in the event that said conditions have not been satisfied or waived within 180 days. Following approval of the rights-issue by the EGM Storebrand has agreed to pay Handelsbanken a break-up fee of SEK200 million should subsequent conditions not be satisfied. Completion is expected by year-end 2007. Financing of the transaction Storebrand intends to finance the cash purchase price of NOK13.6-15.3 billion as follows: Rights issue of NOK 9.0-10.7 billion, to be fully underwritten by JPMorgan and UBS Bridge loan of NOK 4.6 billion, fully underwritten by JPMorgan and UBS The rights issue is subject to EGM approval and necessary regulatory approvals. It is expected that the EGM will be held in October. The bridge loan of NOK4.6 billion is expected to be refinanced with subordinated debt as soon as practically possible following closing of the transaction, though Storebrand has flexibility to delay the issues until 2008. It is Storebrand’s intention to issue both hybrid tier 1 capital and lower tier 2 capital in approximately equal amounts. Press release The financing has been designed to secure a strong capitalisation and financial position of the combined company. About Storebrand The Storebrand Group is a leading player in the Norwegian market for long-term savings and insurance. The groups' business areas are corporate pensions, life insurance, asset management, property and casualty insurance and banking, representing a comprehensive product range for private individuals, companies, municipalities and independent public sector entities. In 2006, premium income and assets under management amounted to NOK16.6 billion and NOK217 billion, respectively. Storebrand currently has approx1450 employees. Advisors JPMorgan, UBS and ABG Sundal Collier are only acting as financial advisors to Storebrand and will not be responsible to anyone else for providing the protections afforded to customers of JPMorgan, UBS and ABG Sundal Collier in relation to the transaction. Vinge, Thommessen Krefting Greve Lund and Clifford Chance are serving as legal advisors to Storebrand in relation to the transaction. Contact details For further information contact: Storebrand: Egil Thompson, Director of Corporate Communications Tel. +47 22 48 95 86 Mobile +47 93 48 00 12 Nils Robert Hodnesdal, Investor Relations Mobile +47 93 40 38 13 Press conference and analyst presentation Monday 3 September 2007: 10.00 CET: Press conference and analyst meeting (in Norwegian) in Oslo, Felix Konferansesenter, Bryggetorget 3, Vika, Oslo. The presentation will also be available on webcast at http://www.storebrand.no/ir 14.00 (CET): Press conference and analyst meeting (in Swedish) in Stockholm, together with Handelsbanken and SPP, at China Teatern, Berzelii Park 9, Stockholm. 15.30 (CET): International conference call (in English). Dial in: + 47 800 80 119 (from Norway) or + 47 230 00 400 (international). You can also participate in the call by using the link available at http://www.storebrand.no/ir Press release Tuesday 4 September 2007: 11.00 (BST): Analyst presentation in London in the Jupiter room at CCT Venues - Barbican, Aldersgate House, address 135-137 Aldersgate Street, London EC1A 4JA. Please see the related investor presentation for further details about the transaction.
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