AIG deal ‘might arguably make more sense than buybacks’ for Chubb, says BofA

BofA noted the press widely reported on an unsolicited offer from Chubb (CB) to acquire AIG (AIG), but points out that Chubb has formally denied such an offer was made. Such an AIG-Chubb “mega-transaction,” almost certainly one of the largest insurance M&A deals in history, would likely involve material expense synergies, but it is also likely that there would be notable revenue dis-synergies due to customers and counterparties seeking to diversify increasing exposure to a single carrier, the analyst tells investors. There is also the risk that such a combination could bring scrutiny from the Department of Justice in regard to anti-trust issues, added the analyst. Given its notably higher valuation, Chubb would be able to use its higher value stock “currency” to strike some arbitrage and M&A at a low price-to-book multiple “might arguably make more sense than buybacks,” says the analyst, who continues to rate shares of Chubb at Underperform and shares of AIG at Neutral.