Shares in Zurich Financial Services shot higher on Friday after a report that the Swiss insurer was discussing a possible merger with St. Paul Travelers Cos..
Zurich shares were indicated 8.4 percent higher in the premarket on Thursday's close, according to Bank Leu.
The two companies were in merger talks in what could be one of the largest acquisitions by a U.S. company in Europe, the Wall Street Journal reported on Friday.
Citing people familiar with the matter, the Journal reported that the talks are preliminary and may go nowhere. Such a deal also would face serious hurdles and could take months to complete, the report said.
A spokesman for Zurich declined to comment on the report.
One insurance industry analyst said he doubted whether a merger between the two groups would work unless St. Paul's approach was friendly because Zurich was larger and generated more premium income than the U.S. company.
"I don't think Zurich really needs to merge with anyone," said a Swiss-based analyst who asked not to be identified. "They have put their house in order and I rather think the merger idea may come from St. Paul."
"The logic could be driven by cost-cutting but it would be the small guy buying the big guy and that requires a lot of leverage and finance. It would be difficult to integrate these companies and both need to want it." A deal between St. Paul and Zurich Financial could create a rival in size to American International Group Inc., combining a large U.S. insurer with major overseas operations, the Journal reported.
Zurich Financial has a $33.6 billion stock-market value, compared with a stock-market value of $29.9 billion for St. Paul Travelers.
Officials at St. Paul Travelers could not immediately be reached for comment.
The report said a merger between the two groups could help the companies spread their risk more evenly around the world and would provide opportunities to cut costs.
A combined group would have smoother revenue because the European and United States markets experience boom-and-bust insurance cycles at slightly different times, it added.
The overlap in businesses in the United States would provide an opening for significant cost-cutting if a merger deal went through, the report said.