Chubb Ltd (NYSE:CB) Stock Still Cheap After ACE Merger

January 18, 2017

CEO and Portfolio Manager James Cullen of Schafer Cullen Capital Management says while his firm has owned Chubb Ltd (NYSE:CB) for some time, he is very pleased post the merger with ACE, and finds the stock inexpensive at 13 times earnings.

We have owned Chubb for a while in our value portfolios, even though it didn’t have a high dividend for quite some time. Last year, ACE announced it wanted to acquire Chubb, and so we got a few calls from people we knew at Chubb saying, “We don’t like this deal.” We looked at the two companies and the deal carefully, seeing ACE had been down, and it qualified for our dividend strategy. ACE, of course, has been very successful; it is more of an international kind of company, while the old Chubb was more domestic but has a very high-quality client base.

Evan Greenberg, who’s been successfully running the company for many years, has been a good cost-cutter, a very efficient operator. We were leery about him at first, so we decided we needed to see him. Jennifer and I, along with one of our analysts, went to see him present at a conference, and when we met Greenberg, we were very impressed with what he could do with a combination of these two companies.

He did one extraordinary thing, he was asked, “How about the people at Chubb? What do they think of you taking them over?” He said, “The marketing and salespeople, they are the ones that are, obviously, most important, and they have two main interests: One, they want to make more money, and two, they’re very happy with the quality of their firm, and they want to make sure we maintain that quality.”

He said, “We’re going to be doing both of those things. Number one, they are going to make more money, and number two,” he said, “we’re going to change our name from ACE to Chubb.” I was floored by that. That’s unusual for the acquiring company to assume the name of the company they are taking over. That was impressive.

When he was asked about buybacks, and I have a hard time with buybacks because a lot companies end up buying back stock when it’s overpriced, he said, “Well, you see, I’m not a big fan of buybacks.” His intent was to utilize excess capital to increase their dividend and pay down debt. We liked that. So far, they’re off to a good start. It’s been almost a year post-merger, and stock is still cheap at 13 times earnings. That’s how we came around to buying the company.