Travelers 2005 Annual Report Download - page 159

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
147
2. MERGER
On April 1, 2004, TPC merged with a subsidiary of SPC, as a result of which TPC became a wholly-
owned subsidiary of The St. Paul Travelers Companies, Inc. For accounting purposes, this transaction was
accounted for as a reverse acquisition withTPC treated as the accounting acquirer. Accordingly, this
transaction was accounted for as a purchase business combination, using TPC’s historical financial
information and applying fair value estimates to the acquired assets, liabilities and commitments of SPC as
of April 1, 2004.
Determination of Purchase Price
The stock price used in determining the purchase price was based on an average of the closing prices
of SPC common stock for the two trading days before through the two trading days after SPC and TPC
announced their merger agreement on November 17, 2003. The purchase price also included the fair value
of the SPC stock options, the fair value adjustment to SPC’s preferred stock, and other costs of the
transaction. The purchase price was approximately $8.76 billion, and was calculated as follows:
(in millions, except stock price per share)
Number of shares of SPC common stockoutstanding as of April 1, 2004...................... 229.3
SPC’s average stock price for the two trading days before through the two trading days after
November 17, 2003, the day SPC andTPC announced their merger........................ $ 3 6.86
Fair value of SPC’s common stock. .................................................... $8,452
Fair value of approximately 23 million SPC stock options. .................................. 186
Excess of fair value over book value of SPC’s convertible preferred stock outstanding, net of the
excess of the fair value over the book value of the related guaranteed obligation............ 100
Transaction costs of TPC............................................................... 18
Purchase price ........................................................................ $8,756
The primary reasons for the acquisition were, among other things, a) to create a stronger company
that would provide significant benefits to shareholders and to customers alike; b) to capitalize on a
common strategic focus on deliveringthe highest value to customers, agents and brokers and, working
together, to expand future opportunities and capture new efficiencies; and c) to strengthen the combined
company’s position as a leading provider of property and casualty insurance products.