Italian Agnelli family scion John Elkann, Chairman of Swiss based family investment company Exor, is trying to spoil the party for a pending combination between two of the top Bermuda-based reinsurance companies, Axis Capital and PartnerRe, who earlier this year agreed to merge. That resulting entity will, if the deal closes, then become one of the largest reinsurance companies in the world.
Having jumped in with a bid of its own recently, Exor this week sweetened its, all-cash, offer to buy PartnerRe instead, now uprated to US$6.8 billion- still all-cash. PartnerRe has now brushed this offer off too, and has dismissed this intervention by John Elkann as “unacceptable.”
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Reinsurers are specialized entities that make their money by taking on liabilities from the primary insurance market as risk mitigators, hopefully for a good profit. At this stage in the business and insurance cycle it is still a good business, but even so the back office savings offered to those players who consolidate are becoming increasingly attractive.
Axis made its all-stock offer for PartnerRe, which is currently worth some $131.50 per share, including a special cash dividend of US$11.50 per share, and PartnerRe’s shareholders are currently scheduled to vote on the transaction on July 24th.
PartnerRe also claims that a reasonable value of PartnerRe may even be higher, between $143 and $151 per share once PartnerRe’s reserves are added to the estimated book value of the company at the end of the year, when the deal is expected to close.
The current Exor bid is for US$137.50 per share all in cash. However, by its responses PartnerRe clearly seems to be taking the view that the Axis all-share deal makes more sense for its own shareholders on the basis that there is still more juice in the lemon of the insurance cycle, and that the back office merger savings, said to be of the order of US $200 million annually, are then icing on the cake.
Jean-Paul Montupet, PartnerRe’s Chairman, has penned an open letter to his shareholders in which he writes: “Our interactions with Exor to date have been severely distorted and mis-characterized. Exor has been misleading PartnerRe shareholders as a negotiating tactic. Our board will not be coerced into relinquishing control for an inadequate premium.” Strong stuff, though in part a form of theatre of course.
Montupet also left a tiny crack in the doorway in case Exor wants to do better, saying: “Although we will not leave misleading public rhetoric unchallenged, PartnerRe’s board will engage with Exor in good faith to determine if it can improve its offer.”
Exor recently bought enough shares to become PartnerRe’s largest shareholder with an approximately 9.3 per cent stake, and John Elkann has now described their $137.50 a share bid as “final.”
Not a bad position for John Elkann to be in, though, with a cash bid on the table and the potential for “greenmail” if his stake gets taken out by an even higher offer from Axis, even though in Axis which he would have to later liquidate.
