PartnerRe board wants improved EXOR bid, or it’s back to AXIS

The board of reinsurance firm PartnerRe has said that it is prepared to discuss the latest bid from investment conglomerate EXOR with a view to seeing whether it can be improved to be compelling on “price and terms” to the firm’s shareholders.

It’s a brave move from the PartnerRe board as it could turn EXOR away, as the investor said its most recent and increased all-cash offer for the reinsurance firm was final and binding. The board of PartnerRe now risks alienating investors that have stated that the EXOR bid was their preferred deal on the table.

It seems that the board of PartnerRe still wants the AXIS Capital deal to go ahead, but is making an effort to prove itself amenable to discussion with EXOR by inviting it to engage in discussion.

The board of PartnerRe said it wants these discussions in order to “determine whether EXOR’s offer, received on May 12, 2015, to acquire all of the outstanding common shares of PartnerRe for $137.50 per share in cash can be improved so that it is compelling, on price and terms, to PartnerRe’s shareholders.”

The press release from the reinsurance firm says that PartnerRe’s board has “secured a waiver” from AXIS Capital in order to directly engage with EXOR, including due diligence on the offer on the table. PartnerRe wants to undertake these discussions “expeditiously and constructively” in order to come to a decision that is in the best interest of its shareholders.

“There can be no assurance that the discussions with EXOR will result in a transaction that the PartnerRe Board is prepared to recommend or that there will be a consummation of a transaction,” the release explains.

Jean-Paul L. Montupet, Chairman of PartnerRe, said; “PartnerRe’s Board of Directors is open- minded and focused on creating value for our shareholders. Although we were disappointed that EXOR has made misleading statements regarding our prior discussions, we are interested in a proposal that may lead to superior value for our shareholders. While we believe that PartnerRe is worth materially more than EXOR has offered and the terms they have proposed are deficient, we stand ready to negotiate with EXOR in good faith to determine their willingness to propose a transaction that, taking into account price, closing certainty, timing and other terms, is in the best interests of our shareholders.”

The board of PartnerRe continues to recommend the latest bid from AXIS Capital, despite the fact that the EXOR bid was at a higher valuation. The board believes that the combined AXIS – PartnerRe reinsurance entity would increase the book value of the PartnerRe shareholders stake more.

Of course that is not guaranteed and in the currently challenging insurance and reinsurance market making projections of how successful or valuable a combined entity would be is very difficult.

By inviting EXOR into discussions, with a proviso that the offer must be increased, the board of PartnerRe has put the ball back into the Agnelli family backed investors court.

However, we would suggest that the board is also now risking the ire of large shareholders in PartnerRe, particularly those that may have preferred to cash out and leave the reinsurance firm to EXOR. If EXOR chooses to walk away, rather than improve its offer, some shareholders may feel like they’ve missed out because of the PartnerRe board’s actions.

In a letter to PartnerRe shareholders the board explains its misgivings about the EXOR offer, saying that a number of areas of the offer documentation was felt to be lacking. The board’s letter also highlights a risk in closing of the deal, as it claims that EXOR could walk away after a protracted process, leaving PartnerRe shareholders exposed to execution risk.

Also noted is timing, with the EXOR deal likely to take much longer to close than the AXIS deal.

The PartnerRe boards letter concludes:

Put simply, quite apart from the issue regarding sufficiency of EXOR’s proposed price, EXOR’s offer entails significant optionality that would allow EXOR to walk away from a transaction without consequence, requires PartnerRe’s shareholders to bear the risk of paying up to $315 million of termination fees and expense reimbursement to AXIS and imposes incremental execution risk while failing to adequately compensate our shareholders in return.

Although we will not leave misleading public rhetoric unchallenged, PartnerRe’s Board will engage with EXOR in good faith to determine if EXOR can improve its offer and terms such that our Board would be willing to recommend it to our shareholders. Simply stated, the PartnerRe Board has an obligation to do the right thing for our shareholders and that is what we intend to continue to do.

The PartnerRe board claims that EXOR has been deliberately misleading PartnerRe’s shareholders throughout the whole process and goes to some lengths to explain this. It also claims to be fully aligned with the reinsurers shareholders, something that will likely be discussed in the press in days to come as media talk to key holders of PartnerRe.

Essentially it seems that the PartnerRe board want an improved offer, as it feels EXOR undervalues the firm, as well as the issues around execution and closing risk tightened up or removed. And if it doesn’t receive those the recommendation to be acquired by AXIS remains.

Although a skeptic could certainly read this announcement and the letter to shareholders as an attempt to get EXOR to walk away and drop its offer entirely.

As we said before the shareholders continue to hold the key to the future of PartnerRe. Now, thanks to this announcement and letter from PartnerRe, the persistence of EXOR is also brought to the fore.

This interesting, and now a little messy, M&A process is not over yet.

Finally, with the key June reinsurance renewals just days away and July fast approaching it has to be considered how the drawn out uncertainty over the future of PartnerRe and AXIS might be affecting their renewal discussions.

It’s entirely possible that cedents are finding these reinsurers less appealing as markets and counterparties than before, which may affect their success at this renewal season. All parties must be keen to close this down as soon as possible. It will be fascinating to see what happens next.

Also read:

– AXIS unlikely to sweeten PartnerRe offer to match EXOR: Reuters.

– Shareholders hold key to PartnerRe’s future, EXOR bid preferred.

– EXOR increases offer for PartnerRe, becomes largest shareholder.

– Exor to consider increasing bid for PartnerRe, reports.

– AXIS, PartnerRe committed on merger. EXOR commits to its offer.

– Major shareholder prefers EXOR’s bid for PartnerRe over AXIS’.

– EXOR bids $6.4B for PartnerRe, to get into reinsurance.