KBW analysts still give AXIS the edge to win PartnerRe deal

by Artemis on June 18, 2015

The equity analysts who track the insurance and reinsurance sector are beginning to show a little divergence in their opinion of who will win the ongoing M&A tussle, with KBW’s analysts coming out in favour of AXIS Capital sealing its deal to amalgamate with PartnerRe.

Macquarie’s analysts said this week that they feel EXOR now has an improved chance of acquiring reinsurance firm PartnerRe, after they met with the firm and it explained a few key points. More on that in yesterday’s article here.

KBW analysts also met with EXOR management, but they stick to their opinion that AXIS Capital will likely get its way and find its transaction favoured by shareholders.

Of course, this deal is perhaps not as straightforward as before, now that rumours have emerged that Arch Capital Group has made an informal approach to buy AXIS.

KBW’s analysts, led by Meyer Shields, said that they left a meeting with EXOR on Tuesday feeling like AXIS still has a slight edge in what the analysts expect will be a close vote.

The analysts continue to believe that the combination of AXIS and Bermudian reinsurance firm PartnerRe offers enough upside to shareholders to sway the vote in that deals favour.

They note that AXIS’ shares performed strongly on Tuesday, perhaps as a result of a growing anticipation that the firm could collect a break-up fee if the deal fall’s through. That has the impact of making its bid for PartnerRe more attractive, as the valuation of AXIS goes up the valuation of the amalgamated firm’s shares do too, which could serve to make the deal more attractive to investors.

The KBW analysts noted; “Our respectful disagreement with EXOR’s case reflects our optimism about the combined company’ s bigger, more diversified book of business, and the implications for capital requirements, valuation, and earnings.”

The analysts also provide their thoughts on the EXOR all-cash offer for PartnerRe; “We think the potential acquirers’ plans for PRE’s capital are mostly relevant for the preferred shareholders. We appreciate EXOR’s strategic plans to extract less in dividends from PartnerRe than it has paid out in recent years as a way to maintain an overcapitalized reinsurer that can respond quickly to market changes. It’s an appropriately conservative approach that would be difficult for a public company to sustain, as its representatives acknowledged.”

Finally, after the meeting the KBW analysts walked away thinking; “Our key takeaway from our meeting with EXOR’s representatives was an improved understanding of the choices facing PRE’s preferred shareholders, and S&P’s clarifying comments about its rating processes make it a closer call than we’d previously thought.”

But KBW does not think the EXOR offer provides sufficient upside to sway enough investors to vote against the AXIS deal, meaning that the analysts believe shareholders should vote for AXIS.

Also today, PartnerRe’s board is back with another presentation for shareholders that explains their thinking behind why they believe the AXIS Capital deal is in the reinsurance firm’s best interests.

They say that the board’s unanimous decision to elect to go with AXIS is the result of “careful evaluation of strategic alternatives.”

The board continues to believe that the combination with AXIS provides the most value to the reinsurance firm and its shareholders.

The board explains:

The AXIS Capital transaction is expected to result in substantial financial and operational synergies, and it satisfies the key objectives of PartnerRe’s long-term business plan, which include developing capabilities in the primary insurance market and the ability to dynamically deploy capital; expanding size and scale in both insurance and reinsurance markets; and leveraging third party capital in catastrophe and non-catastrophe markets.

EXOR has made various deceptive assertions in a transparent effort to distract shareholders from the inadequacy of its opportunistic offer for PartnerRe relative to the merits of the AXIS Capital transaction. The merger of equals with AXIS Capital delivers PartnerRe shareholders superior value and a clear path to closing, and is the result of a high quality governance process. Shareholders should not be misled by EXOR’s false claims with respect to the Board’s efforts to achieve the best outcome for the Company, and should be aware that PartnerRe actively sought to engage with EXOR to improve the price and terms of its offer, but EXOR has refused to do so.

So the M&A tussle rumbles onwards. With just over a month to go until the shareholders vote, we can expect this rhetoric to continue.

For the full story see our previous articles, most recent first:

Arch said to be considering AXIS Capital bid: Reports.

Analysts feel EXOR has improved chance of buying PartnerRe.

EXOR capital structure has no bearing on PartnerRe rating: S&P.

EXOR accuses PartnerRe board of “engineering” AXIS transaction.

PartnerRe Board urges Preferred Shareholders to vote for AXIS merger.

Bermuda court rules against Exor’s shareholder detail request.

PartnerRe shareholders should vote to go with AXIS: KBW analysts.

PartnerRe says Exor’s lawsuit claims “without merit”.

Exor sues to gain access to PartnerRe shareholder details.

PartnerRe-AXIS : $60m fees from third-party reinsurance capital by 2017.

EXOR welcomes PartnerRe shareholder vote, Sandell questions Board.

PartnerRe rejects EXOR again, to proceed with vote on AXIS merger.

EXOR says will engage with PartnerRe board, but not on price.

AXIS prepared to go it alone if PartnerRe deal breaks up.

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

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.

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