PartnerRe cites inadequate price, unacceptable risk of EXOR offer

The war of words in the reinsurance merger & acquisition battle between PartnerRe, its original suitor AXIS Capital and Italian investment and holding company EXOR continues, with PartnerRe’s board today citing the “unacceptable level of risk” associated with EXOR’s bid.

EXOR came in with its all-cash offer to buy Bermudian reinsurance firm PartnerRe after the reinsurer was already quite far down the line in a merger process with fellow Bermudian AXIS Capital.

Since that offer came in the verbal back and forth between the companies has been significant, with accusations coming from all sides.

Now PartnerRe has published another presentation detailing what it calls the “wholly inadequate price” and “unacceptable level of risk” that the EXOR offer represents.

After citing the inadequate price, PartnerRe’s board explains that; “The EXOR offer presents an unacceptable level of risk to PartnerRe and its shareholders relative to both the AXIS Capital transaction and a standalone proposition. PartnerRe’s Board has reaffirmed its recommendation of the AXIS Capital transaction, and urges all shareholders to vote FOR the amalgamation agreement with AXIS Capital.”

The board says that it would be “irresponsible” to walk away from what it believes is a more compelling offer, in the amalgamation with AXIS Capital. It also cites the risk that should PartnerRe end up with no deal at all it could be $315m out-of-pocket.

PartnerRe’s board summarises the risks it sees as follows:

Walkaway Risk

• Negative developments in the protracted period to closing could cause EXOR parties to walk away from its merger agreement.
• The EXOR parties to its merger agreement are shell entities, allowing EXOR to walk away from its proposed transaction with minimal risk to EXOR.
• EXOR’s ability and desire to close may be significantly impaired by financial pressures from substantial transaction leverage, its ability to raise cash, and its commitments to other investments (including Fiat Chrysler).

Regulatory Risk

• EXOR and its controlling shareholders have no contractual obligations to cooperate in obtaining regulatory approvals.
• EXOR and its controlling shareholders are unknown to key regulators, which may result in a protracted and complicated regulatory approval process.
• Regulators and rating agencies likely will want to explore EXOR’s intentions for PartnerRe particularly given frequent reports on Fiat Chrysler’s search for structural solutions to its ongoing challenges – will EXOR move other assets into PartnerRe to expand its capital base and extract capital?
• EXOR and its controlling shareholders have refused to give an absolute commitment to obtain regulatory approvals. If EXOR and its controlling shareholders fail to obtain regulatory approvals, PartnerRe will lose the upside of the AXIS Capital transaction as well as $315 million in AXIS Capital termination fees.

Timing Risk and Unwillingness to Constructively Engage

• The EXOR offer will not close this year, while the AXIS Capital merger of equals is on track to close in the third quarter.
• This protracted timeline and the walkaway risks in the EXOR offer expose the PartnerRe business to the risk of a failed transaction through the renewals period which could be highly damaging.
• EXOR has demanded that it receive all PartnerRe earnings post 2014 in excess of 70 cents per common share per quarter.
• EXOR has repeatedly rejected the PartnerRe Board’s willingness to engage and negotiate despite a clear path to doing so, and EXOR has consistently refused to address the serious flaws in its terms.

The full presentation can be found on the reinsurance firm’s website here.

There remains some confusion about where another company could join the M&A fun with a late approach for either re/insurance firm. Last week Arch Capital Group was mooted, but some market contacts suggest that in their currently vulnerable position any firm with an interest could perhaps break this party up with the right offer.

Expect a response from EXOR at some point in the near future.

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

– Confusion over whether Arch is bidding for AXIS, or not.

– KBW analysts still give AXIS the edge to win PartnerRe deal.

– 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.