EXOR enhances deal terms for PartnerRe shareholders

In a move which has been anticipated Italian investment holding company EXOR S.p.A. says it is enhancing the terms of its binding offer for reinsurance firm PartnerRe, in order to make the deal even more attractive to PartnerRe Common and Preferred Shareholders.

With all the back and forth and war of words in this three-way reinsurance merger & acquisition tussle between PartnerRe, AXIS Capital and EXOR, it seemed inevitable that to cut through the noise one party would have to look to make its deal terms clearly more attractive to the shareholders who hold the key’s to PartnerRe’s future direction.

Today, the day that EXOR is holding a meeting in New York for PartnerRe shareholders, is that day as the investment conglomerate provides details of the enhancements that it hopes will make it impossible for shareholders to back the deal with AXIS anymore.

Update: Analysts said that AXIS Capital likely needs to improve its deal terms if the amalgamation is to succeed in the face of this improved offer from EXOR.

The enhancements EXOR is offering in order to attract shareholders to its bid are:

For Common Shareholders :

• A “Go Shop” Provision Allowing PartnerRe to Solicit Bids from Third Parties After Signing with EXOR – EXOR will permit PartnerRe to actively solicit bids, share due diligence materials and negotiate with third parties until August 31, 2015, so that shareholders have assurance that the EXOR Binding Offer remains the superior alternative for the company. During the “Go Shop” period, EXOR will reduce the termination fee to $135 million (2.0% of deal value). These changes will provide PartnerRe shareholders the certainty of a superior transaction at a price of $137.50 per share should other buyers not emerge or should PartnerRe face catastrophe losses or other book value losses.
• If PartnerRe is Not Obligated to Pay the Termination Fee to AXIS, EXOR Commits to Pass the Full Value ($6.39 Per Share) to PartnerRe Shareholders – As part of the AXIS transaction, PartnerRe and AXIS agreed to an aggressive termination and expense reimbursement fee of $315 million (over 4.5% of the deal value) to ward off potential bidders. This is worth $6.39 per share to PartnerRe shareholders. In the event both PartnerRe and AXIS shareholders vote down the PartnerRe/AXIS transaction, and hence this fee is not payable by PartnerRe, EXOR commits to pass this value on to PartnerRe shareholders in full, effectively increasing the value of its Binding Offer to $143.89 per share.
• Personal Commitment From John Elkann Underscores Regulatory Certainty in EXOR’s Merger Agreement – To underscore EXOR’s commitment to obtaining regulatory approval, today John Elkann provided PartnerRe with a legally binding personal commitment to provide the information necessary to obtain such approvals. This action should put to rest the unfounded concern that all necessary regulatory filings will not be made.

EXOR Has Legally Committed to Launch an Exchange Offer for PartnerRe Preferred Shares Promptly Following Closing of the EXOR Merger, with Improved Economic and Other Features.

The enhancements announced today by EXOR legally commit PartnerRe to offer to exchange on a tax-free basis, each series of PartnerRe preferred shares – D, E and F – for a new series of preferred shares having identical terms as existing preferred, other than certain significantly improved terms described below, should EXOR be successful in acquiring PartnerRe.

For PartnerRe Preferred Shareholders:

• A 100bps increase in the dividend rate – This is a powerful signal of EXOR’s commitment to PartnerRe Preferred Shareholders.
• Call Protection Until 2021 – All three series of PartnerRe Preferred Shares are currently callable in the next three years with Series D callable now, Series E next year and Series F in 2018. Under the enhanced terms, EXOR commits not to call the preferred shares before January 1, 2021, providing Preferred Shareholders with certainty of income for a significantly extended period.
• 5 Years of Capital Distribution Limits – Consistent with its conservative management approach, EXOR will cause PartnerRe to limit distributions1 to common shares to an amount not greater than 67% of earnings – one of the lowest in the industry – until December 31, 2020 (the expected fifth anniversary of closing of the EXOR transaction). Under EXOR’s ownership PartnerRe will be a stronger and better capitalized company. EXOR’s commitment to conservative capital management contrasts with PartnerRe’s approach which last year saw 90% of earnings distributed to Common Shareholders, a figure that would rise under the AXIS/PartnerRe transaction to more than 125% of earnings in the 2015-2017 period.

In summary, under the existing EXOR Binding Offer for PartnerRe, Preferred Shareholders would continue to own a listed security with the same tax treatment, financial reporting standards and expected credit rating. They would also own a company with lower initial leverage when compared to the terms of the AXIS transaction and without exposure to the significant merger integration risks of a combination with AXIS. Under the enhanced EXOR Binding Offer announced today the terms will further provide PartnerRe Preferred Shareholders with higher return securities, non-callable for longer and in a company legally committed for five years to one of the most conservative capital distribution policies in the insurance and reinsurance industry. This is in contrast to the AXIS/PartnerRe transaction which will adopt one of the most aggressive capital distribution policies in the industry.

EXOR is committed to ongoing, transparent communications with Preferred Shareholders. Under EXOR’s ownership PartnerRe will continue to provide quarterly and annual financial reports (in accordance with US GAAP, including statistical supplements), and will continue to hold a quarterly conference call for Preferred Shareholders.

These enhancements should prove attractive to some of the PartnerRe shareholders which have been undecided about which way to vote on the 24th July when they get a chance to say yes or no to the AXIS Capital combination deal.

Still, the one thing missing from the offer in Artemis’ opinion is a clear strategic direction that PartnerRe would follow under EXOR’s ownership. It would seem an opportune moment to explain exactly how the reinsurance firm could outperform with some strategic tweaks and as part of EXOR’s diversified holdings, which could relieve some capital pressures.

Whether these enhancements to the deal terms will prove enough to win PartnerRe for EXOR will have to be seen, but by making the terms more attractive and effectively upping the valuation it places on PartnerRe, under certain deal circumstances, EXOR may have put the deal in such a position where it is difficult for PartnerRe and AXIS to respond.

But response there will be, you wouldn’t expect anything less given the war of words seen in recent weeks. It’s likely that AXIS or PartnerRe, or both, will make some sort of response explaining why these enhancements aren’t all they seem (in their opinion).

However, given that a growing proportion of PartnerRe’s shares have traded since this M&A deal began and are likely now in the hands of hedge funds, arbs and other speculative investors, the enhanced deal terms could be extremely attractive to them.

The PartnerRe board had said previously that EXOR needed to enhance its offer. It will be interesting to see how it responds to this latest twist in the M&A saga.

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

– PartnerRe unimpressed with EXOR’s expanded completion guarantee.

– EXOR sweetens PartnerRe offer with completion guarantee.

– EXOR says receiving positive response from PartnerRe shareholders, plus updates from both sides.

– PartnerRe cites inadequate price, unacceptable risk of EXOR offer.

– 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.