EXOR adds another $3 per common share to PartnerRe offer

by Artemis on July 20, 2015

Italian investment holding company EXOR S.p.A. has again enhanced its offer for reinsurance firm PartnerRe, this time with a special dividend for common shareholders, as EXOR seeks to put the deal out of reach of the re/insurance merger transaction with AXIS Capital.

EXOR has today offered common shareholders in PartnerRe an additional $3 per share special dividend on closing of the reinsurance acquisition, which the holding company hopes will be in early 2016.

Today’s latest enhancement to EXOR’s bid to enter the reinsurance industry by purchasing PartnerRe, puts the total value consideration that shareholders would receive on completion to $140.50 per share, which EXOR says; “further widens the gap in value with the AXIS transaction.”

The $3 per share pre-closing special dividend will be added to the $137.50 per share all cash offer that EXOR made for PartnerRe. With this sweetener, EXOR is clearly seeking to get the common shareholders on side and to bring the value of the transaction into line with the preferred shareholders.

EXOR is also seeking to compensate the common shareholders with the transaction taking longer to close than expected, which is due to the delay of shareholder votes. Originally, EXOR had believed that the deal would be completed by the end of this year, but now expects it to slip into 2016.

EXOR explains the value it feels this latest enhancement brings to shareholders:

This additional $3.00 per share of real incremental value to PartnerRe Common Shareholders further widens the gap in value with the AXIS transaction. Under the AXIS transaction, the increase in the special dividend announced on July 16, delivers to PartnerRe shareholders less than $1.00 per share of incremental value, after adjusting for: i) the ownership split in the combined AXIS/PartnerRe; ii) the reported declines in the second-quarter 2015 tangible book value of both PartnerRe and AXIS; and iii) the costs associated with the 100 basis point increase in the dividend rate for PartnerRe preferred shares.

EXOR said that the Board of PartnerRe has “effectively acknowledged the superiority of the EXOR Binding Offer by seeking enhanced terms with AXIS.”

This is the second time that the PartnerRe Board has sought to improve the terms of its merger with AXIS Capital, EXOR said, while the Board continues to call EXOR’s offer inferior.

“The enhancements announced by EXOR today confirm that EXOR’s Binding Offer – which was extended to August 11, 2015 – is superior and further widen its value advantage compared to the AXIS transaction,” EXOR said in its announcement today.

EXOR also noted today that it does not believe that the Inland Revenue Service (IRS) would treat the preferred shares as part of a “listed transaction” or “prohibited tax shelter” involving “fast-pay stock”, once the transaction was completed.

EXOR explained that it “remains committed to delivering full enhancements to PartnerRe preferred shareholders” and details the value it believes the offer provides to both common and preferred shareholders in its announcement, here.

EXOR also notes that with its deal there is no merger or integration risk for PartnerRe to face, citing the chances of “widespread job losses, loss of brand and culture and the very real risk of loss of clients and business”, instead it will be business as usual.

On the chance of the EXOR acquisition of PartnerRe being treated as a “listed transaction” EXOR explains:

While EXOR takes at face value the risk PartnerRe and AXIS have identified in relation to their proposal (perhaps as a result of the significant U.S. common shareholder base that will survive that transaction), EXOR rejects the suggestion that the same risk applies to the EXOR Binding Offer. EXOR’s U.S. legal counsel, Paul, Weiss, Rifkind, Wharton & Garrison LLP, has also confirmed to EXOR that if the EXOR transaction closed and the exchange offer were launched today, it would be prepared to deliver a tax opinion that the preferred shares issued in the exchange offer should not be “fast-pay stock”, and EXOR has today amended the merger agreement to provide representations to such effect.

Although EXOR and its advisors do not believe a ruling from the IRS is necessary, in light of PartnerRe statements to shareholders to the contrary which avoid a truly committed exchange offer in the AXIS-PartnerRe transaction, EXOR is also willing to seek a private letter ruling from the IRS that the preferred shares issued in the exchange do not constitute “fast-pay stock” or are not otherwise part of a listed transaction. While PartnerRe and AXIS have specifically linked the timing and delivery of their exchange offer to such a letter, there is no guarantee that the IRS will issue a private letter ruling on a timely basis, or at all. Among other reasons, the IRS may see that there is no abuse intended in the transaction and decline to spend administrative time and resources on the subject.

Accordingly, in light of the possibility of not receiving the private letter ruling, EXOR has gone a step further to provide additional comfort for PartnerRe Preferred Shareholders with respect to the EXOR offer. It has today also amended the merger agreement to provide that if the private letter ruling is not obtained prior to the closing of the EXOR transaction, then a lump sum cash payment equal to approximately $42.7 million, which is the entire amount of 100 basis points of additional dividend payments for five years, would be separately paid by EXOR to the record holders of preferred shares at closing. This compensates holders for the loss of the assured years of coupon increase that they would have had if they participated in the exchange.

In addition, if the private letter ruling is not obtained by closing of the EXOR transaction, EXOR will continue with the previously announced exchange offer (except for the dividend increase, which will be replaced by an upfront lump sum payment). This means preferred holders will still have an opportunity to benefit from both five years of call protection and the assurance of a more conservative capital distribution policy.

EXOR will hope that this latest enhancement and clarification about the “listed transaction” status will be sufficient to encourage both common and preferred shareholders that its offer is superior to the PartnerRe – AXIS Capital merger.

As ever, it will be interesting to see what comes back from the other sides in this three-way reinsurance M&A tussle.

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

Enhanced PartnerRe – AXIS terms weaken merger rationale: Analyst.

PartnerRe and AXIS reveal improved merger terms.

EXOR says PartnerRe & AXIS acknowledge transaction is inferior.

PartnerRe and AXIS Capital evaluate improving merger deal.

As EXOR pursues PartnerRe, AXIS could attract buyer: Macquarie.

Activist Sandell says PartnerRe board misinforming shareholders.

AXIS needs to match, or beat, EXOR’s improved PartnerRe offer.

EXOR enhances deal terms for PartnerRe shareholders.

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.

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