Glass Lewis tells PartnerRe shareholders vote against AXIS deal

Independent proxy voting advisory firm Glass Lewis has joined ISS in telling reinsurance company PartnerRe’s shareholders it advises they vote against the merger between it and AXIS Capital.

Glass Lewis’ recommendations also suggest that PartnerRe preferred shareholders are getting a better deal by going with Italian investment conglomerate EXOR S.p.A.’s all-cash offer.

The recommendation from Glass Lewis follows another influential proxy advisory firm Institutional Shareholder Services Inc (ISS) which also advised PartnerRe shareholders to vote against the merger with Bermudian insurance and reinsurance firm AXIS Capital.

These proxy advisory firm’s hold significant sway with investors and the recommendations are likely to steer shareholders away from the merger, which would leave the way open for EXOR to try to seal and complete its offer for PartnerRe.

In a press release, EXOR said that Glass Lewis wrote in its report that going with EXOR and voting against the AXIS deal, was positive for both common and preferred shareholders.

On common shareholders Glass Lewis’ report states:

“For common shareholders…the relative immediacy and certainty of an all-cash offer at a premium valuation (which we believe is in line with prior transactions involving reinsurers) makes Exor’s offer more attractive…”

On the preferred shareholders, the report states the EXOR offer is meaningfully different:

“For preferred shareholders, Exor’s commitment to deliver the full economic value of the dividend rate increase at closing, in the absence of an IRS ruling otherwise blessing the rate increase for the next five years, as well as its limitation on capital distributions, continue to meaningfully differentiate Exor’s exchange offer as compared to the “matching” exchange offer under the [AXIS] proposed merger.”

Glass Lewis also wrote in the report that issues such as ratings on shares and debt, as well as leverage, remain roughly equal between the transactions, despite PartnerRe and AXIS’ attempt to paint EXOR’s offer as the more negative:

“We believe other relevant factors for preferred shareholders’ consideration, including expected ratings on debt and preferred shares and resulting leverage post-transaction, are relatively equal, while the lack of execution and integration risks argue in favor of EXOR’s offer, as compared to the proposed merger with AXIS.”

The report also questioned the ability of the PartnerRe-AXIS merger to realise any additional benefits of scale soon:

“We believe Exor has raised reasonable concerns with regards to the ability of PartnerRe/Axis to ultimately realize the benefits envisioned, especially to the extent advertised by the companies…We aren’t convinced that this theoretical value [of the PartnerRe/AXIS merger], based on a number of direct and indirect assumptions, is truly attainable in the near term, given the inherent uncertainties discussed…”

Glass Lewis was also unconvinced by AXIS’ share price and how that contributed to the valuation of the proposed merger deal:

“We don’t believe that [AXIS’ stock price] serves as a reliable indication of the merger consideration due to the impact that the takeover speculation may have had on Axis’ stock price. Therefore, we generally referred to an implied value of $131.17 per share [for the PartnerRe/AXIS merger implied purchase price] throughout our analysis.”

The proxy advisory also highlighted the integration risks that are inherent in such a merger:

“We remain cognizant of the integration risks inherent in such a transformative transaction [PartnerRe/AXIS]. Even with some similarity and familiarity between the two companies, difficulties often arise once it becomes time to combine two disparate entities with separate businesses, structures and philosophies, particularly when reducing staff and continuing to operate in a challenging and competitive environment.”

As a result, the Glass Lewis report concludes; “Therefore, given the existence of what we believe to be a superior offer from Exor for both common and preferred shareholders of PartnerRe, we believe shareholders should oppose the proposed merger with Axis.”

So now with two independent proxy voting advisory firms coming out against the PartnerRe-AXIS amalgamation deal this merger tussle has certainly swayed in favour of EXOR’s bid.

Analysts have also begun to side with EXOR, despite some insisting that the future prospects of a combined PartnerRe and AXIS would be compelling. From the point of view of the PartnerRe shareholders most observers now see the EXOR deal as offering greater certainty and immediate value.

Glass Lewis itself acknowledges that the merger could over the long-term generate value, saying:

We recognize a number of factors which support a merger between PartnerRe and Axis. Particularly, we take note of changes and trends in the reinsurance and primary insurance industries, M&A activity and industry consolidation, increased competition from new players, the availability of suitable strategic partners, PartnerRe’s desire to enter the primary insurance market, Axis’ desire to add scale in the reinsurance business, as well as the companies’ relative sizes and general compatibility.

Overall, we generally believe a no-premium merger of equals faces an uphill battle for shareholder approval. In order to win over shareholders, the parties often need to demonstrate a particularly compelling strategic and financial rationale and a high probability of successfully integrating the companies and realizing meaningful synergies.

While the all-cash offer from EXOR remains superior in the proxy firms view.

Finally, it’s interesting to note that Glass Lewis says that should PartnerRe fail to secure either deal the standalone option remains a viable future for the reinsurance firm, perhaps hinting at a third-way for the PartnerRe Board if they truly do not like the EXOR approach.

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

– AXIS Capital questions ISS opinion on PartnerRe merger.

– ISS tells PartnerRe shareholders not to vote for AXIS merger, plus EXOR’s response.

– PartnerRe & AXIS continue to highlight tax risk of EXOR deal.

– AXIS: PartnerRe deal superior “immediately & in future” to EXOR deal, halts integration work.

– PartnerRe Board says EXOR’s offer likely superior, but still prefers AXIS.

– EXOR adds another $3 per common share to PartnerRe offer

– 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.