After having met with members of EXOR’s management yesterday to gain clarification on the process and deal metrics for the proposed acquisition of reinsurance firm PartnerRe, Macquarie analysts now feel EXOR has an improved chance of sealing the deal.
Prior to their meeting the analysts were expecting the amalgamation option of reinsurer PartnerRe with insurance and reinsurance company AXIS Capital would be the eventual winner in the three-way tussle, but now Macquarie’s analysts are less convinced of that.
The analysts from Macquarie Securities, led by Amit Kumar, discussed the announcement that rating agency Standard & Poor’s had confirmed that if PartnerRe was bought by holding company EXOR, it would not affect the reinsurance firm’s ratings.
The analysts explained that there had been “meaningful confusion” among the preferred shareholders of PartnerRe that they had spoken with. Some preferred shareholders had held the belief that a negative rating change had been a possibility.
That’s interesting as some of the communications from the PartnerRe board had implied this was a possibility, but it now seems that this idea has been shown to be inaccurate. As preferred shareholders gain more understanding of the EXOR offer and what it actually means for them, they could increasingly be swayed to vote against the AXIS Capital deal.
There had also been some confusion among shareholders about the voting process, believing that abstentions could be treated as a no vote. But the analysts explain that abstention will not be considered, hence the importance that shareholders have their voices heard as only submitted yes or no votes will be considered.
During the meeting with EXOR management the analysts also enquired about the potential for a special dividend to sweeten the offer for preferred shareholders, but EXOR reiterated its opinion that the offer stands and that any special dividend would be hard to explain to its own shareholders.
Interestingly, the analysis from Macquarie found that PartnerRe’s shares have been changing hands rapidly while the three-way M&A tussle has been going on. They found that as much as 61% of PartnerRe’s shares have traded in recent weeks, meaning that the ownership of the reinsurance firm likely changed meaningfully.
The analysts note that this could mean an increased number of shareholders from the likes of hedge funds and those seeking an arbitrage opportunity. That kind of shareholder may be expected to favour the EXOR offer, given it could take longer for a merged PartnerRe and AXIS to make the efficiencies count and realise growth in book value per share.
The analysts expect the vote will result in a choice of either AXIS or EXOR, they don’t expect shareholders to vote to remain an independent reinsurance company. They also don’t expect EXOR to be looking at other reinsurers, as the holding company’s management insisted that PartnerRe is the one for them.
So as a result of the meeting and gaining a better understanding and some clarity about the preferred shares, Macquarie’s analysts now give EXOR a greater chance of pulling off its all-cash bid for PartnerRe.
“Following our meeting and clarifications, we feel that Exor has a better chance at winning the process than initially anticipated. We have raised our target price to $137.50/share, which is the current all-cash offer for PRE,” the Macquarie analysts commented.
Also today, PartnerRe has published another press release calling on its shareholders to vote in favour of the AXIS Capital deal.
PartnerRe’s board wrote in a letter to shareholders that the AXIS deal; “is the most compelling opportunity to create superior long-term value for our shareholders at this time.”
The letter states that “EXOR’s offer is not a viable option” as it undervalues PartnerRe and brings with it execution risk, the board explain in the letter.
“Do not be misled by EXOR’s false rhetoric and incorrect assertions,” PartnerRe’s board wrote.
Given the Macquarie analyst’s opinion that some shareholders appear confused by the true meaning of the EXOR offer for their holdings, it would seem that the rhetoric from both sides has perhaps led to increased confusion and a clouding of the real issues here.
It’s surely the responsibility of both sides to be totally transparent and honest in communications with shareholders in order to enable them to make the right decision for themselves?
The full letter from PartnerRe’s board to shareholders can be read here.
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