PartnerRe Board urges Preferred Shareholders to vote for AXIS merger

The latest development in the PartnerRe, Exor and AXIS Capital merger saga has seen the reinsurer issue a letter and accompanying presentation to its Preferred Shareholders, urging them to vote in favour of a merger with AXIS Capital Holdings.

Earlier today it was reported that the Supreme Court of Bermuda had ruled against Italian investment firm and holding company, Exor’s claim that PartnerRe refused to share details of its shareholders.

The lawsuit was filed last week by Exor and hailed as “without merit” by reinsurer PartnerRe, which believed it was well within Bermudian and American legislation regarding the issue.

Part of the letter to its Preferred Shareholders from Bermuda’s PartnerRe states; “As a Preferred Shareholder, your vote in favour of the AXIS merger is critical to creating one of the world’s preeminent specialty insurance and reinsurance companies, with gross premiums written in excess of $10 billion, total capital of more than $14 billion, and cash and invested assets of more than $31 billion.”

“We urge you to vote in favour of this transaction today,” states the letter.

The accompanying presentation on the proposed merger, which can be accessed via the PartnerRe website, again emphasises the benefits to Preferred Shareholders of PartnerRe should a vote for AXIS take place, while also providing details of the inherent risks associated with the proposed Exor bid.

The reinsurance firm claims that a merger with AXIS will improve the security of Preferred Shareholders, below are two out of the various examples the firm gives on just how this will be achieved.

• Enhanced Financial Profile. The Preferred Shares of the merged Company will be supported by a stronger combined balance sheet, increased equity base and enhanced, more stable earnings.
• No Impact on Ratings. PartnerRe is confident, based on initial feedback from rating agencies following review of the capital plan, that the combined Company’s ratings (including those of preferred securities) would remain at the same current strong levels upon closing of the merger.

In contrast to this, explains PartnerRe, a successful deal with Exor would create a number of disadvantageous outcomes for Preferred Shareholders. This includes;

• No Benefit from Change of Control. Preferred shareholders would not benefit from EXOR’s cash offer for PartnerRe’s common shares of $137.50.
• Considerable Risk of Preferred Share Downgrade. Given EXOR’s current ratings and the meaningful additional debt contemplated in proposed transaction financing, there is considerable risk that the rating of preferred shares would be downgraded upon sale to EXOR.

To support its claims the reinsurer draws on predictions from ratings agencies, including a press release from Standard & Poor’s (S&P) in May 2015, which said; “Despite the announced approximately $560 million special cash dividend, we expect the combined company’s capitalisation will remain very strong and materially redundant to ‘AA’ level after the deal closes and through 2017.”

Regarding Exor’s bid, and highlighted by PartnerRe, S&P noted; “We would likely revise (Exor’s) outlook to stable if the (PartnerRe) acquisition does not close.”

At this stage it increasingly seems that the best way to resolve this three-way tussle would be to give shareholders equal access to information stating the case from each party and then hold a vote that explicitly asks which deal they want to pursue.

Are shareholders interests best served by being less easily able to hear one side’s story? Is a vote that only offers one of the deals as an option really a fair way to canvass opinion at this stage?

The longer this saga continues the more it seems that transparency is the best way forwards for the shareholders who ultimately own PartnerRe.

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

– 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.