Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

AXIS Capital questions ISS opinion on PartnerRe merger


Insurance and reinsurance firm AXIS Capital has questioned the differences in opinion that influential proxy advisory firm Institutional Shareholder Services Inc (ISS) showed in advising its shareholders to vote for the merger, while advising PartnerRe’s shareholders not to.

ISS recommended that PartnerRe’s shareholders vote no to the merger with AXIS on Friday, saying that the “economic value of the AXIS merger consideration is at this point unknowable” but that Italian investment group EXOR’s offer “by contrast, represents an unassailable and healthy 23.1% premium to PRE’s unaffected price on Jan. 23, and even a 2.5% percent premium to implied “value” of the AXIS merger consideration.”

ISS also brought into question the conduct of PartnerRe’s Board during the process, saying that it could perhaps have extracted an even better offer from EXOR had it been more responsive to the investors advances.

ISS said that the PartnerRe’s Board’s “criticism of the EXOR offer does not appear substantiated” and that “the fact that it took a competing bidder to get the PartnerRe board to negotiate greater value for its own shareholders raises doubts about the efficacy of the entire negotiation process.”

Hence ISS, in its report on PartnerRe, advised the shareholders to vote against the AXIS amalgamation deal, while also suggesting that by engaging properly with EXOR the Board may be able to salvage something and create even greater value for the shareholders.

At the same time, ISS also produced a report on AXIS Capital in which it recommended that AXIS’ shareholders continue to vote in favour of the amalgamation with PartnerRe. AXIS’ Board said in a press release that this shows that ISS recognises the value that the merger would create.

AXIS Capital CEO Albert Benchimol commented; “We are pleased that ISS supports our Board of Directors’ strategic rationale for pursuing an amalgamation agreement with PartnerRe and that ISS recommends that AXIS Capital shareholders vote in favor of all management proposals at the August 7, 2015 special meeting of shareholders.”

AXIS explained that it feels the ISS reasoning is inconsistent across the two reports.

“On the one hand ISS recognizes the strategic and financial benefits of the merger for AXIS Capital shareholders in its conclusion, noting that it “will likely benefit from the increased scale of the merged entity,” but on the other hand ISS applies a different line of reasoning in its report for PartnerRe shareholders, failing to recognize the pro-forma financial profile of the combined company and the continuity of interest for PartnerRe shareholders,” AXIS’ press release explains.

Benchimol concluded; “AXIS Capital is a financially strong and strategically well-positioned company with three strong and diversified businesses today—including reinsurance; accident and health; and specialty insurance. The amalgamation agreement provides PartnerRe with a low-risk entry into the primary insurance market and accelerates its accident and health initiative. For AXIS Capital, the amalgamation expands our reinsurance business, enables a further acceleration of our growth initiatives, and provides significant cost savings.”

However, what the ISS reports really show is that the proxy firm recognises that the merger would create value for AXIS right now, based on its situation, where as for PartnerRe it questions the value compared to the EXOR deal as well as the way the process has been handled.

ISS is recognising that the merger would create value for AXIS shareholders, but at the same time questioning whether the value it would create for PartnerRe shareholders would be greater than if it pursued the EXOR transaction.

ISS makes recommendations for shareholders, not for Board’s of companies seeking to effect a merger who have a longer-term view of the potential value creation over a number of years. Hence it’s understandable that ISS would tell one firm’s shareholders to vote against the deal while for the other it makes sense for them to vote for it.

Both AXIS’ Board and PartnerRe’s Board continue to advise their shareholders to vote in favour of the amalgamation. However the ISS opinion is likely to hold significant sway with PartnerRe shareholders and could make a big difference, shifting the deal in EXOR’s favour.

Also the questions regarding how the Board of PartnerRe have handled the process will likely make a difference, as some shareholders may now begin to push for urgent negotiation with EXOR in order to extract even more value.

No doubt we’ll hear more on the deal throughout this week.

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

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.

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