EXOR bids $6.4B for PartnerRe, to get into reinsurance

Interesting news as EXOR, an investment company owned by the Italian Agnelli family (behind Fiat Chrysler), have launched a $6.4 billion counter bid to buy reinsurance firm PartnerRe, gate crashing the merger of AXIS Capital and PartnerRe.

Exor said in a statement that it would bid $130 per PartnerRe share, which is a 16% premium to the value per share offered by the AXIS Capital deal, according to Exor’s calculations.

Exor said that its offer would provide PartnerRe shareholders with “superior value” compared to the on-the-table AXIS deal.

The offer by Exor is perhaps a sign that the reinsurance market remains an attractive place to invest, even with rates on the decline, demonstrating that there is still margin available in the business.

Exor has been investing in insurance and reinsurance companies for two decades, including as a minority investor in PartnerRe when it was formed back in 1993. However this would be a major leap into the reinsurance space for the investor, taking it far beyond the small equity investments it has made in the past.

There had been some murmurs of discontent among shareholders and by press after the AXIS offer, saying that it perhaps undervalued PartnerRe a little.

The AXIS Capital and PartnerRe deal kicked off in January, after the paid said they would combine in order to better cope with the challenges facing the reinsurance industry. It had been rumored in recent weeks that another bidder may emerge due to the low valuation, which now proves correct.

Exor said that it is “committed to further strengthening PartnerRe’s position as a leading global reinsurer.” The deal it has proposed at $130 per share, provides “superior value and greater certainty” for PartnerRe’s shareholders.

Exor said that its offer “is envisaged to be friendly” and can be completed rapidly if pursued. The offer from Exor is fully financed with cash and so does not require any capital raise by Exor nor a vote by its shareholders, making its completion much simpler it would seem.

Exor believes; “There is significant long-term potential for a global reinsurer such as PartnerRe. Its deep underwriting expertise, significant financial strength, scale and diversification would be enhanced by EXOR’s permanent capital base and ability to deploy additional resources to accelerate growth under the right conditions, further strengthening its position as a world leading reinsurer.”

Exor said that its proposal; “Provides management and employees with a unique opportunity to successfully develop the PartnerRe business as a standalone private company, focusing on its long-term prospects, better managing the volatility of the reinsurance cycle and proactively seizing market opportunities.”

“We strongly admire the PartnerRe business and its people. Our proposal provides superior value for PartnerRe shareholders with the certainty of a cash offer. It also represents a great opportunity for the company’s management and employees to continue to develop PartnerRe’s outstanding potential as a leading global reinsurer with our committed and stable ownership,” commented John Elkann, Chairman and CEO of EXOR. “We have every confidence that the PartnerRe Board, employees and shareholders will support our proposal and create the conditions for us to bring this offer to fruition swiftly.”

The offer from EXOR has been approved by its board and requires no shareholder approval. It is subject to limited due diligence, termination of PartnerRe’s agreement with AXIS Capital, execution of definitive agreements and approval from PartnerRe shareholders. Exor said that it anticipates that if pursued its acquisition of PartnerRe could be completed this year.

The counter bid raises a few of questions.

PartnerRe and AXIS were combining to gain scale in the market. PartnerRe being bought as a standalone reinsurer does not achieve this, clearly.

What does this mean for AXIS Capital if it is beaten to PartnerRe? It will be back to square one looking for a new deal, but as time passes opportunities perhaps become more scarce and less attractive.

Could this leave AXIS vulnerable to being acquired itself?

Could PartnerRe receive another counter offer?

Might AXIS up its offer to beat Exor?

And finally, if EXOR gets PartnerRe could this be just the start of an acquisitive run in the reinsurance space by the investor? It may decided that scale is necessary, so starting with PartnerRe it could look to build on the strong platform that would provide with more acquisitions.

It’s also worth considering what this might mean for the XL Group and Catlin deal. Could another suitor come between that partnership as well?

As we said earlier in this article, this does demonstrate that reinsurance is still an attractive sector to be in, even with rates having declined so much. That could heighten interest in the sector even more, which could result in more M&A deals and perhaps even more third-party investor interest in insurance-linked securities (ILS).

Updates:

Adding PartnerRe’s statement:

PartnerRe Ltd. (NYSE:PRE) today announced that it has received an unsolicited proposal from EXOR (EXO IM), a European investment company controlled by the Agnelli family, to acquire 100% of the common shares of the company for $130.00 per share in cash, valuing PartnerRe at $6.4 billion.

As was previously announced on January 25, 2015, PartnerRe has entered into a definitive amalgamation agreement with AXIS Capital to combine and create one of the world’s leading specialty insurance and reinsurance companies.

Consistent with its fiduciary duties, the PartnerRe Board of Directors will review the EXOR proposal to determine the course of action that it believes is in the best interests of PartnerRe and its shareholders. The Board will announce its position regarding the EXOR proposal following its review, which will be completed in due course.

Adding statement from AXIS Capital:

AXIS Capital Holdings Limited (“AXIS Capital”) (NYSE: AXS) today acknowledged that EXOR (EXO IM) made an unsolicited proposal for PartnerRe Ltd. (NYSE: PRE).

“AXIS Capital is fully committed to its combination with PartnerRe Ltd.,” said Albert Benchimol, President and CEO of AXIS Capital. “Our transaction with PartnerRe brings together two independently strong companies to create one broadly diversified global specialty insurance and reinsurance company whose scale, capital and enhanced market presence will form a powerhouse within the industry.”

Mr. Benchimol concluded: “The combined company will have a strong capital position, significant financial strength, a combined world-class management team and industry-leading talent. As such, it will deliver significant operating and capital synergies, as well as an expanded solution set and product offering for clients and partners. We are confident that the combined company is positioned to deliver superior and sustainable value to all shareholders.”

AXIS Capital said that it will have no further comment on the EXOR proposal at this time.

Also read:

– AXIS Capital & PartnerRe to merge in response to structural change in reinsurance.

– AXIS + PartnerRe enhances ability to leverage third-party capital.

– Rating agencies see integration risks for AXIS PartnerRe merger.