EXOR, the Italian investment holding company of the Agnelli family, said today that it sees the response it has received from PartnerRe shareholders and analysts as positive, also accusing the PartnerRe board of engaging in an “irresponsible campaign” to mislead them.
See further updates at the bottom of this article for additional releases made by EXOR and PartnerRe on the 23rd June 2015.
It’s the latest in the war of words between the three sides in the PartnerRe, AXIS Capital, EXOR insurance and reinsurance M&A tussle, as the all-important shareholder vote gets nearer.
EXOR said that it is now entering a second week of meetings with the shareholders and analysts of PartnerRe, as it explains the case for its all-cash offer for the Bermudian reinsurance firm.
EXOR continues to explain that its offer is superior to the combination deal of PartnerRe with insurer and reinsurer AXIS Capital. This comes as PartnerRe’s board continue to insist that the EXOR deal is not as good, due to an inadequate price and associated risks.
EXOR said that it has received a “positive response for its offer and for the presentation of the merits, certainty and superiority of its $137.50 per share, all-cash binding offer.”
EXOR then goes on to explain how it views the actions of the board of PartnerRe, saying “PartnerRe continues its irresponsible campaign of intentionally and inappropriately misleading its shareholders.”
The holding company then explains how it views its offer and why it sees it as superior to the deal with AXIS Capital:
- A better price for PartnerRe common shareholders – $137.50 in cash is both a premium to the predominately stock offer from AXIS and provides certain value even if PartnerRe suffers significant losses.
- A better deal for PartnerRe preferred shareholders – no change to PartnerRe’s debt level (compared to a more than doubling under the AXIS transaction), a more conservatively managed, stronger and better capitalised company, and comfort that the BBB preferred rating won’t be affected by the EXOR transaction (as per S&P’s clarifications reported in the EXOR press release issued on June 16, 2015).
- No execution risk – EXOR’s offer is binding, fully financed and requires no due diligence. EXOR ranked #24 in the Fortune Global 500 in 2014, and has over a century of experience in investing in, undertaking and completing complex transactions. EXOR’s investment grade rating has been affirmed by S&P after the submission of its offer for PartnerRe. Unlike AXIS, EXOR does not have a walkaway right if material losses lead to a ratings downgrade of PartnerRe.
- No regulatory risk – The EXOR agreement contains the exact same regulatory covenant as in the AXIS agreement. In addition, EXOR believes its ownership will be positively viewed by regulators and rating agencies because PartnerRe will have continuity of business, strategy, management, employees and brand as well as a more conservative capital structure as compared to both historical PartnerRe and pro-forma PartnerRe-AXIS. EXOR is also a seasoned owner of regulated financial services businesses around the world, including major insurers.
- Clear commitment and path to closing – EXOR has backed its offer by investing more than $600 million in PartnerRe – the maximum allowable under PartnerRe’s corporate charter. As PartnerRe’s largest shareholder, EXOR is therefore more incentivized than any other stakeholder to complete the transaction with PartnerRe this year.
- No integration risk – With EXOR, PartnerRe won’t suffer the disruption of a complex integration, on a scale neither PartnerRe nor AXIS has attempted before. In addition to widespread job losses, the merger with AXIS would have a significant impact on the combined company’s employees and culture and pose a very real risk for clients who may choose to take their business elsewhere.
- A better, stronger future for PartnerRe – with the EXOR offer, PartnerRe will remain a standalone reinsurer while also being part of a larger, stronger group with a confirmed investment grade rating, substantial cash resources, and a net asset value of $15 billion. In addition, EXOR’s conservative financial management will create the conditions for a better capitalized PartnerRe and an improved rating for the Preferred Shares.
EXOR then finishes by calling the deal with AXIS as “is short on substance and long on execution and integration risks for its shareholders, employees and clients,” before again seeking to compel shareholders to vote for its offer to buy the reinsurance firm.
Expect more words from both sides before this M&A process finally comes to a close.
PartnerRe responded to this a few hours later saying that EXOR’s statement that S&P had made a statement on how PartnerRe’s ratings might respond should the holding company buy the reinsurer were inaccurate.
EXOR’s June 16, 2015 release implies that EXOR had received official guidance from Standard and Poor’s (“S&P”) on the ratings of PartnerRe under potential EXOR ownership. PartnerRe believes it is imperative to make clear the following facts:
S&P Has NOT Provided a View on PartnerRe’s Ratings in Relation to a Sale to EXOR
S&P has not taken a view nor has it made any public statements regarding the credit or financial strength ratings of PartnerRe in the event of an EXOR acquisition. EXOR’s statements with regard to PartnerRe’s potential credit ratings are misleading, and do not reflect the views of S&P or S&P’s analyst for PartnerRe.
PartnerRe does not anticipate that S&P will comment on the potential rating implications of a hypothetical EXOR acquisition of PartnerRe unless and until a definitive merger agreement is in place.
S&P Has Provided a View on EXOR’s Ratings in Relation to a Potential Acquisition of PartnerRe – It has Revised its Outlook on EXOR’s Ratings to “Negative”
S&P revised its outlook on EXOR’s credit rating to “Negative” following its unsolicited offer to acquire PartnerRe due to EXOR’s increased indebtedness associated with financing the proposed acquisition.
As S&P stated on April 17, 2015: “The [EXOR] negative outlook reflects our view that if the PartnerRe acquisition is completed, EXOR’s LTV [loan-to-value] may exceed our 20% threshold for the ratings. It also reflects our view that EXOR’s listed assets may fall below 60% of total assets, which we believe would not be commensurate with our current assessment of a ‘satisfactory’ business risk profile.”
S&P Has Affirmed PartnerRe’s Ratings With a Stable Outlook in the Context of the AXIS Merger
As S&P stated on March 13, 2015: “We are affirming all of our ratings on AXIS and PartnerRe and their respective operating companies… The stable outlook reflects our view that, after the deal closes, the consolidated group will maintain a very strong capitalization redundant at the ‘AA’ level. We also expect the group to strengthen its very strong competitive position supported by a diverse product portfolio.”
The preferred shares of the merged PartnerRe/AXIS will be supported by a stronger combined balance sheet, increased equity base and enhanced, more stable earnings.
A potential sale of PartnerRe to EXOR presents significant uncertainties to preferred shareholders and creditors, which would need to be evaluated by all four ratings agencies (S&P, Moody’s, A.M. Best and Fitch).
Unlike common shareholders, perpetual preferred shareholders and creditors would retain a continuing interest in PartnerRe post-acquisition by EXOR.
Preferred shares would be a fundamentally different security if PartnerRe were owned by EXOR vs. merged with AXIS:
- Wholly owned subsidiary of diversified financial investor vs. independent enterprise solely focused on reinsurance / insurance.
- Directly exposed to parent company decisions about management, dividend policy, enterprise risk profile which may be driven by factors extraneous to insurance markets.
- Indirectly exposed to financial condition of sister companies Fiat Chrysler Automobiles (“FCA”) and CNH Industrial – non-investment grade rated industrial entities that are marginally profitable and capital intensive and cyclical.
- More limited access to capital following a major catastrophe as a wholly-owned subsidiary of EXOR vs. remaining as a publicly listed company when merged with AXIS.
Notwithstanding EXOR’s assertions, PartnerRe’s credit standing and ratings will be impacted by developments at EXOR and vice versa.
- Rating agency communications are clear on this point and are supported by rating methodologies for operating holding companies.
PartnerRe continues to believe that there is considerable downside risk involved in a sale to EXOR, on its current price and terms, especially for preferred shareholders.
EXOR then responded again, saying that it could confirm S&P had affirmed its rating and that the investment holding companies capital structure would have no impact to PartnerRe preferred share ratings.
EXOR explained that it:
Reiterates that its capital structure will have no impact on the ratings of PartnerRe, including the BBB rating of the preferred shares, in the event EXOR acquires PartnerRe.
Standard & Poor’s (“S&P”), the rating agency, has affirmed that EXOR is rated as an Investment Holding Company and therefore EXOR’s rating and the ratings of its investee companies are independent of one another. EXOR’s debt is not attributed to its investee companies, and the debt of its investee companies is not attributed to EXOR. These statements have been reviewed and affirmed by S&P, which affirmed also the EXOR’s investment grade rating after the submission of its offer for PartnerRe.
Calculations publicized by PartnerRe which purport to aggregate the debt of EXOR and its investee companies are therefore wrong and do not follow S&P’s rating methodology.
For PartnerRe preferred shareholders, this means that should PartnerRe accept EXOR’s binding offer for the Company, EXOR’s capital structure will not affect the ratings of PartnerRe, including the BBB rating of PartnerRe preferred securities.
Under the proposed EXOR transaction, PartnerRe would be a financially stronger company than a combined AXIS/PartnerRe. PartnerRe’s debt level would be unchanged and preferred shares’ current rating, terms, rights, listing and registration requirements would be maintained, along with the same tax treatment and financial reporting. In addition, preferred shareholders would benefit from lower leverage compared to the AXIS transaction and from EXOR’s commitment to a more conservative dividend and capital distribution policy, without bearing any post-merger integration risk.
The more the PartnerRe board misleads its shareholders on the merits of the EXOR offer the clearer it is that the inferior AXIS transaction is short on substance and long on execution and integration risks for its shareholders, employees and clients.
It seems assured that there will be more to come…
For the full story see our previous articles, most recent first: