Italian investment holding company EXOR has announced that it is enhancing its all-cash offer for reinsurance firm PartnerRe by “expanding its legally binding guarantee for the transaction” which it says provides greater completion certainty.
It’s the first time EXOR has sought to provide additional comfort for PartnerRe shareholders by providing more certainty that the investor will follow through with its all-cash offer if the shareholders were to vote against the deal with insurance and reinsurance firm AXIS Capital.
Both the PartnerRe board and AXIS Capital have been citing the level of transaction completion uncertainty as a key risk in the PartnerRe – EXOR deal. Now EXOR is seeking to remove that uncertainty factor, by guaranteeing all the contractual commitments in the offer it has made for PartnerRe.
EXOR explains that for PartnerRe shareholders the guarantee means:
The proposed Merger Agreement to be entered into with EXOR N.V., a holding company formed in 2013 and already capitalized with € 300 million of available cash, is now backed by the balance sheet of parent company EXOR S.p.A. The expanded guarantee underpins EXOR’s commitment to satisfying all of the contractual terms of the EXOR parties, including in relation to obtaining regulatory approvals. This enhancement underscores EXOR’s previous commitment to provide even greater certainty of closing following its on-going, constructive conversations with PartnerRe’s shareholders.
EXOR says that this removes a degree of execution risk, one of the issues repeatedly highlighted by PartnerRe’s board. As a result EXOR says that PartnerRe shareholders can vote against the AXIS deal with greater confidence. The revised merger agreement has been provided to the PartnerRe board.
EXOR explains that its offer for PartnerRe contains:
- 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 Standard & Poor’s 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.
- Same regulatory provisions – 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 in the insurance industry.
- Clear commitment and path to closing – the EXOR listed company guarantees all the contractual terms in the PartnerRe transaction, including in relation to obtaining regulatory approval. EXOR has also backed its offer by investing more than $600 million in PartnerRe, the maximum allowable under PartnerRe’s bye- laws. As PartnerRe’s largest shareholder, EXOR is therefore more incentivized than any other stakeholder to complete the transaction with PartnerRe this year.
Whether this guarantee will make any difference to the outcome of the three-way reinsurance M&A tussle remains to be seen. It may encourage some investors to vote against AXIS with more confidence, but at this stage there is a good chance that shareholders will be looking for a financially enhance deal if they are to really be swayed.
Expect a response from PartnerRe’s board…
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