PartnerRe and AXIS reveal improved merger terms

So here it is, reinsurance firm PartnerRe and insurer and reinsurer AXIS Capital have responded to EXOR’s enhanced offer for PartnerRe with an improved set of terms for their proposed merger agreement. The companies announced today an increase to $17.50 per common share for the one-time, special cash dividend payable PartnerRe common share holder.

At the same time the firms have agreed to match the terms offered in EXOR’s enhanced offer, for the proposed exchange of PartnerRe preferred shares.

The firms also said that, after consultation with advisers, they “believe that there is a material risk that EXOR’s proposed exchange offer for PartnerRe preferred shares could be viewed as a “listed transaction” under applicable IRS rules, which would subject preferred shareholders (and possibly common shareholders) to an onerous annual reporting and penalty regime applicable to prohibited tax shelter transactions under U.S. income tax laws, as described in further detail below.”

The release continues:

If PartnerRe and AXIS Capital are successful in obtaining a private letter ruling from the IRS that an exchange offer would not result in this reporting requirement, pursuant to the exchange offer PartnerRe preferred shareholders would receive newly issued preferred shares reflecting a 100 basis point increase in the current dividend rate and, subject to certain exceptions, an extended redemption date of the later of (a) the fifth anniversary of the date of issuance and (b) January 1, 2021. The terms of the newly issued preferred shares would be otherwise identical in all material respects to the applicable existing PartnerRe preferred shares.

Further highlighting their commitment to the transaction, PartnerRe and AXIS Capital have also agreed that each party’s obligation to close the amalgamation is no longer conditioned on the absence of a three notch rating downgrade from A.M. Best. By removing this rating downgrade closing condition, PartnerRe and AXIS Capital have provided even more certainty to the successful consummation of the transaction. Having received all of the competition-related approvals and substantially all of the non-U.S. regulatory approvals, the amalgamation remains on track to close in the third quarter of 2015, subject to approvals by the shareholders of both companies, remaining regulatory clearances and customary closing conditions.

PartnerRe Chairman Jean-Paul Montupet commented; “We are very pleased to agree to enhanced terms with AXIS Capital so that shareholders can realize the value of the combination. This amalgamation will immediately enhance our strategic positioning and financial strength and we will have tremendous resources to build upon our proven track record of stability and success. As we approach the August 7th meeting date for shareholders to approve the amalgamation, we are confident that they will recognize the unique potential of this transformative combination. In addition to the cash special dividend, shareholders will benefit from owning a significant interest in a world-class specialty insurance and reinsurance franchise.”

AXIS Capital CEO Albert A. Benchimol added; “The strategic and financial benefits of the merger agreement between AXIS Capital and PartnerRe are compelling, and we are confident that it will deliver superior value both to our shareholders and to our clients and distribution partners. The combination represents a unique opportunity to create a financial powerhouse in the industry with a strong franchise, robust earnings power, and double-digit ROE that is well-positioned to achieve superior and stable value creation across both secular and cyclical market changes. The combined company will have the scale, the product reach and the service capabilities to add substantial value and deepen our relationships with clients and distribution partners. At the end of the day, the merger creates opportunities that neither company could really achieve on its own in the near-term – including expense synergies in excess of $200 million, significant capital efficiencies, and incremental growth opportunities.”

So here are the enhanced terms and it will be interesting to see how EXOR responds, which it no doubt will, particular to the tax issue concern. We will of course update you.

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

– 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.