There are now three proxy voting advisory firms that have advised reinsurance firm PartnerRe’s shareholders not to vote for the AXIS Capital merger, explaining that the EXOR all-cash offer provides both “premium and certainty.”
It’s hard to see how PartnerRe shareholders could ignore the advise of three proxy research and voting advisory firms, making it increasingly hard to envision AXIS Capital and PartnerRe merging without some significant enhancement to the proposed terms.
The third proxy firm is Proxy Mosaic LLC, who has advised PartnerRe’s common and preferred shareholders vote against the AXIS deal on all counts. Proxy Mosaic joins Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co., which both also recommended PartnerRe shareholders should vote against the AXIS transaction.
In an announcement, Italian investment holdings group EXOR S.p.A. highlighted some extracts of the Proxy Mosaic report:
- “… we believe that the premium and certainty inherent in EXOR’s superior all-cash offer outweighs the potential upside in AXIS’ economically inferior offer.”
- “…EXOR’s is an all-cash offer by a well-capitalized holding company with prior experience in the insurance sector, which would present minimal antitrust concerns, and even less in the way of integration challenges given that PartnerRe under the EXOR umbrella would essentially operate as if nothing had changed. Alternatively, PartnerRe’s all-equity merger with AXIS entails inherent integration challenges as well as potential material loss that would have to be borne by shareholders in the event of market downturn prior to the closing date.”
- “…despite the protestations from PartnerRe to the contrary, there has been no real indication from the ratings agencies that the preferred shares are at risk of a downgrade should the EXOR offer prevail. In fact, because EXOR would adopt a more conservative capital distribution policy post-acquisition, it’s conceivable that PartnerRe preferred shares could rise above their current BBB rating within the EXOR capital structure.”
- “Ultimately, preferred shareholders should ask themselves the following question: Would you rather hold a security within the capital structure of a disciplined holding company, or a security within an amalgamated reinsurance company that 1) has committed itself to extensive capital distribution plans for common shareholders that could put your dividend at-risk, and 2) is still captive to the kind of earnings volatility that is inherent in the insurance industry, even with the benefit of “scale” and in a benign catastrophe environment?”
- “Private ownership [by EXOR] allows for greater capital retention, which in turn facilitates more flexibility of the reinsurer and a stronger competitive position to weather unforeseen catastrophes, a business scenario not uncommon in insurance. Within a holding company, the naturally fluctuating earnings inherent to the reinsurance business would be less meaningful, and a “private” PartnerRe would be insulated to some degree from some of the consequences of industry headwinds.”
- “We suspect that the upside to the merger has been exaggerated, with multiple expansion proving optimistic and the synergy realization timeline too aggressive.”
- “It is also worth noting that this [AXIS] premium may be somewhat “illusory” in the sense that AXIS’ stock price seems to be buoyed by external factors, such as the possibility that AXIS itself may be a target of Arch Capital if this particular deal falls through, as well as the fact that AXIS would be due a $280 million termination fee if EXOR is successful in acquiring PartnerRe.”
Terming the AXIS deal “economically inferior” is damning and Proxy Mosaic is also right to question the future value of an amalgamated insurance and reinsurance company following a merger.
The one plus one equals two approach to re/insurance mergers is too simplified and market conditions would suggest that firm’s merging could take many years to fully realise the benefits.
It’s increasingly hard to see shareholders in PartnerRe voting for the AXIS Capital deal, after now three proxy firms have explicitly advised them not to.
Meanwhile, AXIS’ shareholders don’t really hold much influence in the deal, as without the approval of PartnerRe’s shareholders the amalgamation is doomed.
Of course, we’d expect another response to this from the other side and no doubt the back and forth will continue as the all important shareholder votes date of August 7th approaches.
For the full story see our previous articles, most recent first: