Third proxy voting firm favors PartnerRe being bought by EXOR

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:

– AXIS refrains from citing proxy firm inconsistency in second report.

– Glass Lewis tells PartnerRe shareholders vote against AXIS deal.

– AXIS Capital questions ISS opinion on PartnerRe merger.

– ISS tells PartnerRe shareholders not to vote for AXIS merger, plus EXOR’s response.

– PartnerRe & AXIS continue to highlight tax risk of EXOR deal.

– AXIS: PartnerRe deal superior “immediately & in future” to EXOR deal, halts integration work.

– PartnerRe Board says EXOR’s offer likely superior, but still prefers AXIS.

– EXOR adds another $3 per common share to PartnerRe offer

– Enhanced PartnerRe – AXIS terms weaken merger rationale: Analyst.

– PartnerRe and AXIS reveal improved merger terms.

– 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.