Exor bid for PartnerRe could prompt new offer from Axis
PartnerRe’s shareholders should benefit from the rival bid to buy the company that emerged this week, whichever suitor the company ultimately ends up with, according to Meyer Shields, analyst at KBW.
PartnerRe was in the process of finalising an $11 billion merger with Axis Capital to create one of the world's largest reinsurers in a deal when Italian investment company Exor this week (Tuesday March 14) swooped in with a $6.4 billion rival bid for PartnerRe.
The Exor offer, which values PartnerRe shares at $130 each, looks like a better deal for PartnerRe shareholders and would also allow the reinsurer to continue to operate as a standalone entity.
But Shields believes the new offer will prompt Axis to change the form of its own bid in a way that will offer PartnerRe shareholders an extra sweetener, possibly in the form of some sort of special dividend.
“It is a better deal for PartnerRe shareholders in terms of value. We anticipate that this may prompt Axis to make a better offer or maybe offer PartnerRe shareholders some sort of special dividend,” Shields said.
“That is just speculation at this stage but we think there will be a response from Axis within a few weeks. We think Axis is getting a good deal and could probably afford to spend a little more.”
He added that although he was not surprised that another bid emerged, it was less expected for a bid to come from a company with no links to the industry.
“We thought other bids were likely for PartnerRe but we expected them to come from other reinsurers making them on a strategic basis rather than from an investment company unconnected with the industry. So it did come out of the blue in that sense.
“It seems Exor sees potential in the reinsurance industry on its own merit. PartnerRe certainly has the size to continue as a standalone player but with new ownership. This deal adds nothing to the company strategically, however, in the way the Axis deal does,” he said.
He said the interest shown by Exor also puts the challenges faced by the industry into perspective. While reinsurers continue to grapple with the challenges of pricing pressure and excess capital, the sector’s returns still remain attractive against the backdrop of the wider investment environment.
“It is also interesting that at a time when the industry is under such pressure on pricing and reinsurers are looking to diversify, that an external investor clearly sees the industry as attractive still. That says a lot about what the investment opportunities are like in other areas at the moment,” Shields said.
“It is also perhaps strange that they have targeted a company already in the process of doing a deal. There are plenty of other Bermudian companies out there - why PartnerRe?”
He added that if the Exor-PartnerRe deal goes ahead, this would also leave Axis considering its own strategic options. “If the deal does fall through for Axis we expect it to explore other alternatives. It could also become a target itself,” he said.
After the Exor offer emerged, Albert Benchimol, president and chief executive officer of Axis, issued a statement reaffirming its commitment to the PartnerRe deal.
“Axis Capital is fully committed to its combination with PartnerRe. Our transaction with PartnerRe brings together two independently strong companies to create one broadly diversified global specialty insurance and reinsurance company whose scale, capital and enhanced market presence will form a powerhouse within the industry,” he said.
