Deal Reporter
Even after Alleghany (NYSE:Y) reportedly rejected Scor’s (ETR:SCR) offer to acquire subsidiary TransRe, a deal may still be possible for the reinsurance unit.
Last week, Reuters reported that the New York-based insurer and investment holding company had hired financial advisors to consider a divestiture of Transatlantic Re in response to inbound interest that could value the insurer at close to USD 6.5bn. After this news service identified Scor as a likely bidder, Insurance Insider reported that Alleghany had rejected a bid from Paris-based Scor.
An industry executive said the New York-based subsidiary could attract interest from other suitors, but two industry bankers cautioned the reported offer price is a rich valuation.
Scor’s bid valued TransRe at 1.3x book value, a multiple higher than with recent reinsurance transactions. Platinum Underwriters' recently closed sale to RenaissanceRe (NYSE:RNR) was valued at 1.13x book, while Catlin/XL Group (NYSE:XL) was valued at 1.6x book, and Montpelier Re/Endurance (NYSE:ENH) at 1.2x book.
Despite the relatively lofty premium, Alleghany could be brought back to the table with an all-cash offer, said the industry executive, who said Scor’s offer was substantially composed of equity.
An equity offer is less attractive to Alleghany because of TransRe’s tax basis, the industry executive said. Alleghany acquired the company then known as Transatlantic Holdings in 2011. It is possible that the relative cost of the target’s assets and stock could make an all-cash deal more tax friendly to Alleghany.
If so, a limited number of cash buyers could see more value in TransRe than did Scor, the industry executive said. TransRe’s recent performance could make the company very attractive in an M&A environment that has seen all cash offers near book value, he said.
Foreign buyers could follow forays by Fosun International (HKG:0656) and Exor SpA (BIT:EXO) into the US reinsurance market to gain exposure to cycle-agnostic growth, the executive and an industry banker said.
A TransRe divestiture is by no means obvious, however, two industry bankers said. Alleghany’s lofty valuation expectations might keep otherwise interested reinsurers from entering the fray, they said, noting that equity would almost certainly compose a strategic bid.
It is also unclear how Alleghany would deploy the proceeds from a divestiture, they said. That is no small question given that a TransRe sale would reduce its gross premiums by 70%, leaving Alleghany with a much smaller insurance operation and an industrial investment portfolio. The remaining Alleghany might not be a takeover target given its industrial portfolio, the second banker said, but would become sub-scale in a “bigger is better” climate.
Alleghany did not respond to a request for comment.