Deal Reporter
Exor (BIT:EXO) is seen as having a strong rationale to raise its bid for PartnerRe (NYSE:PRE) even as it remains unclear whether its previously tabled offer is superior, said industry bankers and a shareholder.
Earlier today, Reuters reported that at Exor’s board, at its meeting on Tuesday, will consider bumping its USD 6.4bn bid for PartnerRe in response to Axis Capital Holdings’ (NYSE:AXS) own sweetener. Exor interrupted Axis’ proposed nil-premium merger of equals last month, prompting Axis to add a USD 11.50-per-share dividend to its offer.
Exor’s current proposal values PartnerRe at USD 130 per share and is all-cash. Axis’ improved offer implies a valuation of USD 125 per share, and argues that synergies bridge the gap in value.
Governance groups whose recommendations are influential amongst shareholders have yet to weigh in, creating an opportunity for Exor to sway investors now with a minor bump, the first banker said.
Investors might also require a bump from Exor to be comfortable with the rival offer given PartnerRe management’s recommendation to go forward with the Axis deal, said a minor PartnerRe shareholder.
Still, the shareholder said Exor's current cash offer is already stronger than the Axis sweetener. The cash offer likely exceeds the value of future synergies between the fundamentally different entities Axis and PartnerRe, he said, and removes the risk that they might not be realized.
The Axis deal is also less certain because it carries execution risk, the shareholder said. Axis founder John Chairman warned against his former company making an overly dilutive counterbid that could harm Axis, prior to Axis’ decision to bump its offer. If his view is shared by other Axis shareholders, they could tank the proposed merger of equals at the shareholder vote required to validate the deal.
Axis and PartnerRe have yet to schedule the shareholder vote. A person briefed on the matter suggested a late June to early July timeframe.
An Axis shareholder revolt is made more likely by recent takeover rumors, the shareholder argued. A direct insurance provider capable of capturing greater synergies could step in to bid for Axis, likely at a premium to its dilutive proposed deal, he said, asking, “Then what happens to PartnerRe?”
As recently as yesterday, Exor remained confident that its bid was financially and strategically superior to Axis’ sweetened proposal, said a person briefed on the matter. Exor declined to comment when reached today.
While Exor could stay on the sidelines in the hopes that the Axis deal crumbles, two industry bankers said the company is more likely to be proactive.
Exor is unlikely to have gone public with its best and final bid as an initial gesture, the bankers said. The Agnelli family, Exor’s owner, is known for savvy deal-making and is being advised by BDT & Co., a bank with deep expertise in hostile deals, the first banker said. One of BDT’s members organized the buyout consortium from which Alleghany (NYSE:Y) emerged to buy Transatlantic Re (NYSE:TRH) in 2011, ending a five-month takeover battle among Allied World (NYSE:AWH), Berkshire Hathaway (BRK.A/B), Enstar (NASDAQ:ESGR) and Validus Holdings (NYSE:VR).
The current bid probably represents a fair value for PartnerRe, but Exor’s deep pockets would allow for a sweetener, the bankers said.