EXOR deal ‘may not be the end of the discussion’ on fate of PartnerRe: A.M. Best

PartnerRe Ltd.’s announcement last month that its board recommends shareholders approve an acquisition by EXOR S.p.A. “may not be the end of the discussion” on whether PartnerRe will be actually acquired by EXOR or whether PartnerRe would merge with rival insurer Axis Capital Holdings Ltd., A.M. Best Company Inc. suggested in a recent report.

In the report – titled Return of the Mega Deal During First Half of 2015 – investment ratings firm A.M. Best discusses recent mergers and acquisitions in property and casualty insurance.

There were 76 announced transactions, with a total value of about US$21 billion, in the first half of 2015, A.M. Best noted. That does not include EXOR’s offer to acquire PartnerRe but does include an earlier proposal to merge PartnerRe with Axis Capital. During the same period in 2014, there were 48 announced transactions valued at US$10.885 billion. [Click image below to enlarge]

 

In the report, Oldwick, N.J.-based A.M. Best alluded to the termination last month of a merger agreement – originally announced Jan. 25 – between PartnerRe and Axis Capital. Both firms are based in Pembroke, Bermuda, both write reinsurance and commercial primary specialty coverage worldwide and both have Toronto branch offices. A merger would have created a global top 5 reinsurer, Axis Capital said last January.

PartnerRe’s board of directors has backed down on its opposition to an acquisition by EXOR, a Turin, Italy-based investment firm that essentially controls Fiat-Chrysler Automobile and power train manufacturer CNH Industrial N.V. PartnerRe’s board is now recommending shareholders vote to accept EXOR’s US$6.9-billion offer rather than in favour of a merger with Axis Capital.

“Although the Axis Capital deal originally was accepted by PartnerRe management, Exor SpA made several increasingly lucrative hostile offers eclipsing the monetary value of the Axis Capital offer,” A.M. Best said in the report. “The final offer from Exor was ultimately accepted after a proxy advisory company recommended shareholders vote in favor of the Exor offer. We believe this may not be the end of the discussion as shareholders are still set to vote on the final Exor offer ….”

Axis Capital will also be owed a US$315 million termination fee, A.M. Best added.

“It is also worth noting that one of these buyers will walk away without PartnerRe, and may pursue another strategic acquisition in the insurance segment, which means we may see additional large transactions announced in the near future.”

A.M. Best also cited ACE Ltd.’s US$28.3-billion offer – announced July 1 – to acquire The Chubb Corp., a deal that A.M. Best predicts will “elevate two dominant companies into elite status in many of their markets.”

However, A.M. Best placed both firms “under review with negative implications” due in part to “uncertainty regarding

the ability of management to execute on its plan given the complexity, size and scope of the acquisition. “

A.M. Best contended ‘there is significant execution risk associated with a transaction of this size and with the operational consolidation that will have to occur in order to realize expected synergies.”

Other notable deals cited by A.M. Best include:

•Endurance Specialty Holdings Ltd.’s agreement, announced March 31, to acquire Montpelier Re Holdings Ltd.;

•The acquisition of London-based Lloyd’s insurer Brit PLC by Toronto-based Fairfax Financial Holdings Ltd., which also owns Northbridge Insurance and OdysseyRe;

•Shanghai-based Fosun International Ltd.,’s agreement, announced May 3, to acquire the shares of Ironshore Inc. that it does not already own; and

•Tokio Marine Holdings Inc.’s agreement to acquire HCC Insurance Holdings Inc., the parent company of Houston Casualty Company.