PartnerRe Holders Should Reject Axis, Favor Exor, ISS Says

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PartnerRe Ltd. investors should reject a planned merger with rival reinsurer Axis Capital Holdings Ltd. and instead opt for a bid of more than $6.7 billion from Italy’s Exor SpA, ISS Proxy Advisory Services said in a report.

“A vote against the proposed amalgamation with Axis is warranted in light of the availability of a superior and relatively certain all-cash offer from a competing bidder,” ISS said Friday in its report.

Investors have been divided on the proposed Axis merger, which means that proxy advisory firms’ recommendations could play a key role in the Aug. 7 vote of PartnerRe shareholders, according to analysts including Amit Kumar of Macquarie Group Ltd. Exor made an unsolicited offer for PartnerRe in April and repeatedly raised its bid, adding a special dividend this week that brought the value to $140.50 a share.

PartnerRe rose 0.3 percent to $135.75 in New York, while Axis climbed almost 2 percent to $55.89. Exor was little changed in Milan.

While approving a merger isn’t in the best interest for PartnerRe, Axis shareholders should vote for the agreement because the insurer would benefit from increased scale, according to a separate ISS statement Friday.

A vote for the merger is “warranted as the merger terms appear favorable to Axis, which will have equal board representation and control of the management team,” ISS said.

Termination Fee

Axis would may be able to collect a termination fee of $280 million if PartnerRe’s investors vote against the merger and the reinsurer instead combines with another company.

Exor, the investment vehicle for the billionaire Agnelli family, has amassed a stake of more than 9 percent in PartnerRe and has filed proxy materials for investors to vote against the planned Axis merger. Exor Chairman John Elkann said a takeover of the Bermuda-based target would offer shareholders more value and wouldn’t require disruptive job cuts.

A PartnerRe takeover would be Exor’s largest in more than a century, and help it diversify beyond industrial investments including Fiat Chrysler Automobiles NV.

While PartnerRe had raised concerns about reporting requirements tied to taxes for preferred shareholders under Exor’s proposal, and the possibility of regulatory hurdles to a takeover, ISS dismissed some of the criticisms as “small beer.”

Representatives of PartnerRe had no immediate comment. Albert Benchimol, chief executive officer of Bermuda-based Axis, said he was pleased with the ISS recommendation to his shareholders, while finding it inconsistent with the advice given to PartnerRe investors.

Axis’s Argument

Axis announced the original merger deal in January and has said a combination would give investors the chance to benefit from the growth of a company that would be the world’s fifth-largest property-and-casualty reinsurer. A transaction would give PartnerRe shareholders 51.5 percent of the combined company, and a special dividend of $17.50 a share, which was raised from a previous plan of $11.50.

“Disturbingly, the fact that it took a competing bidder to get the PartnerRe board to negotiate greater value for its own shareholders raises doubts about the efficacy of the entire negotiation process,” ISS said.

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