PartnerRe Prepared For ‘Discussions’ With EXOR
Bermuda-based PartnerRe Ltd. said its Board of Directors has “determined that it is prepared to engage in discussions with EXOR S.p.A. to determine whether EXOR’s offer, received on May 12, 2015, to acquire all of the outstanding common shares of PartnerRe for $137.50 per share in cash can be improved so that it is compelling, on price and terms, to PartnerRe’s shareholders.”
The company said, “PartnerRe has secured a waiver from AXIS Capital, allowing direct engagement with EXOR with customary access, including due diligence. PartnerRe expects to undertake these discussions with EXOR as expeditiously and constructively as possible in order to come to a decision that is in the best interest of the Company and its shareholders.
“There can be no assurance that the discussions with EXOR will result in a transaction that the PartnerRe Board is prepared to recommend or that there will be a consummation of a transaction.”
Jean-Paul L. Montupet, Chairman of PartnerRe, stated, “PartnerRe’s Board of Directors is open-minded and focused on creating value for our shareholders. Although we were disappointed that EXOR has made misleading statements regarding our prior discussions, we are interested in a proposal that may lead to superior value for our shareholders.
“While we believe that PartnerRe is worth materially more than EXOR has offered and the terms they have proposed are deficient, we stand ready to negotiate with EXOR in good faith to determine their willingness to propose a transaction that, taking into account price, closing certainty, timing and other terms, is in the best interests of our shareholders.”
“Concurrently, the PartnerRe Board has issued a letter to PartnerRe shareholders responding to mischaracterizations and misstatements made by EXOR on their proposal and the discussions between the two parties,” the company added.
“The Board has not changed its recommendation with respect to, and continues to support, the pending merger with AXIS Capital. Credit Suisse and Lazard are acting as financial advisors and Davis Polk & Wardwell LLP and Appleby Global Services Limited are acting as legal counsel to PartnerRe.”
The letter sent to PartnerRe’s shareholders follows below:
May 20, 2015
Dear PartnerRe Shareholders:
As you have seen, we announced today that we are prepared to engage with EXOR to determine whether EXOR’s offer can be improved so that it is compelling, on price and terms, to our shareholders. We appreciate the support of our shareholders, clients, partners and employees and reiterate that we are sharply focused on value creation.
However, at the same time, we believe it is important to set the record straight on our process to date and our decisions regarding the Amalgamation Agreement with AXIS Capital and our rejection of EXOR’s initial proposal. We believe our interactions with EXOR to date have been severely distorted and mischaracterized by EXOR.
The Partnerre Board Has Consistently Acted – And Will Continue To Act – In The Best Interest Of Our Shareholders
The Board’s Decision to Merge with AXIS
Followed a Thorough Exploration of Strategic Options.As part of our regular review of the Company’s ability to execute on its strategic plan and long-term objectives, over the past two years the Board has been intensely studying the critical factors driving an evolving and increasingly challenging industry environment, including continued industry consolidation and extremely competitive pricing.
In this context, the Board actively considered various strategic options and a range of potential transactions with companies in the reinsurance and primary insurance markets. Other transformative transactions, such as a sale, were also considered. The Board had concluded that challenging market conditions and depressed valuations made it imprudent to pursue a “sale” path that would not appropriately reward PartnerRe shareholders for the value of its unique franchise, brand and market position.
After evaluating a full range of alternatives, it became clear that AXIS – a potential strategic partner with a roughly even split of reinsurance and insurance businesses – was the most compelling opportunity for our shareholders. It would allow us to be invested in the primary insurance business for no premium and to be a consolidator in the reinsurance market. This important continuity of interests allows our shareholders to benefit from substantial financial and operational synergies and significant immediate and future value creation.
PartnerRe’s Board Approached the EXOR Proposal of $130.00 per Share
Responsibly to Assess Value and RisksBetween April 14, 2015 and April 17, 2015, members of the PartnerRe Transaction Committee, representatives from outside legal counsel and financial advisors, and certain senior executives of PartnerRe had a series of detailed discussions on the EXOR Proposal in order to make a recommendation to the PartnerRe Board.
PartnerRe also commenced preparation of a data room for EXOR based upon the information made available to AXIS during its due diligence prior to entering into the Amalgamation Agreement.
Upon initial review, it was clear to the PartnerRe Board that the EXOR written proposal was notably lacking in several areas:
- No financing documentation was provided with the written proposal
- No information was provided regarding EXOR’s controlling shareholder and its ownership of EXOR in order to evaluate the insurance and antitrust regulatory filings required and the feasibility of obtaining those approvals
- No information was provided on whether and how EXOR would protect PartnerRe and its shareholders from a withdrawal of the EXOR Proposal during the potentially protracted period from when PartnerRe would change its recommendation and the termination of the amalgamation agreement.
However, PartnerRe’s Board was focused on constructively addressing these concerns and in a meeting on April 18, 2015, the PartnerRe Board, taking into consideration the advice of its outside advisors, unanimously agreed with the PartnerRe Transaction Committee’s recommendation to engage with EXOR to explore the improvements EXOR might make on price, terms, timeline, certainty and risks of the EXOR Proposal. To that end, PartnerRe requested – and AXIS granted – a limited waiver allowing PartnerRe to engage with EXOR.
EXOR Has Been Misleading PartnerRe Shareholders as a Negotiating Tactic –
Our Board will NOT Be Coerced into Relinquishing Control for an Inadequate PremiumIn contrast to EXOR’s assertions, the record of exchanges between PartnerRe and EXOR clearly show that EXOR was unwilling to be flexible on price – a price which significantly undervalues PartnerRe compared to the benefits of the AXIS transaction and our value as a standalone entity.
Here are the key facts:
April 19, 2015:
Jean-Paul Montupet, Chairman of the PartnerRe Board, emailed Mr. John Elkann, Chairman and CEO of EXOR, noting that the proposed price and non-price terms of the EXOR Proposal of $130.00 per share were not a basis on which the PartnerRe Board would be willing to proceed with EXOR. Mr. Montupet asked for an in-person meeting. In a subsequent call, Mr. Elkann told Mr. Montupet that if the purpose of the meeting was to negotiate EXOR’s price, there would be no use in having such meeting because EXOR had no flexibility in relation to its price. After further discussion, Mr. Elkann agreed to entertain the possibility of a meeting subject to seeing a proposed agenda.
April 21 – April 23, 2015:
Advisors to EXOR and PartnerRe discussed specific areas of the EXOR Proposal of $130.00 per share including financing, timeline for due diligence, EXOR’s willingness to engage in the regulatory approval process, plan for permanent capital financing and the terms of EXOR’s proposed amalgamation agreement.
April 25, 2015:
Representatives of Paul Weiss, EXOR’s US legal counsel, notified Davis Polk that EXOR would not be providing any further information related to its financing arrangements or negotiate any terms related thereto prior to the commencement of due diligence.
April 26, 2015:
Messrs. Montupet and Elkann had an in-person meeting to discuss the price and non-price terms of the EXOR Proposal. Mr. Montupet clearly conveyed that the offered price of $130.00 per share undervalued PartnerRe and did not take into account the strength of PartnerRe’s balance sheet and expected growth of tangible book value per share between December 31, 2014 and the closing of a potential transaction with EXOR. Further, Mr. Montupet elaborated that the offered price did not include any control premium or value for the PartnerRe franchise. Mr. Montupet also emphasized that the transaction contemplated by EXOR, an all-cash change of control transaction, was very different from a no-premium merger of equals with AXIS because such a transaction would terminate the PartnerRe shareholders’ ongoing equity interest, and if this upside opportunity were to be removed, the cash price needed to be increased to compensate the PartnerRe shareholders accordingly.
In response, Mr. Elkann repeatedly and categorically stated that $130.00 per share was EXOR’s ‘best and final’ price and that EXOR had no flexibility in this regard.
In addition, Mr. Elkann specifically requested multiple times that, if PartnerRe rejects the EXOR Proposal, it do so publicly on the basis of price alone and without identifying the numerous execution risks in the EXOR Proposal which had been identified by PartnerRe and that EXOR had steadfastly refused to address. In a good faith gesture, PartnerRe accommodated since our board determined that EXOR’s offer of $130.00 per share was unacceptable as a threshold matter.
In another follow-up conversation with Mr. Elkann to discuss the EXOR proposal, Mr. Elkann again reaffirmed that EXOR had no flexibility on the price of its proposal, and that $130.00 was the best and final offer.
May 4, 2015:
AXIS and PartnerRe reaffirmed their commitment to the amalgamation and announced certain terms changes. On the same day, PartnerRe separately issued a press release announcing that the PartnerRe Board had rejected the EXOR Proposal.
The PartnerRe Board was thorough and methodical in reaching its conclusion that $130.00 per common share was inadequate and, based on EXOR’s professed intransigence, was not going to be increased even with the benefit of additional diligence.
EXOR’s Most Recent Offer of $137.50 per Share Is Unacceptable on Value and Terms
Notwithstanding their previous assertion that $130.00 per share was their “best and final,” on May 12, 2015, EXOR increased its offer to $137.50 per share. However, in addition to price inadequacy, the offer has significant structural risks.
Price:
EXOR’s offer of $137.50 per share significantly undervalues the Company, both as a standalone entity and by comparison to the benefits inherent in the AXIS transaction. In particular, the EXOR offer does not adequately compensate PartnerRe shareholders for the strength of its balance sheet, robust earnings for Q1 2015, the expected growth of PartnerRe’s tangible book value, any control premium or the value of PartnerRe’s unique franchise.
Closing Risk:EXOR’s “irrevocable offer” continues to be illusory as it would allow EXOR to abandon its offer without consequence. Under EXOR’s offer, PartnerRe’s shareholders would bear the risk of termination fees and expense reimbursement of up to $315 million under the AXIS transaction if the transaction failed to close. In particular:
EXOR parent and its controlling shareholders, who are the entities that must make various insurance and antitrust regulatory filings, have no contractual obligation to actually make the required filings or otherwise assist in obtaining regulatory approvals. In addition, EXOR’s offer does not include a regulatory termination fee to incentivize EXOR to obtain such approvals and compensate PartnerRe shareholders, net of transaction fees and expense reimbursement under the AXIS agreement, for risks associated with a transaction with EXOR.
EXOR’s parent guarantee only guarantees the payment obligations of the EXOR subsidiary if a transaction were to close. If the EXOR parties to the proposed merger agreement breached any of their other obligations, PartnerRe would have recourse only to EXOR subsidiaries, which based on limited publicly available information, lack the resources required to be the accountable party for a transaction of this size.
Timing Risk:The EXOR transaction entails a significantly longer timeframe to closing than the AXIS transaction, which exposes PartnerRe’s shareholders to heightened execution risk. Without certainty regarding completion, full exposure to the fast approaching hurricane season and other potential catastrophes could provide additional risk. EXOR’s offer also fails to compensate PartnerRe’s shareholders for the growth in the business between now and any reasonable closing date for a transaction with EXOR.
Inappropriate Terms in the Context of a Cash Transaction:EXOR’s offer is opportunistic in that it seeks to apply the deal protection measures of PartnerRe’s no-premium merger-of-equals with AXIS to a cash merger. These terms are not appropriate in the context of an all-cash transaction. Were we to consider a sale of the Company, we believe it is important to make all attractive options available to our shareholders.
Put simply, quite apart from the issue regarding sufficiency of EXOR’s proposed price, EXOR’s offer entails significant optionality that would allow EXOR to walk away from a transaction without consequence, requires PartnerRe’s shareholders to bear the risk of paying up to $315 million of termination fees and expense reimbursement to AXIS and imposes incremental execution risk while failing to adequately compensate our shareholders in return.
The Board is Fully Aligned with Shareholders
Although we will not leave misleading public rhetoric unchallenged, PartnerRe’s Board will engage with EXOR in good faith to determine if EXOR can improve its offer and terms such that our Board would be willing to recommend it to our shareholders. Simply stated, the PartnerRe Board has an obligation to do the right thing for our shareholders and that is what we intend to continue to do.
Respectfully,
The Board of Directors of PartnerRe Ltd.
