Insurance Australia Group Rejects QBE Buyout Bid; Takeover Tussle

April 16, 2008

Insurance Australia Group (IAG) has rejected an A$7.4 billion (US$6.9 billion; €4.3 billion) unsolicited bid from rival QBE Insurance Group Ltd. as inadequate, the companies said Tuesday.

IAG’s response to QBE’s bid sets the tone for what could be a long takeover tussle between two of Australia’s largest insurers. [IJ note: See related article for Standard & Poor’s reaction to the offer].

QBE said in a statement to the Australian Securities Exchange it approached IAG last week with a cash and share offer valuing IAG at A$3.99 (US$3.72) a share based on Monday’s closing prices.

QBE Chief Executive Frank O’Halloran has made no secret of his interest in IAG and there has been market speculation of a tie-up for several years.

IAG in its posting to the exchange said its board had “considered the proposal and concluded that the broad terms, in particular the price, were inadequate.”

IAG’s shares surged 8.6 percent Tuesday to A$4.19 (US$3.90). QBE shares sank 1.3 percent to A$22.90 (US$21.34).

A combination of the two rivals “would be in the top 15 global general insurers with a strong base in personal and commercial lines business in Australia,” O’Halloran said in the statement.

QBE said it expected a buyout of IAG to create synergies worth around A$300 million (US$279.6 million; €175 million) a year before tax, and diversification benefits it valued at A$400 million (US$373 million €233 million).

QBE said it approached IAG’s board with an offer of 0.142 QBE share and A$0.70 (US 65.28 cents) cash for each IAG share, which it said was a 12 percent premium to IAG’s average share price over the past three months.

IAG advised QBE late Monday that the proposal was not acceptable.

QBE said its proposal would remain open until April 21. It said the proposal was subject to due diligence, discussions with business relationship partners, the signing of a merger implementation deed, and regulatory approval.

QBE said it decided to explore the buyout of IAG prior to pursuing other opportunities in various parts of the world.

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