Update: Italy’s EXOR Offers $6.4 Billion for PartnerRe in Threat to AXIS Deal

By , and | April 14, 2015

Italy’s billionaire Agnelli family, with a $6.4 billion unsolicited bid for PartnerRe Ltd., is seeking to thwart its target’s planned merger with AXIS Capital Holdings Ltd.

EXOR SpA, the Turin-based investment company controlled by the family, offered $130 a share in cash, according to a statement Tuesday. The AXIS-PartnerRe combination, announced in January, would create the world’s fifth-largest property-and-casualty reinsurer. PartnerRe shares jumped 8.5 percent to close at a record $129.25 after EXOR disclosed its competing offer.

If the PartnerRe offer is accepted, it would be the largest single transaction for the Agnellis, one of the world’s wealthiest families. Closely held Giovanni Agnelli & C. Sapaz, the family’s holding company, owns 51 percent of EXOR, a stake valued at $5.8 billion and has been seeking opportunities in the finance industry after selling their stake in Geneva-based product-inspection provider SGS SA for 2 billion euros ($2.6 billion) in 2013.

“Our proposal provides superior value for PartnerRe shareholders with the certainty of a cash offer,” John Elkann, EXOR’s chairman and chief executive officer, said in a statement. “It also represents a great opportunity for the company’s management and employees to continue to develop PartnerRe’s outstanding potential as a leading global reinsurer with our committed and stable ownership.”

‘Due Course’

PartnerRe’s board will review the unsolicited offer and announce a decision after its analysis, “which will be completed in due course,” the reinsurer said in a separate statement. Interim CEO David Zwiener said in a letter to staff that his company is working toward closing the AXIS transaction and will continue with integration planning.

AXIS climbed 0.5 percent. EXOR fell as much as 3.1 percent Wednesday in Milan, the most since Feb. 9.

“We do not believe it would be wise for AXIS to engage in a bidding war,” MKM Partners analysts led by Harry Fong said in a note to investors. “We place a high probability that PartnerRe’s shareholders will vote in favor of selling to EXOR.”

AXIS would be entitled to a $250 million breakup fee if PartnerRe opted to go with EXOR, the analysts wrote.

‘Fully Committed’

“AXIS Capital is fully committed to its combination with PartnerRe,” AXIS CEO Albert Benchimol said in a statement. “We are confident that the combined company is positioned to deliver superior and sustainable value to all shareholders.”

EXOR said it can pay with cash on hand and funds from a bridge facility and term loan from Citigroup Inc. and Morgan Stanley for as much as $4.75 billion. EXOR said it has invested in insurance for more than two decades, including in PartnerRe’s formation in 1993.

“Our call would be for PRE shareholders to accept this offer,’ Amit Kumar and Christopher Martin, analysts at Macquarie Group Ltd., said in a note, using the ticker symbol for PartnerRe. “We have consistently maintained that the prior deal undervalued PRE as a franchise.”

Biggest Risks

Reinsurers take on some of the largest risks from primary carriers and can offer specialized coverage to commercial clients in industries such as energy and aviation. Their margins have been pressured in recent years by pension funds and Wall Street investors seeking to take on insurance risks, including those tied to the weather, that aren’t correlated with financial markets.

AXIS and PartnerRe said when they announced their deal that it would create a company with a market value of about $11 billion that would be able to offer more to clients and benefit from economies of scale. Analysts including Josh Shanker at Deutsche Bank AG and Charles Sebaski at BMO Capital Markets questioned whether the Axis agreement was favorable for PartnerRe.

‘Sound Argument’

PartnerRe investors “have a sound argument that the current deal terms do not maximize shareholder value,” Sebaski said in an April 8 note. The company’s CEO, Costas Miranthis, stepped down when the deal was announced, and Axis’s Benchimol was chosen to lead the combined reinsurer.

The Agnelli family has been one of Europe’s richest industrial clans for more than five generations. Fabbrica Italiana Automobili Torino, later Fiat SpA, was co-founded by Elkann’s great-great-grandfather in the northwest of Italy in 1899.

New York-born Elkann, 39, has led the family since the death of his uncle Umberto in 2004. He hired Sergio Marchionne as Fiat’s CEO the same year. The pair transformed the company into the world’s seventh-largest carmaker after Fiat combined with Chrysler to form Fiat Chrysler Automobiles NV in October 2014. Marchionne plans to spin off a 10 percent stake in the company’s Ferrari unit this year.

Diverse History

The Agnellis have long diversified outside Fiat, with interests in vermouth, food and finance dotting their history. EXOR’s investments include truckmaker CNH Industrial NV; Juventus Football Club SpA, one of Italy’s most successful soccer teams; and a minority stake in the Economist magazine.

EXOR, majority owner of Cushman & Wakefield Inc., is examining a sale of the commercial-property brokerage. It’s seeking about $2 billion for the company, people with knowledge of the plans said in February.

EXOR said its bankers on the PartnerRe offer were BDT & Co., Morgan Stanley and Citigroup. Its legal advisers are Paul, Weiss, Rifkind, Wharton & Garrison; Cox Hallett Wilkinson; and Pedersoli e Associati. PartnerRe is working with Credit Suisse Group AG, and getting legal advice from Davis Polk & Wardwell and Appleby.

–With assistance from Tom Metcalf in San Francisco.

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