PartnerRe Ltd. PRE reaffirmed its planned merger with AXIS Capital Holdings Limited AXS, which was announced in January this year. This deal is expected to be completed in the third quarter of 2015.
Concurrently, PartnerRe declared that it has refused buyout offer made by one of Europe’s leading listed investment companies – EXOR S.p.A. The company was offered $6.16 billion in cash or $130 per share for the deal.
The deal was rejected as PartnerRe’s board of directors believe that EXOR’s offer significantly undervalued the business
With respect to the merger, PartnerRe-AXIS merger has already completed the first phase of integration planning, which includes designing of operating models. Currently, the second phase of integration is in progress. This phase includes materialization of the operating models.
Moreover, in order to share more profit with shareholders, PartnerRe upgraded its venture, wherein it allowed investors to receive a one-time special dividend of $11.50 per share. This special dividend will be paid upon the completion of the above-mentioned merger between the companies.
PartnerRe and AXIS Merger Remains in Place
Per the merger agreement, AXIS shareholders will receive a share of the merged entity for every existing share of the company. PartnerRe investors, on the other hand, will own 2.18 shares of the combined entity against each of its present shares. This will, therefore, give PartnerRe a 51.5% stake in the merged company, whereas AXIS will gain the remaining 48.5%.
The merged company will be an all-share company worth $11 billion. The new entity would have an investment portfolio of over $33 billion along with premium income from specialist insurance policies worth $2.5 billion.
Following the PartnerRe-AXIS merger, the new entity will be among the top-five global property and casualty reinsurers, thereby gaining a competitive edge over rivals like Berkshire Hathaway Inc. BRK.B, Munich Re and Swiss Re AG. Furthermore, PartnerRe and AXIS expect cost synergies worth $200 million from the merger within the first two years itself.
Merger Impact
The combined company is expected to gain from the economies of scale as well as operating and capital flexibility.
The merger is a crucial one, given the intensely competitive environment that the reinsurance industry is facing amid declining premiums. This is a prudent step that will guard against future losses and reserve shortfalls.
Additionally, the joint venture is anticipated to be accretive to earnings as well as return on earnings (ROE) for the investors of both the companies from 2016 onwards.
Also, PartnerRe’s recent expansion into newer markets of the Asia-Pacific through PartnerRe Asia, and other strategic alliances in France and Morocco are expected to boost the strategic and financial growth prospects of the joint entity.
Zacks Rank
Currently, PartnerRe carries a Zacks Rank #3 (Hold). A better-ranked stock from the same industry is Navigators Group Inc. NAVG, which sports a Zacks Rank #1 (Strong Buy).
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