PartnerRe, AXIS deal to swap out preferreds with fatter dividend issue

By Susanna Moon

Chicago, July 16 – PartnerRe Ltd. plans to offer to exchange its preferred shares for newly issued preferreds with higher dividends if its merger goes through with AXIS Capital Holdings Ltd.

The companies gave the terms of its amended merger plans in an 8-K filing with the Securities and Exchange Commission. The companies said on July 10 that they were working on revising their merger plans to appeal more to preferred shareholders.

Under the amended terms, the newly issued preferreds in the exchange offer will reflect a 100 basis point bump in the current dividend rate and an extended redemption date of the later of Jan. 21, 2021 and the fifth anniversary of the issue date.

The terms of the newly issued preferreds otherwise will be the same as the existing PartnerRe preferreds.

The exchange offer is subject to a private letter ruling from the Internal Revenue Service.

The amended terms permit PartnerRe to pay an extraordinary cash dividend of $17.50 for each common share of PartnerRe that, immediately prior to the completion of the merger, is either issued and outstanding or underlies share-based equity awards granted by PartnerRe to some of its directors and employees.

The extraordinary cash dividend will be paid at or immediately following the merger, with the payment conditioned upon completion of the merger.

PartnerRe will be permitted to incur debt of up to $300 million in order to pay the special dividend, provided that AXIS is first offered the opportunity to fund all or any part of the debt on mutually agreed terms prior to PartnerRe seeking any debt financing from third parties.

The amendment also removes the condition that PartnerRe’s obligation to close the merger is conditioned on the absence of a three-notch rating downgrade from A.M. Best for AXIS’ insurance subsidiaries domiciled in Bermuda and the reciprocal condition for AXIS as it applies to the A.M. Best ratings of PartnerRe’s insurance subsidiaries domiciled in Bermuda.

Background

As previously announced, the meetings of PartnerRe and AXIS Capital shareholders have been postponed until Aug. 7. They were originally set for July 24.

The companies’ attempts to sweeten the deal come after an improved buyout offer by EXOR SpA. Following that, Sandell Asset Management Corp. requested in a public letter that PartnerRe provide EXOR SpA with a list of the preferred holders.

As previously reported, EXOR said on July 7 that it had improved the terms of its offer to acquire PartnerRe, including a commitment to exchange PartnerRe’s preferred shares for new preferreds with better terms.

On July 9, Sandell said that PartnerRe was limiting the voting rights of its preferred shareholders by refusing to provide the preferred holder list and was doing so to protect the AXIS deal.

“This conduct is particularly outrageous in light of EXOR's improved and superior offer, which includes, among other things, a 100-basis-point increase in dividends for PartnerRe preferred shareholders, call protection until 2021 and five years of capital distribution limits,” the letter explained.

EXOR’s improved offer

EXOR said it had legally committed to offer to exchange PartnerRe’s existing series D, series E and series F preferreds for new preferreds with identical terms to the existing securities but with the following improvements:

• A 100 bps increase in the dividend rate;

• Call protection until 2021. The PartnerRe preferreds become callable in the next three years, and the series D preferreds are already callable, EXOR noted. The company is committing not to redeem the preferreds before Jan. 1, 2021;

• EXOR will commit to limiting distributions to PartnerRe’s common shares to no more than 67% of earnings until Dec. 31, 2020, creating what EXOR called a stronger and better capitalized company. It noted that last year PartnerRe distributed 90% of earnings to shareholders.

“Under the enhanced EXOR binding offer announced today the terms will further provide PartnerRe preferred shareholders with higher return securities, non-callable for longer and in a company legally committed for five years to one of the most conservative capital distribution policies in the insurance and reinsurance industry,” EXOR said in a news release announcing the improved offer.

“This is in contrast to the AXIS/PartnerRe transaction which will adopt one of the most aggressive capital distribution policies in the industry.”

EXOR is offering $137.50 per share in cash for PartnerRe.

In its improved offer, EXOR said it will allow PartnerRe to solicit bids from third parties after signing with EXOR. In this period the termination fee will be reduced to $135 million.

EXOR also said that if PartnerRe is not required to pay the $315 million termination fee to Axis it will pass the full $6.39 per share value to PartnerRe shareholders.

EXOR chairman and chief executive officer John Elkann also gave a personal commitment to provide all information necessary to secure regulatory approvals.

PartnerRe’s response

In its own announcement Tuesday, PartnerRe said EXOR is putting an “inadequate value” on PartnerRe’s shares.

It also said EXOR’s bid has execution risks and would have a “negative impact” on PartnerRe’s credit ratings and its preferred shares.

PartnerRe is encouraging shareholders to vote in favor of the merger with AXIS Capital Holdings Ltd.

EXOR is a Turin, Italy-based investment company controlled by the Agnelli family and listed on the Milan Stock Exchange. PartnerRe is a Pembroke, Bermuda-based reinsurance company.

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