Signs point to PartnerRe favoring Axis for merger

Indications are that an upcoming shareholder vote will favor the proposed merger between Axis Capital Holdings Ltd. and PartnerRe Ltd., according to an analyst note on the deal Friday.

Shareholders of the two Pembroke, Bermuda-based carriers are scheduled to vote on the proposed merger July 24 at respective special meetings.

Axis and PartnerRe have been fighting to complete their merger to create the world’s purported fifth-largest reinsurer in the face of a competing bid from Italian investment firm Exor S.p.A.

Exor has filed to take its $137.50/share bid directly to PartnerRe shareholders, a move PartnerRe is fighting

“The outlook is not obvious, although we expect the scales tip towards (Axis),” Cliff Gallant, an analyst at Nomura Securities International Inc. in San Francisco, said of the July 24 vote in a note published Friday.

He points out that Exor is now PartnerRe’s largest shareholder with 6% voting rights, but that Axis preferred shareholders could tip the scale in favor of the merger, albeit with a caveat.

“Preferred shareholders control 40% of voting rights. In our view, these holders would more likely favor the (Axis) combination, because it represents continuity as opposed to the unknowns of what happens with Exor. However, a significant portion of these holders may be retail investors and the degree to which they participate in the vote is unknown,” Mr. Gallant said in his Friday note.

He also notes that PartnerRe’s board favors the merger with Axis.

The PartnerRe board “has made it clear that they do not view this to be a good time to sell the company,” Mr. Gallant said.

Finally, he did not altogether dismiss the potential for yet another bidder.

“The lack of a third bidder five months after the initial announcement seems to indicate that this scenario is unlikely, but M&A has been hot in 2015 and we would not be surprised to learn of additional interested parties,” Mr. Gallant said in his note.