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Covéa’s acquisition of PartnerRe from EXOR called off

13th May 2020 - Author: Steve Evans

The acquisition of global reinsurer PartnerRe by French insurer Covéa has been abruptly called off, after owner EXOR declined to renegotiate the price in the context of the Covid-19 pandemic.

covea-partnerre-exor-logosCovéa had sought a renegotiation of the acquisition price for PartnerRe in the wake of the pandemic, but EXOR believes that the original price should stand and would not return to the negotiating table, it seems.

EXOR and Covéa entered into a Memorandum of Understanding (MoU) at the beginning of March, under which Covéa agreed to acquire PartnerRe for a total cash consideration of $9 billion, plus a cash dividend of $50 million.

To an outsider the acquisition had been proceeding as expected, with reports emerging that Covéa remained committed to the acquisition.

But it appears that this was not at any price and the French insurance group had sought a renegotiation in the context of the Covid-19 pandemic and its potential impacts.

As we had explained previously, pressures from the coronavirus (COVID-19) outbreak caused a surge in market volatility and significant decreases in share prices, raising a potential question mark over some of the larger merger and acquisition (M&A) deals that were underway.

The sale of PartnerRe did not survive these pressures it seems and has now been abandoned by the parties involved.

From its side, Covea explained, “In light of the current unprecedented conditions and significant uncertainties threatening the global economic outlook, Covéa has indicated to Exor that the context does not allow the contemplated acquisition of Partner Re to be carried out on the terms initially envisaged.”

The Board of EXOR, meeting under the Chairmanship of John Elkann, Chairman and Chief Executive Officer (CEO) at EXOR, said acknowledged receipt of a notice that “Covéa will not honour its commitment to acquire PartnerRe in accordance with the terms of the Memorandum of Understanding (“MOU”) announced on March 3, 2020.”

EXOR’s Board highlighted PartnerRe’s positive rating outlook, saying that it has one of the highest capital and liquidity ratios in the global reinsurance industry and is not expected to be significantly impacted by the Covid-19 pandemic.

PartnerRe had reported a net loss of $433 million for the first-quarter of 2020 recently, with Covid-19-induced financial market volatility and fading equity markets significantly impacting the company’s investments in the period.

However, the negative impact on PartnerRe’s underwriting portfolio was less pronounced and at least some of the investment decline was likely already recovered by this stage.

EXOR’s Board said that it is its strong belief that any sale of PartnerRe on terms inferior to those agreed in the original MOU does not recognise the value inherent in the company and its reinsurance franchise.

“In attempting to renegotiate the agreed deal terms, Covéa has never suggested the existence of a material adverse change, including pandemic risk, or any other issues at PartnerRe that would explain its refusal to honor its commitments under the MOU and Exor believes that no such basis exists,” the EXOR Board said.

It’s reported that Covea had been attempting to renegotiate the deal for some weeks, in the light of the pandemic, but that EXOR would not return to the table.

Now called off, it seems unlikely to be rekindled and the failure of this sale to go ahead could throw other ongoing insurance and reinsurance M&A activity into doubt, at least for a time.

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