EXOR, the Agnelli family owned investment and holding company and Covéa, a French mutual insurer, have entered into a Memorandum of Understanding (MoU) under which Covéa would acquire global reinsurer PartnerRe for $9 billion (€7.7 billion).
We wrote last week that discussions between EXOR and Covéa had reportedly resumed over a potential deal for PartnerRe, which is wholly-owned by EXOR.
It’s now been confirmed that the pair have signed an MoU under which Covéa would, following the completion of a required consultation with works councils, enter into a definitive agreement to acquire the Bermuda-based reinsurer.
The cash consideration is to be paid by Covéa on closing of the deal and is based on a consolidated common shareholders’ equity value of $7 billion, while Preferred Shares issued by PartnerRe and listed on the NYSE would not be included in the proposed acquisition.
The pair had previously entered into a Memorandum of Understanding (MoU) in March last year, under which Covéa would acquire PartnerRe from EXOR for a total cash consideration of $9 billion, as well as a cash dividend of $50 million.
But the deal was later abruptly called off in May 2020, after the owner of the reinsurer, EXOR, declined to renegotiate the price in the context of the COVID-19 pandemic.
Then, in August 2020, EXOR and Covéa entered into a €1.5 billion agreement that saw Covéa agreeing to a €750 million investment cooperation with EXOR and a €750 million reinsurance cooperation agreement with PartnerRe.
And now it seems that Covéa’s appetite to own a reinsurer has persisted and is one step closer to coming to fruition.
The mutual insurer says that the purchase of PartnerRe is consistent with its long-term strategy to “anticipate the evolution of the global insurance environment through international growth and through the diversification of products, risks and geographies.”
The company describes PartnerRe as a natural partner, noting that the aforementioned reinsurance and investment agreements have ultimately led to greater appreciation by Covéa of the shared culture with PartnerRe of customer service excellence, deep technical expertise and underwriting discipline.
Once the deal completes, it’s expected that EXOR and Covéa would continue their reinsurance relationship, with EXOR acquiring from Covéa interests in special purpose reinsurance vehicles managed by PartnerRe for around $725 million (€625 million).
It’s understood that these vehicles will invest in property catastrophe and other short-tail reinsurance contracts underwritten by PartnerRe. Furthermore, the three entities would also continue to invest jointly in Exor-managed funds with reinforced alignment of interests.
John Elkann, Chairman and Chief Executive Officer (CEO) of Exor, commented: “The cooperation agreement signed in the summer of 2020 with Covéa has been positive in many ways and has contributed to a strong level of mutual trust between our companies. Also, thanks to Jacques Bonneau’s leadership and the excellent work of his team, PartnerRe has further improved its performance and strengthened its distinctive capabilities. Together, these have created a new opportunity to significantly reinforce PartnerRe’s development as a global reinsurance company.”
The proposed acquisition remains subject to the consultation of Covéa workers councils, but all parties do intend to sign a definitive sale agreement by the end of 2021 and for the deal to close in mid-2022.
Covéa adds that the parties do not envisage a material impact of the contemplated transaction on employment and on customer relationships, including on Covéa’s inwards reinsurance business.
Thierry Derez, Chairman and CEO of Covéa, said: “PartnerRe has proved in the past year the relevance of its strategy, risk management and resilience in the pandemic’s uncertain environment and the quality of its management team. Our proposed transaction comes at the right time with the insurance sector undergoing a fundamental transformation.
“It fits perfectly with Covéa’s growth and diversification strategy, our ability to adapt and to bring together complementary expertise, extend our geographic reach and manage risks on a global basis. It would further strengthen the excellent prospects for PartnerRe and for our Group, serving the interests of our members and clients, as well as those of our employees and partners. And all this while continuing the reinsurance and investment partnerships we have successfully developed with Exor, and maintaining strong solvency and capital flexibility.”
Jacques Bonneau, CEO of PartnerRe, added: “Our focus at PartnerRe is on building a great and diversified (re)insurance business, constantly improving every aspect of our company, our expertise and the services we provide to our clients and broker partners. A combination with Covéa represents an important opportunity to grow profitably and achieve more rapidly these objectives.”
