Analysts at investment bank Berenberg have said that French reinsurance giant SCOR may pursue a merger deal with Bermudian reinsurer PartnerRe as a defence strategy following the rejection of what SCOR considered to be a “hostile and unfriendly” €8.2 billion (US $9.6 billion) takeover bid from Covéa last month.
SCOR recently denied rumours that it had been in talks with PartnerRe for several months, but Berenberg says that that a partnership between PartnerRe and SCOR would make strategic sense and would alleviate the growing pressure on SCOR to deliver better value to investors.
SCOR said it rejected the bid from Covéa on the grounds that it did not reflect the value of the company, adding that a merger deal was “fundamentally incompatible with SCOR’s strategy of independence” and would “jeopardize the Group’s strong value-creating strategy.”
The offer valued SCOR shares at €43 per share, and while Berenberg believes Covéa could comfortably fund a deal at well above €50 per share, it does not expect SCOR to be willing to accept an offer at almost any price.
“We think a Covea bid at a large premium makes little sense for either party although SCOR shareholders would be happy to receive a cash bid at a large premium,” analysts at Berenberg stated. “We anticipate a further bid from Covea that will likely be rejected by SCOR though it would probably lead to increased pressure on the board to engage.”
“In this event we expect SCOR may be forced to look at other value-creating options to defend against a Covea tender offer,” the investment bank said, adding that this could involve a merger proposal with PartnerRe.
Such a deal would offer an attractive combination, Berenberg said, as SCOR and PartnerRe have highly complementary business lines and significant cost and capital synergies.
Analysts added that it would also put SCOR firmly at the top table of the global reinsurance industry, as the combined entity would be ahead of Hannover Re in terms of gross written premium and would be represented across all lines of business globally.
SCOR’s management has come under fire from activist investors following its rejection of Covéa’s offer, with Catherine Berjal, President of French investment fund CIAM, threatening to hold CEO Denis Kessler and the Board of Directors legally liable for “a decision which would constitute gross management negligence.”
However, Berenberg supported SCOR’s decision, arguing that “a deal would be bad for SCOR’s business and bad for Covea” as “SCOR would be an inferior business if it were subsumed into Covea,” and claimed that “the only winner from a Covea bid is existing shareholders of SCOR.”
SCOR has since reaffirmed its rejection of the any acquisition offer and has requested that Covéa’s CEO, Thierry Derez, permanently resign from SCOR’s Board of Management.
In a second letter, Berjal also addressed reports that SCOR’s management had unanimously committed to resign in the event of a successful acquisition bid, and accused the Board of using renumeration payment as an ‘anti-takeover policy’ to avoid considering a deal.
Kessler has dismissed Berjal’s claims as “baseless, false and misleading,” while SCOR has expressed its commitment to continue creating value for its long-term shareholders following the rejected deal.