IAG Rejects QBE Proposal as ‘Inadequate’ – Offer Withdrawn

Australian insurer QBE Group has withdrawn its offer to acquire Insurance Australia Group Limited (IAG), following the decision of IAG’s Board to recommend against accepting the offer. (See IJ web site – https://www.insurancejournal.com/news/international/2008/05/19/90129.htm).

IAG’s Board said the offer, which represented a substantial premium over IAG’s recent share price, was “inadequate and incomplete.” The Group’s announcement also added the following reasons for the rejection, indicating it:
— “is priced opportunistically to take advantage of the short term weakness in IAG’s share price, primarily caused by a low point in the insurance cycles of IAG’s core markets;
— does not adequately reflect the underlying value or the significant synergies and value which could be created by combining the two companies, and
— is not a fully developed offer or bid, but a partial proposal which requires the Board to agree now to recommend to shareholders a proposal via a scheme of arrangement.”

In its withdrawal of the offer, QBE said it “understands its final proposal on price was well short of IAG’s expectations. This is despite QBE’s proposal representing a very attractive premium of 22 percent to the closing price of IAG shares of A$3.79 [US$3.65] on 9 April 2008 prior to our first discussion. It also represented a 25 percent premium to IAG’s 1-month VWAP to 9 April 2008.

“In addition, IAG’s shareholders would have benefited from substantial earnings per share accretion in year 1 from the significant synergies and diversification benefits of the merged group, as well as QBE’s higher profitability and strong track record. QBE’s proposal included key terms for a merger implementation deed; in particular, a request for mutual due diligence, clarification of IAG’s 2008 final dividend and IAG Board recommendation.”

QBE’s CEO, Frank O’Halloran seemed to close the door on any new intiatives. He stated that the Group “will now continue to focus on the pipeline of acquisitions that have been accumulating in recent months. The pipeline includes a range of opportunities in the Americas, Europe, Asia and Australia.”

He added, “We will continue to adhere to QBE’s strict acquisition criteria which have proven to be beneficial for shareholders over a long period of time.”

IAG Chairman James Strong expanded on the problems the Board had found with the offer. He indicated that discussions had been taking place over the last five weeks, which had produced opportunities that “considerable synergies could be achieved through a combination of the two businesses.” He added, however, “QBE has had ample opportunity to put forward a proposal that recognises IAG’s value but has failed to do so.”

Strong nonetheless left the door open for further discussions, indicating that IAG remains “willing to engage further with QBE with a view to securing a fully developed offer that provides an acceptable premium and price.

“Alternatively, if QBE considers that its proposal is sufficiently attractive it is able to put a fully developed offer directly to IAG’s shareholders.”

Strong also cited what he termed the failure to explore “other important terms and conditions” as an additional concern. “An essential issue in any transaction involving insurance companies is a comprehensive understanding of each of the businesses including adequate due diligence by both parties particularly given the long tail nature of some of the risks underwritten in those businesses,” he explained.

IAG concluded by indicating that the Group’s underlying performance “is improving and further steps are being developed in a review of all operations and structures, including the UK businesses. The market and shareholders will be kept informed of these initiatives.”

Source: Insurance Australia Group – www.iag.com.au and QBE Group – www.qbe.com

Topics Australia