Agnellis' Exor bids $6.4 billion for PartnerRe to trump Axis

By Stephen Jewkes and Agnieszka Flak

MILAN (Reuters) - A $6.4 billion (4.32 billion pounds) all-cash offer from Italian holding company Exor (EXOR.MI) for Bermuda-based reinsurer PartnerRe (PRE.N) has disrupted plans by Axis Capital Holdings (AXS.N) to merge with its rival and could end up triggering a bidding war.

In January, Axis and PartnerRe agreed on an $11 billion all-share deal to create one of the world's largest reinsurers, in a deal meant to close in the second half of this year.

But Exor, controlled by the Agnelli family, said on Tuesday it was offering $130 per PartnerRe share, or a 16 percent premium to the implied value under the Axis agreement, in what it said would be a friendly operation.

Exor boss John Elkann, an Agnelli scion, has made no secret of his desire to branch out into the financial service sector with its steadier and higher returns.

"We want to focus on new investments... we want to have global players, leaders in their industries," Elkann told analysts on a conference call.

The price surprised some, and Exor shares fell more than 3 percent in early trading, although they recouped losses to end down 0.6 percent.

"I expected shares to fall more. The bid price is full, it’s all cash and they’re paying in dollars at a time when the dollar is high," said Roberto Lottici, a fund manager at Ifigest.

If successful, PartnerRe would make up a third of Exor's $14 billion portfolio that includes controlling stakes in carmaker Fiat Chrysler Automobiles (FCHA.MI), truck maker CNH Industrial (CNHI.MI) and football club Juventus (JUVE.MI), among others.

Axis said on Tuesday it remained committed to the planned tie-up while PartnerRe said it would review Exor's proposals.

Investors do not rule out Axis matching Exor's offer. But even if it does not bump up its bid, savings from the already agreed tie-up, estimated at more than $200 million per year, and a bigger overall reinsurance book, are benefits.

"We could see the PartnerRe board arguing that scale is going to be a necessary condition to survive in the reinsurance business and Exor does not provide scale," BMO Capital Markets analyst Charles Sebaski said in a note.

Reinsurers, who help insurers pay large damage claims in exchange for part of the profit, are being squeezed by price competition and weak demand from insurers, and tie-ups are expected to increase for companies that lack global reach or specialised focus.

Asked if Exor would consider going hostile or even increase the offer, Elkann only said the proposal was fully valued.

Some investors believe Exor's deal could provide greater management stability.

"It seems to me the PartnerRe management wasn't particularly happy about the Axis tie-up since Axis managers would have taken over. They might appreciate a white knight," said Lottici.

Exor, which has a market value of around $11 billion, said it would fund the deal through cash and loans from Citibank and Morgan Stanley for up to $4.75 billion without any cash call.

Some analysts, noting the Axis deal undervalued PartnerRe's reserves and franchise network, said Axis could be tempted simply to accept a $250 million break-up fee and walk away.

Exor was advised by BDT & Company, Morgan Stanley and Citigroup.

(Additional reporting by Elisa Anzolin; Editing by Dan Grebler, David Holmes and Susan Thomas)