Iag Rejects $7.5bn Qbe Bid
The Age
Wednesday April 16, 2008
A SURPRISE and now thinly disguised hostile takeover battle launched by QBE for its domestic rival, Insurance Australia Group, is likely to prompt a third offer in as many days from the global insurer as it seeks to get a $7.5 billion bid over the line.
The acquisitive QBE surprised the market and its target by revealing yesterday that it had held informal talks with IAG, owner of the high-profile NRMA Insurance brand, on Thursday about a merger. That first approach was priced $400 million lower than the offer it subsequently raised a day later. QBE's initial secret pitch of 0.135 of its own shares and 50? in cash per security was worth $3.75 for every IAG share and basically matched the embattled insurer's stock price of last week. But in an escalating battle of words over which company's version of events accurately represented what happened between the two, IAG rejected the first approach, claiming that QBE's offer of a merger was actually a "nil premium" takeover and an opportunistic strike to pick it up on the cheap. QBE, which is being advised by investment bank Macquarie Group, responded within 24 hours by raising its first bid from $7.1 billion in total value to $7.5 billion through sweetened terms of 0.142 of its own shares and 70? in cash per share. That was 1% higher than IAG's closing price of $3.97 on Friday. But that still failed to win over IAG's board in a series of telephone meetings of its directors, led by chairman James Strong, over the weekend. A formal rejection yesterday by IAG, which said the proposed offer neither recognised the company's true value nor the $300 million of savings QBE would gain by merging their respective domestic and international businesses, prompted its rival's decision to go public. Market watchers said the move, with a closing date for acceptance of just 5pm on Monday, was a classic attempt by QBE's advisers to appeal directly to both companies' investors and bypass IAG's management, to force its target back to the negotiating table. That tactic was effectively accepted yesterday by Mr Strong, who said the key issue, apart from due diligence and the depth of the reserves held by the respective insurers, was the "inadequate" value of the offer itself and QBE's strike when IAG's shares were at a weak point. QBE's approach comes after IAG was battered by a series of profit setbacks and huge insurance claims caused by major storms and an ill-timed expansion into Britain. Mr Strong made it clear that IAG did not dispute the relative merits of merging the two into a $28 billion insurance giant straddling North America, Britain, Europe and the Asia-Pacific region, and left open the door to a better offer. "We are saying that what has been presented to us is not a fully developed proposal and, as such, does not deliver fair value to our shareholders," he said. QBE countered through its chief executive Frank O'Halloran, who said: "A merger would be transformational for both companies and create an enlarged group, which would be in the top 15 global general insurers." Analysts said QBE could raise its offer by another 10%, putting a price of $8.2 billion on IAG, without having to sacrifice its earnings performance over the two years. Yesterday's events pushed IAG's shares up 33?, or 8.5%, to $4.19 while QBE slipped 30? to $22.90.
© 2008 The Age
Share This