Merger Looks Over As Iag Rejects Qbe's Final Offer

Sydney Morning Herald

Wednesday May 21, 2008

Danny John

THE stand-off between QBE and Insurance Australia Group over an $8.7 billion merger plan is set to end with both sides going their separate ways after the embattled domestic insurer last night rejected its rival's latest, slightly increased offer.

After an all-day board meeting in New Zealand yesterday, IAG's directors backed chairman James Strong's view that QBE's improved terms of 0.145 of its own shares plus 90c in cash for each IAG share was still not enough to persuade the company to put the deal to its investors.

And while IAG did not kill off the five-week bid battle completely, saying it was still prepared to talk about a higher offer, its response is likely to see QBE walk away from its own plan. The global insurer said on Monday its new terms were "final".

There was no immediate response from QBE last night following IAG's defiant statement. However, it had already made clear that no higher bid would be considered if the owner of the NRMA Insurance brand knocked back its latest approach.

Because it has yet to make a formal offer to shareholders, QBE is not prevented under official takeover rules from increasing its terms.

The IAG board appeared to be betting on that possibility last night when it announced it was willing to engage QBE further with the aim of "securing a fully developed proposal" that provided an acceptable premium over its share price and valued the company substantially higher.

But in rejecting the new terms, IAG made it clear it could not recommend to its shareholders the "inadequate and incomplete" deal. It also reiterated that QBE had taken advantage of its low share price after the market caned the company for profit falls and an ill-timed expansion into the UK.

IAG said the terms only put a premium of 10 per cent on the company since the bid emerged on April 15 and that the QBE offer did not reflect its true value nor the hundreds of millions of dollars that could be saved by combining the two businesses.

Investors will give their verdict on IAG's risky stance this morning, with analysts predicting its share price could fall sharply without the support of QBE's interest. IAG's shares yesterday closed at $.4.23, up 3c, but that was before last night's statement.

QBE finished 27c ahead at $25.67, which put a value on each IAG share of $4.62.

© 2008 Sydney Morning Herald

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