Disgruntled Investors Take A Stick To Iag After Merger Rejection
The Age
Thursday May 22, 2008
INSURANCE Australia Group has gone into damage control after investors punished its weakened share price following the end of QBE's battle to try to force an $8.7 billion merger.
Its shares fell 24?, or 5.7%, to $3.99, after it rejected QBE's third and final offer. Leading institutional shareholder 452 Capital's stinging criticism of the IAG board and, in particular, chairman James Strong, partly prompted the sharp response. In an email to Mr Strong, the fund manager's principal, Peter Morgan, demanded that the IAG board outline how it intended to boost the company's value in the absence of the bid and assure investors it would not cut the next dividend, given its falling profits. "IAG's response to QBE's proposal is a joke," Mr Morgan wrote. "Where is the hard valuation for the company? Nowhere ... For God's sake James, when is the board going to stop being a mutual appreciation society and treat shareholders with the respect they deserve?" IAG refused to respond to Mr Morgan's criticisms.QBE said on Tuesday it was walking away from the fight after failing over the weekend to persuade the IAG board that its final offer, worth $4.60 a share, met the board's private valuation of the company. The global insurer then raised its terms to 0.145 of its own shares plus 90? cash for every IAG share. QBE's withdrawal from the fight caused its shares to shed 51? to close at $25.16. IAG has given up the best part of 45? a share in value since last Friday. Yesterday's price gyrations pushed the stock as low as $3.88 and left it almost back to where it was when QBE pounced on April 11. Analysts have indicated that IAG was looking for at least $5 a share, which would have put a price tag of $9.4 billion on the insurer - $700 million than QBE was willing to pay. But it emerged yesterday that the two companies never discussed a detailed merger plan, a move hindered by what IAG privately indicated as QBE's uncompromising "take it or leave it" approach. IAG made it clear yesterday that it never doubted the merits of putting the two businesses together. Its main issue was QBE's attempt to pick up IAG on the cheap. Merrill Lynch recommended that its clients sell out of IAG while making similar criticisms as 452 Capital. Describing the premium offered by QBE as "reasonable", it said: "We doubt other buyers will be able to match (it) and we find it difficult to reconcile how IAG can reject it without tabling compelling valuation reasons to support their decisions." But Goldman Sachs JBWere believed IAG was still worth holding. It slapped a 12-month price target of $4.25 on the shares, in an indication that QBE might return later in the year if IAG's annual profits slid again and if the final dividend was cut. QBE chief executive Frank O'Halloran yesterday said QBE would now focus on potential acquisitions in the Americas, Europe and Australia - the latter reference interpreted by some industry watchers that IAG's independence could not be guaranteed in the long term.
© 2008 The Age
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