Italy's Billionaire Agnelli Family Gets Another Windfall

(Bloomberg Opinion) -- A good deal becomes a great deal in a market that has suddenly turned. The Agnelli family's agreement to sell PartnerRe Ltd. to French insurer Covea for $9 billion may fall short of what investors were hoping for last month. But to ink an all-cash disposal at this price is some achievement — even if the buyer is rich and itching to spend.

The promised proceeds are 50% more than PartnerRe's last reported tangible book value of $6 billion. Other shareholders in Exor NV, the Agnellis' investment vehicle, may have desired something closer to $10 billion. European reinsurers were trading at about 1.7 times tangible book value earlier this year and there was a case for a premium on top.

However, the backdrop is very different now. The sector is trading on 1.4 times tangible book value, according to Bloomberg data. Getting a top-up for an all-cash deal of this size in a coronavirus-hit market would have been a Herculean task. The Agnellis have locked in the prospect of making $3 billion in dividends and capital gains on an asset that cost them $6.7 billion in 2016 — not a stellar return over almost five years, but they may not get a better chance to underwrite their gain.

Given Covea probably faced few rivals willing to enter into an auction for PartnerRe, the question is why it didn't drive a harder bargain. The probable answer is that it's a mutual with no outside shareholders pushing for financial discipline. It's also keen to diversify its business and is short of options after failing in a 2018 attempt to buy French reinsurer Scor SE. Moreover, the Agnellis are scarcely forced sellers.

This deal isn't completed yet, but the fact that it has been agreed in this market environment suggests a commitment on Covea's side. The proceeds aren't due until the fourth quarter. That precludes an immediate bout of bargain hunting for new assets by the Agnellis, at least at a large scale. That's maybe just as well. It's hard to see much upward pressure on company values this year given the impact of the virus outbreak on global demand and supply chains.

As for Covea, it has a deal when rival bidders may have been shy. It's not clear how much of the business disruption attributable to the virus could lead to a burst of insurance claims. The outbreak may even create demand for new areas of cover for the industry. If there's a clear loser in all this, it is most likely Scor — now worth 25% less than Covea was dangling and, for the present, left on the shelf.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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