Qbe Takes Second Tilt At Underwriter
Sydney Morning Herald
Thursday May 4, 2000
QBE is arguing the discount on the offer reflects market falls since December.
QBE Insurance has made a second attempt to buy British insurance underwriter Limit with a fresh $900 million offer, but is facing stiff resistance from the target and a potential bidding war for the asset.
QBE tried to buy Limit last July but its informal offer of more than $1 billion was rejected.
The wait has proved fruitful as Limit's share price has slumped over the course of this year, due to weak stockmarkets and rising interest rates.
QBE has come back to the table, with the support of several institutions, seeking a recommended bid, but the Limit board believes the offer price is too low.
If successful, QBE would emerge as the largest underwriter in the Lloyd's of London insurance market, adding $1 billion a year in premium income and $1.9 billion in investments.
Limit has chosen adviser HSBC to help seek a higher offer from ``potentially interested parties".
The deal is also complicated by Limit's planned merger with Wellington Underwriting, as it is a condition of QBE's bid that, along with a Limit board recommendation, the merger not proceed. The union is well advanced, however, with Limit already holding 40 per cent of Wellington's capital.
Wellington has received a request for information from QBE, suggesting QBE could yet make an offer for Wellington as well.
Limit's board has vowed to plough on with the merger despite the uncertainty.
QBE's offer of #1.20 ($3.74) is a substantial premium to Limit's quoted price before the announcement of 85.5p and, according to QBE, has the support of a number of significant Limit institutional shareholders.
QBE managing director Mr Frank O'Halloran said QBE had already identified funding sources which may include short-term bridging finance, hybrid capital such as the long-term subordinated Eurobonds and an equity issue.
QBE shares fell 32c to $6.95.
One analyst said the deal would be ``great" if QBE could secure the asset at #1.20, a sharp discount to Limit's reported net asset value per share of #1.60 as at December 31. But it was far from a done deal, the analyst said.
QBE's last offer for Limit was pitched at #1.70.
QBE is arguing the discount on the offer reflects market falls since December, deferred tax on unrealised gains not brought to account and possible underwriting losses from Lloyd's.
In December QBE made its largest acquisition, spending $445 million to buy Iron Trades Insurance Co of the UK.
© 2000 Sydney Morning Herald
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