Uk Insurer Rebuffs Qbe Bid
Sydney Morning Herald
Thursday August 5, 1999
An attempt by QBE Insurance to buy UK insurer Limit for about #500 million ($1.25 billion) has collapsed after the UK company rejected the offer as ``unacceptable".
QBE recently approached Limit which owns majority interests in two Lloyd's underwriting agencies in order to undertake due diligence with a view to launching a friendly takeover.
However, Limit called off the talks saying in a statement to the London Stock Exchange that a takeover by QBE ``would bring no advantages to Limit's business and the potential offer was at a price level which is clearly unacceptable".
The deal would have been QBE's largest, and managing director, Mr Frank O'Halloran, said he was disappointed by Limit's decision to end the talks.
He said QBE was still interested in acquiring Limit's two main businesses the Lloyd's underwriting agencies Bankside and Janson Green but it would not consider a hostile bid.
``The attraction for QBE is that here are two of the best underwriting agencies in Lloyd's supported by some of the best syndicates and we believe the market is at the bottom of the cycle in terms of premium rates," Mr O'Halloran said.
``I'm not emotional about it and it's not one I'm going to chase.
``It will go in the bottom right-hand drawer and we will concentrate on other acquisitions for the time being."
QBE told Limit it was prepared to make a takeover bid at a 30 per cent premium to Limit's share price last week which was around #1.29, giving a takeover price of about #1.70.
The takeover talk has since pushed Limit shares up to #1.47. They had dropped from as high as #2.32 last year due to concern over falling insurance premiums.
A takeover of Limit, if it had gone ahead, would have increased QBE's premium income, based on last year's figures, from $1.7 billion to about $2.8 billion.
The deal is partly the company's response to a flood of mergers which have swept through the insurance industry over the past year. As part of that, QBE announced earlier this year that it had formed a joint venture with Mercantile Mutual in a bid to save costs.
QBE, which was being advised by Merrill Lynch, was considering a rights issue to raise part of the funds needed for the purchase. ``We would need to maintain a solvency ratio close to 50 per cent so an acquisition of that size would involve a capital raising," Mr O'Halloran said.
One insurance analyst said: ``I think this is the end of it. The Lloyd's companies' best assets are their people and if you make a hostile bid you lose the people. Unless Limit backs down from its hostile stance, I don't think QBE will bid for it."
QBE has denied comments in the UK press that the deal had fallen over because of Limit's ``colonial attitudes". However, Mr O'Halloran said he didn't understand why the firm went public with its rejection of the proposal.
``The reason would only be known to them. Maybe it was in response to certain questions, it's pretty hard to guess, but it's certainly increased the share price a little."
Limit chairman Mr Jonathan Agnew said in the firm's statement that the recent share price fall had left the company undervalued.
He said the firm's net tangible assets per share were about #1.50.
``The board does not believe that the recent share price performance of the company reflects the inherent value of the business," Mr Agnew said.
``The Bankside and Janson Green-managed syndicates were, in the most recent closed year of account, the most profitable of any large Lloyd's managing agency group.
``Premium rates in the reinsurance and motor sectors have turned upwards and, in other areas, there is every sign that rates are at the trough of the cycle."
QBE will now concentrate on about 20 much smaller acquisitions on which it is currently working.
The firm is finalising contracts for about five of the deals.
``At any one point in time we've got any number of acquisitions on our plate," Mr O'Halloran said.
``Every one of QBE's acquisitions involves some sort of due diligence and that was always the case in this one."
QBE already has a presence in the UK following the acquisition in 1996 of London's Allstate Reinsurance for $70 million.
QBE shares closed down 6c at $5.65.
What is Limit Plc?
* Limit is the parent company of two Lloyd's managing agencies, Bankside and Janson Green. They underwrite different types of insurance including marine, property and reinsurance.
* Net premium income last year was #452m ($1.1 billion).
* Major shareholders are Fidelity International (14.5pc), Schroders (11.6pc) and Henderson Investments (5pc).
© 1999 Sydney Morning Herald
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