Bid Extended As Iag Holds Out

Sydney Morning Herald

Wednesday May 7, 2008

Danny John

THE battle lines of the $8 billion takeover tussle between QBE and Insurance Australia Group are being increasingly drawn around the daily movements in their share prices, as the global insurer yesterday sent its contested bid into a fifth week.

QBE extended its offer for a second time, setting a new deadline of 5pm on May 19 for IAG to reconsider its flat refusal to engage with its rival over the merger terms first floated last month.

The move came as QBE's most recent play for time expired on Monday evening without a response from the owner of NRMA Insurance to the merger offer of 0.142 of QBE's shares plus 70c cash for every IAG share.

But with the bid having helped push up the market valuation of the troubled insurer to $8.25billion, QBE's chief executive, Frank O'Halloran, made it clear yesterday that the offer had been extended to focus attention on the stock price movements.

He also highlighted last week's embarrassing setback for IAG when it was forced to put out yet another warning to the sharemarket about lower earnings because of its exposure to higher storm damage claims.

"The proposal has been extended to allow stakeholders more time to consider the impact of IAG's profit downgrade last week and the value of [our] shares," said Mr O'Halloran, who also announced the acquisition of five small "distribution channels" - thought to be brokers - which will add $70 million to its insurance profit next year.

In the meantime, the QBE boss emphasised he was still interested in agreeing to a friendly deal with IAG. Analysts at Deutsche Bank said QBE was gently tightening its grip on its target, although they maintained that a 10 per cent improvement in its terms would be required for it to win the battle.

While both sides are anxious to avoid a war of words over a potential merger deal that both believe makes operational sense, IAG indicated that it saw no merit in opening formal talks about an offer that it says undervalues the company.

In a brief statement, IAG, whose annual profits have fallen in successive years due to its bad-weather bills and an equally ill-timed $2 billion expansion into the UK insurance market, said nothing had changed since its last rejection of QBE's offer.

"We view the takeover proposal as incomplete and inadequate," a spokeswoman said.

However, QBE said that by Monday night its scrip and cash package valued IAG at $4.33 - 16per cent higher than the company's average market price in the three months before the disclosure of its approach on April 15.

Over the past three weeks, IAG's shares have jumped by more than 40c, underpinned by the bid itself and pulled up by the value of QBE's own rising stock.

The response of investors yesterday to the bid extension slightly widened the share gap between the antagonists, this time in favour of IAG. QBE finished the day down 27c at $25.30 while IAG was unchanged at $4.36. That left the value of the offer at $4.31 a share.

© 2008 Sydney Morning Herald

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