Australia’s largest insurer by premium income, QBE Insurance Group said today its proposed merger with rival insurance group IAG has been rejected.
QBE’s proposal was 0.142 shares and $0.70 cash for each IAG share which is approximately 12% above IAG’s share price.
“A merger is expected to realise significant pre-tax synergies and diversification benefits for all the shareholders in the enlarged QBE,” the company said.
Frank O’Halloran, QBE’s chief executive officer, said “we approached IAG because we believe that a merger would be positive for IAG and QBE shareholders.”
“A merger would be transformational for both companies and create an enlarged group which would be in the top 15 global general insurers with a strong base in personal and commercial lines business in Australia.”
He further added, “we believe the combination of around 12% premium to the last three months’ VWAP, the existing acquisition premium in IAG’s share price and the merger synergies, together with our long track record of growth and profitability, will provide IAG and QBE shareholders with immediate and long term benefits.”
However, IAG disagreed with QBE’s proposal.
In its response to the ‘unsolicited and incomplete proposal’ the IAG board rejected the proposal saying it was clear it was not one which was in the best interest of shareholders, and therefore not one it could recommend.
“In particular, the prices were inadequate,” the board said.
IAG’s chairman James Strong said, “IAG is a unique asset with leading insurance franchises in Australia and New Zealand supported by a number of iconic brands.”
“Whilst we recognise that the synergies available through a combination with QBE are considerable, the price needs to reflect the value that the IAG businesses would contribute to QBE, including the synergies to be generated,” he said.
Shares in QBE slumped 30 cents to $22.90, while IAG shares surged 33 cents or 8.5% to $4.19.
