iag rejects qbe take over, page-8

IAG bid poserFont Size: Decrease Increase Print Page: Print John Durie | April 15, 2008
WHILE QBE chair John Cloney was attacking the lax ASX oversight of the stock market last Friday, some well informed punters were quietly pushing up the price of IAG's stock price ahead of this morning's announced proposal by QBE to buy IAG.

In all, over the last three days, while Cloney and IAG counterpart James Strong were talking about the merger proposal, IAG’s stock price edged 2 per cent higher in a falling market.

Funny how often it works like that and once again, while the corporate cop had its eyes turned elsewhere, insiders have been allowed to profit at the expense of an informed market.

The reason for Cloney’s concerns are now crystal clear, because since his company’s latest results were released in late February, QBE’s stock price had fallen from $28.67 a share to a low of $20 in mid March, before bouncing back to $25 a share and, late this morning, at $22.67.

On this point alone, the stock-price moves were not the ideal backdrop for a scrip-based takeover bid, but in every other respect the bid is timed perfectly.

IAG is at a low point in its cycle, battered by storm damage way beyond its control, reeling from a UK acquisition that is yet to reveal its true positives, and with a management team that is not exactly top of the market’s hit-list.

In short, IAG is vulnerable, and QBE is in need of a domestic acquisition to fill a perceived earnings gap ahead.

No one is disputing the logic of these two companies combining - they are an ideal combination of retail and wholesale insurance, domestic and offshore earnings and a genuine powerhouse in the making.

It’s the price on offer that worries IAG shareholders and the fact that the scrip and cash deal means QBE shareholders, who will own over 70 per cent of the combined company, are getting the overwhelming majority of the synergies.

QBE is basing its numbers on the three-month volume weighted average price for its stock of $24.54 a share, and of IAG at $3.73 a share, which values its offer at $4.18 a share, or a 12 per cent premium.

Even the most bearish IAG analysts figure the stock is worth $4.60 on a fundamental basis and more like $5 a share in a takeover bid.

This suggests Cloney has to lift his offer substantially if he wants to gain traction and, in the meantime, having put IAG in play, who knows who else might come hunting.

IAG is being advised by UBS and Mallesons, while QBE is working with Macquarie and Freehills.

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From the australian newspaper this afternoon.