iag rejects qbe take over, page-31

QBE Offers IAG Shareholders a Can of Spam

The ASX is up 2.3% over the last two trading day…perhaps due to the only merger not taking place in the resource or energy sectors.

Insurer QBE (ASX:QBE) is bidding around $4 a share for fellow insurer IAG (ASX:IAG). The offer is mostly QBE shares, with a 70 cent cash component thrown in. IAG rejected it quick smart. But seeing a business taking a crack at expansion is giving the market a bit of hope.

Personally, if we held IAG shares (we don’t), we’d be royally unimpressed with the offer at this stage…like if the Queen of England came over to your place for brunch and you served up Spam. You wouldn’t get a great response.

In today’s market, cash is the best acquisition tool. More liquidity, and less risk.

QBE is down on its luck this year. The company has lost about 30% in share value. Could this continue? Absolutely. Credit losses have some way to play, according to Goldman Sachs. That’ll mean more bump and grind in the general stock market. Cash doesn’t lose 30% in value over 4 months.

So you’d think, given the offer is largely shares, that the premium over IAG’s share price would be smoking hot…spectacular…extraordinary…something that makes you say “wow”.

At about 2-3%...it’s the opposite. Freezing cold…spectacularly ordinary. We still found ourselves saying “wow” though.

A 2% bonus…to accept shares that have lost 30% in 4 months…and will quite possibly continue to disappoint? IAG shareholders are not drooling idiots. They’re pricing the stock at $4.38 this morning. They either expect more from QBE, or they’re telling QBE to fork out.

Analysts are tossing their sombreros in the ring…a lot of them see $5 as a decent price.

Bryan Frith makes a great point in yesterday’s Australia…when a company’s management has rejected a bid, the acquirer needs a bit of leverage to win shareholder’s over. QBE is offering IAG shareholders 2%. Spam does not buy one an insurance company.

This could only be a ploy to get some negotiating time with management. You can probably expect a higher offer from the good people at QBE.