AXA significantly outbid competitors in $15.3bn XL takeover

Bermuda-based property/casualty commercial lines re/insurer XL Group received other potential bids before sealing the deal with AXA, which  agreed to pay significantly more than other suitors.

During the first half of 2017, XL’s CEO Mike McGavick had discussions with executives of a global insurance and reinsurance company, referred to as “Party 1” in a proxy statement, who introduced the idea of a potential strategic transaction between XL and Party 1. XL entered into a confidentiality agreement including a standstill with Party 1 in June 2017. Recurring discussions with Party 1 occurred through late February 2018.

Following the annual review of XL’s strategic plan in August 2017, XL’s board of directors authorized XL’s management team to engage in discussions at management’s discretion with other (re)insurers regarding potential strategic opportunities within the industry, including continuing discussions with Party 1.

Several suitors

During October 2017, representatives of another global insurance and reinsurance company, referred to as “Party 2,” requested a meeting with representatives of XL and, during such meeting, discussed a potential strategic transaction. This meeting with Party 2 did not develop into further discussions.

On November 15, 2017, AXA’s CEO Thomas Buberl met with McGavick. During this meeting, Buberl proposed the possibility of a strategic transaction involving XL and AXA.

On December 4, 2017, McGavick and Greg Hendrick, who was then the president of XL’s property and casualty division, met with Buberl. During this meeting, the participants discussed the possibility of a strategic transaction involving XL and AXA, XL’s then-current valuation and trading multiples and the possibility that these might not fully and fairly reflect XL’s value. Buberl also expressed interest in combining XL with certain components of AXA’s existing businesses and identifying potential leadership for the combined business unit.

On December 14, 2017 and continuing on December 15, 2017, XL’s board of directors held a regularly scheduled meeting. Members of XL’s senior management team also participated in these meetings. Representatives of XL’s financial advisors, Morgan Stanley and Ardea Partners LLC, participated in the meeting on December 14, 2017. The XL board of directors reviewed and approved XL’s annual budget and business plan for 2018 that reflected, among other matters, the impact of the market reaction to the natural catastrophe losses that occurred in the second half of 2017. As part of these meetings, the directors discussed, among other items, the market environment, perspectives on XL’s valuation, and the fact that there had been recent expressions of strategic interest in XL from AXA, Party 1 and Party 2, as well as an expression of interest in discussing a potential strategic transaction from a global insurance company, referred to as “Party 3,” which inquiry was not subsequently pursued thereafter by Party 3.

The macro trends that the XL board of directors regularly considers as part of its strategic review, combined with the natural catastrophe losses in 2017, led to a heightened attention to XL’s potential strategic opportunities.

On February 7, 2018, Bloomberg published a news article, citing unnamed sources, that XL was attracting interest from other insurance and reinsurance companies, including Allianz SE. AXA was not named in the Bloomberg news article. During the week of February 5, 2018, both prior and subsequent to the Bloomberg news article, XL or its representatives continued to have conversations with Party 1 and had preliminary conversations with a US insurance company, referred to as “Party 4,” and a global insurance and reinsurance company, referred to as “Party 5,” through its representatives. In addition, Morgan Stanley, on behalf of and at the direction of XL, had preliminary conversations with a global insurance and reinsurance company, referred to as “Party 6.”

On February 19, 2018, McGavick reached out to Party 2, but Party 2 did not pursue conversations with XL any further.

$50.00 per XL share too low

On February 20, 2018, McGavick received an initial preliminary and non-binding oral indication of interest to acquire XL for a cash amount in the area of $50.00 per share from Party 1. Based on previous feedback from the XL board of directors, McGavick conveyed to Party 1 that the XL board would not be willing to enter into negotiations at a price of less than $50.00 per share. McGavick further stated that the XL Board of directors would be unlikely to enter into a transaction at a price per share in the low $50s. That understood, Party 1 requested that, in the event XL sought to enter into a potential strategic transaction with a third party, XL continue to consider Party 1 as a potential alternative partner to such a transaction and continue an ongoing dialogue with Party 1. Party 1 further requested to be provided with a “last look” in the event a third party to a potential strategic transaction with XL proposed a higher price. XL agreed to maintain a dialogue with Party 1 but made no further assurances to Party 1.

AXA outbids competitor

Also on February 20, 2018, at the direction of XL, a representative of Morgan Stanley contacted Buberl of AXA to convey that McGavick had received a non-binding oral indication of interest to acquire XL from an unspecified third party (which was Party 1) and that in order to proceed further AXA would need to make a competitive oral offer in light of the range of offers that could be received from other parties. On February 21, 2018, Buberl telephoned McGavick seeking permission to make a preliminary, confidential and non-binding offer to acquire XL’s outstanding common shares for cash consideration of $57.60 per share. Buberl also requested that XL grant AXA a period of exclusivity, which request was not granted. Based on prior authorization of the XL board of directors, McGavick granted AXA permission to submit a non-binding written offer to the XL board of directors at the price indicated by Buberl.

During the morning of February 23, 2018, Nicolas Leclercq, AXA’s head of group corporate finance and treasury sent to Morgan Stanley a letter containing a preliminary, confidential and non-binding offer to acquire 100 percent of XL’s outstanding common shares for cash consideration of $57.60 per share.

Also on February 23, 2018, McGavick and other XL directors participated in a board update call during which the status of the potential transaction was discussed. McGavick also called Party 1, and determined, based on that call, that it was unlikely that Party 1 would continue to pursue a transaction given the price that had been offered by AXA. In addition, in light of the non-binding offer received from AXA and AXA’s proposed accelerated timeframe, the determination was made not to seek to pursue an ongoing dialogue with any of Party 2, Party 5 or Party 6 at that time.

Another late bid

On February 25, 2018, a representative of Party 4 met with McGavick and indicated that Party 4 would be interested in pursuing a strategic transaction with XL that would value XL at between $10 billion and $15 billion. Given the current progress of discussions with AXA and McGavick’s and XL’s board of directors’ view of Party 4’s ability to effect such a transaction, discussions were not pursued with Party 4 and Party 4 did not seek to reengage with XL.

At the beginning of March, 2018, AXA revealed its plan to acquire  XL Group for $15.3 billion (€12.4 billion) in cash.

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