May 14, 2020

Breakingviews: The Agnellis move from hunting to hunkering down

by Breakingviews.

A mergers and acquisitions upset is deflating the Agnelli’s ambitions. With a planned $9 billion cash windfall from selling insurer PartnerRe and expected fat dividends from merging carmaker Fiat Chrysler Automobiles with Peugeot, the Italian billionaire family was set just months ago for a global, diversification shopping spree. Their investment vehicle Exor has become a case study in how quickly the pandemic shifts fortunes.

Covea’s proposal to pay 38% above book value for PartnerRe always looked rich. The French bid came out of the blue at the start of 2020. Reeling from the unsuccessful attempt to buy reinsurer Scor, Chief Executive Thierry Derez surprisingly stuck to his $9 billion offer in early March even as the health emergency spread beyond Asia. Now, his belated attempts to renegotiate the price down were rebuffed by Exor Chairman and Agnelli scion John Elkann, and the transaction has fallen apart.

The failed deal is an abrupt reversal for Exor. The sale of PartnerRe, the largest asset by value in Exor’s portfolio, would have turned the investment vehicle into a powerful M&A actor on the global stage. With spare cash north of $12 billion, Elkann could have seized opportunities in pandemic-depressed stock market. Despite a recent recovery, the STOXX Europe 600 index is 20% down since the start of the year. Take Exor: Its depressed market capitalisation of 11.5 billion euros is worth only half the net asset value of its portfolio at the end of 2019.

Not everything is gloomy. Exor’s plan to diversify predates Covea’s approach. It has started to make small acquisitions in sectors other than cars and insurers, like publisher GEDI and transport startup Via. But it will have to dramatically scale down its M&A ambitions.

Exor’s firepower for investments was about 1.9 billion euros in November. This would rise to 3.5 billion euros after adding a one-off dividend worth 1.6 billion euros envisaged under the planned Fiat-Peugeot merger. But dividends may be restricted if Fiat or Peugeot is forced to seek government aid, or if the lockdown drags on, forcing carmakers to save cash. Hunkering down, rather than hunting, may be the Agnellis’ near-term mode.


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