Market waits on fresh Covea bid as Kessler mans barricades

Financial markets are looking for an improved bid for Scor from Covea, after the target’s chairman Denis Kessler emphatically rejected an opening offer from the massive French mutual insurer.

Officially, Covea has withdrawn its bid but – having taken the aggressive step of making the rejected proposal public – the insurer and its advisers are waiting on the response from Scor’s shareholders before deciding whether to return with an improved offer.

Depending on the level of unrest from Scor’s shareholders over the board’s refusal to engage in talks with Covea, the French mutual insurer will have a better chance of gauging the kind of bid that it may need to force Kessler to the table.

Scor has come out strongly against the bid, with Kessler publicly attacking Covea for bringing nothing strategic to the table.

“It’s just a French mutual only doing homeowners’,” the chairman and CEO told The Insurance Insider. “I don’t see what they can bring us there; they have no expertise.”

He also rubbished the valuation, saying that the EUR43 bid, equivalent to 1.34x stated book value, was “far from the median” of the valuation range generated by its advisers, Citi and BNP Paribas. “It’s not borderline,” he stressed.

Scor also said, significantly, that it would consider any further public bid hostile.

Covea has said very little publicly. It did say, however, that it was only interested in pursuing a “friendly transaction” with Scor.

It also seems highly unlikely that the mutual will take unambiguously hostile moves like launching a tender offer or seeking to unseat the current board.

However, the move to disclose the bid, even if there was significant risk of a leak, was an aggressive move designed to secure leverage over the Scor board.

And, although Kessler has mounted a pugnacious defence, he remains both a realist and a dealmaker.

There is a price where he and the Scor board would enter into talks with Covea, and perhaps a slightly higher price where they would sell.

Whatever animus Kessler may feel towards Covea chairman and CEO Thierry Derez – a Scor board member – for making the bid despite an earlier standstill agreement and then making it public, he will do the right thing for Scor shareholders.

Scor’s share price is hovering between the undisturbed price of around EUR33.50 and the EUR43 offer at around EUR37, as investors weigh the apparent trenchancy of Scor’s resistance against Covea’s clear appetite for a deal.

Covea is not even close to financially constrained and can stretch well beyond the current EUR8.3bn ($9.6bn) bid if it chooses to do so.

The question then is how integral the Scor acquisition is to Covea’s strategy – something that has to remain an open question at this stage. Covea has not made its deal rationale public, but The Insurance Insider understands that the mutual insurer is pursuing diversification.

The business has a huge concentration in French personal lines insurance, with a small life insurance book. A move to buy Scor would leave the overall business well balanced between insurance and reinsurance, as well as non-life and life.

It would also create another French powerhouse insurance group alongside Axa – presumably an inspiration – as well as opening the door long-term for capital synergies.

Sources said that Derez is an admirer of the Talanx model. Talanx, the now-public insurance holding company, has a 50.2 percent stake in Hannover Re and allows the reinsurer to operate autonomously.

It is understood that if a deal was consummated, Covea would allow Scor to run autonomously, with an unchanged strategy and management team.

This proposed structure may go some way to blunt some of Kessler’s criticisms of a cultural mismatch, but an owner’s willingness to allow a subsidiary independence can never be fully counted on.

Questions remain about the way in which Covea has chosen to make its offer. Sources said there was no informal approach to Kessler from Scor board member Derez – with the offer submitted as a circular letter to the board.

This was then followed by a decision to make the bid public a day before Scor’s annual investor day and less than a week before the Monte Carlo Rendez-Vous – ostensibly calculated to cause the reinsurer maximum discomfort on both fronts.

It remains to be seen whether or not that discomfort will push Scor to engage, or stiffen the resolve of the board to resist.