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Embarrassment of riches

10 February 2020 By Lisa Jucca

A prospective insurance sale gives the Agnelli clan a cash conundrum. Exor, the investment vehicle run by scion John Elkann, on Sunday confirmed it’s in talks to sell PartnerRe to France’s Covea for around $9 billion in cash. Factor in a big dividend from the pending merger of Fiat Chrysler Automobiles with Peugeot, and the family’s wealth will be liquid but less diversified. The next challenge will be to deploy the proceeds wisely.

If agreed, a sale of PartnerRe would mark an abrupt change of direction for Elkann. Exor completed the acquisition of the Bermuda-based reinsurer for $6.9 billion in 2016, after a long and expensive battle with Axis Capital. The investment was the largest by value in Exor’s portfolio, its 2018 filings show. It also helped the company diversify its exposure to the automotive sector. Stakes in FCA, Ferrari and truck maker CNH Industrial accounted for the bulk of Exor’s 2018 gross asset value of nearly $24 billion.

Yet Covea seems highly motivated to buy a reinsurance business. Last year the mutually owned French group was forced to abandon an aggressive $9.5 billion bid for domestic rival Scor. Though the jury is out on whether Exor’s investment in PartnerRe will deliver an adequate return, the $19 billion investment company could not ignore Covea’s offer.

If the sale is consummated, the next question will be what to do with the cash piling up in Exor’s coffers. It is already expected to pocket a 1.6 billion euro special dividend once the agreed merger of FCA and Peugeot is concluded. This, together with possible additional sums in Exor’s portfolio, means Elkann will potentially have $12 billion to $13 billion to play with.

Diversifying away from the auto sector will likely continue to be a guiding principle. But moving too far from a known terrain could also be treacherous. One option for Elkann would be to consider luxury goods. Ferraris are already sold as objects of desire rather than functional automobiles. At 37 times expected earnings, shares in the maker of the prancing horse-branded vehicles are already trading at multiples closer to top luxury players like Hermes than humdrum carmakers.

The $11 billion Moncler or the $9 billion Prada would be within Elkann’s reach. But given the scarcity of good targets, the risk is that Exor’s cash sets it up for another expensive takeover battle.

 

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