The board of takeover target PartnerRe yesterday did a U-turn and admitted an improved bid by Italian investment firm Exor was likely to be a “superior proposal” to its merger plan with Axis Capital.

The Bermuda-based insurer said it was prepared to talk to Exor in an attempt to improve price and terms — but renewed its support for the Axis merger.

The PartnerRe statement said: “In response to Exor’s revised offer, its sixth revised proposal, the PartnerRe board has determined that the latest Exor proposal would reasonably be likely to result in a superior proposal as defined in the amalgamation agreement with Axis Capital.

“As such, the board will seek to engage in negotiations with Exor and offer Exor the opportunity to conduct due diligence to determine whether the current offer can be improved both in its price and terms with respect to items previously identified.”

But it added: “However, the board continues to believe that the transformative amalgamation with Axis Capital is superior in value, terms and certainty of closing to the current Exor proposal.

“Following its review of Exor’s revised proposal, PartnerRe’s board of directors reaffirms its recommendation that shareholders vote for the agreed amalgamation with Axis Capital Holdings Ltd.”

The announcement came after Exor on Monday upped its bid with a $3 a share special dividend for common shareholders on top of its $137.50 a share offer.

Exor also dismissed claims that the US Internal Revenue Service (IRS) would treat preferred shares in PartnerRe as part of a “listed transaction” or “prohibited tax shelter” involving “fast pay stock” under the Exor bid.

But Exor added it would seek a private letter ruling from the IRS to confirm its views.

And Exor said — if a private letter ruling could not be obtained in time or the IRS were to decide there was no abuse in the transaction and declined to spend time and resources on it — Exor would add a lump cash payment of around $42.7 million, equivalent to the 100 basis points of additional dividend payments for five years added to the Axis/PartnerRe merger terms after Exor began a bidding war.

Charles Sebaski, an analyst at BMD Capital Markets, said Axis would find it hard to come up with a better offer for PartnerRe without losing support from his shareholders.

Shareholders in PartnerRe and Axis, near-neighbours on Pitts Bay Road, Pembroke, meet to vote on the proposed merger between the two firms on Friday, August 7.

And Mr Sebaski predicted: “With the limits of Axis’s bidding nearly reached and PartnerRe’s board changing its stance toward Exor, it appears that the end is near in this transaction.”

Axis said yesterday: “The value of our merger agreement with PartnerRe is superior to the Exor offer both immediately and in the future.

“We provide continuity of interest for investors to participate in the future upside resulting from the substantial strategic and financial benefits of the combined company, the exchange of PartnerRe common stock for combined company common stock in the amalgamation is tax free to PartnerRe shareholders, we offer deal closing certainty ahead of the upcoming renewal season and the combined company will have a superior credit profile.”