An influential US proxy advisory company has told shareholders to vote against the proposed merger of Bermuda-based PartnerRe and Axis Capital Holdings.

Institutional Shareholder Services (ISS) says the certainty and premium offered by the $US6.8 billion ($9.32 billion) rival bid from Exor is a better alternative.

Shareholders are due to vote on the Axis merger on August 7.

Italy-based Exor now appears to have a greatly improved chance of entering the reinsurance market by buying PartnerRe.

“The true economic value of the Axis merger consideration is, at this point, unknowable,” ISS says.

The Exor offer represents “an unassailable and healthy 23.1% premium” to the PartnerRe price.

ISS also flags “significant concerns about the sales process, which raise doubts as to whether the PartnerRe board was able to negotiate the best possible outcome for its shareholders”.

PartnerRe and Axis have suggested a possible tax problem if Exor is successful, saying preferred shareholders and perhaps common shareholders may suffer “an onerous annual reporting and penalty regime applicable to prohibited tax shelter transactions under US income tax laws”.

PartnerRe says the issue needs to be resolved by a US tax ruling.

Last Monday Exor raised its offer to include a special pre-closing dividend of $US3 ($4.11) per share for common shareholders, taking its total offer to $US140.50 ($192.76) per share.

Exor added the special dividend – which it says “further widens the gap in value with the Axis transaction” – to compensate PartnerRe shareholders for the expected closing of the transaction early next year, later than planned.

PartnerRe says it will seek talks with Exor to discuss the Italian holding company’s latest offer – the sixth since it began a bidding war with Axis in April. It will also offer Exor due diligence.

The PartnerRe board continues to believe the merger with Axis is superior.

In January Axis and PartnerRe agreed an $US11 billion ($15.09 billion) merger to create one of the world’s largest reinsurers.

Exor holds about 10% of PartnerRe, making it the largest single shareholder.