QBE has failed in an initial takeover bid for rival Australian insurance giant IAG.

After months of speculation, QBE made its move for IAG last week.

An initial offer tabled on Thursday was rejected by IAG and on Friday QBE launched a second bid proposing 0.142 QBE shares and 70c for each IAG share – claiming a 12% premium based on share prices over three months.

In a statement this morning IAG says the takeover bid – which represents $4.02 per IAG share – fails to recognise the insurer’s long-term value and is an opportunistic attempt to capitalise on its weak share price.

IAG Chairman James Strong says the proposed price, “which represented only a 1% premium to the closing price on Friday, is totally inadequate”.

But he has indicated IAG is open to an improved offer.

“The price needs to reflect the value that the IAG business would contribute to QBE,” he said.

Mr Strong says he is disappointed QBE has publicised the proposal after agreeing to confidential discussions.

QBE’s proposal is based on a total issued capital for IAG of no more than 1891 million shares, on a fully diluted and change of control basis.

QBE claims the merged entity would save an annual $300 million in net pre-tax synergies within two years, in addition to more than $400 million in diversification benefits from excess risk margins in outstanding claims.

QBE has advised IAG the proposal is open until 5pm next Monday.

QBE CEO Frank O’Halloran said the company approached IAG “because we believe that a merger would be positive for both IAG and QBE shareholders. A merger would create an enlarged group which would be in the top 15 global general insurers.

“Our long track record of growth and profitability will provide IAG and QBE shareholders with immediate and long-term benefits.”

At 11.45 AEST IAG shares had improved 42c to $4.28.

insuranceNEWS.com.au will keep you posted on developments.