The board of Swedish insurer Forsakrings AB Skandia advised its shareholders on Friday to reject a 44.9 billion kronor (US$6.02 billion; Ђ4.82 billion) takeover bid by South African financial services group Old Mutual PLC.
"Old Mutual's offer is not attractive from a financial perspective since it, in its structure undervalues Skandia's market position, underlying strategic value and attractive growth opportunities," Skandia said.
Old Mutual said it would proceed with the offer despite the Skandia board's decision.
A split board said the offer was too low, considering that "the life-assurance industry in the Western world has just recovered from an all-time-low."
London-listed Old Mutual announced in May that it had started merger talks with Skandia and launched its bid on Sept. 2.
The offer for Sweden's largest insurer amounts to 43.60 kronor (US$5.85) per share. The bid would give Skandia shareholders 16.50 kronor (US$2.21; Ђ1.77) in cash and 1.37 new Old Mutual shares for each Skandia share, Old Mutual said.
Skandia shares dropped 0.5 percent to 40.40 kronor (Ђ4.32; US$5.25) on the Stockholm exchange.
Eight of the 11 board members were against accepting the bid and three were in favor, Skandia said.
The majority of board members believed that the merger "lacks industrial logic," Skandia said. "The operational synergies are limited, since the companies have marginal overlapping activities."
It said Old Mutual's stock is exposed to fluctuations in the South African currency, the rand, and depends strongly on political and economic developments in South Africa.
"The risks of Old Mutual's strong dependence on the South African market are further elevated by the fact that South Africa still has foreign exchange controls that can restrict major transfers from South Africa, such as financing a possible capital contribution to Skandia," the board said.
Old Mutual said it still believes the merger would enhance prospects of growth and cut risk for shareholders.
"We have met with holders of more than 60 per cent of Skandia's shares in recent weeks and received positive indications on the merits of our proposal from a vast majority of them," Old Mutual Chief Executive Jim Sutcliffe said.