Max Capital CEO Says Deal for IPC Better than Validus’ Offer

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Max Capital Group’s deal to merge with rival IPC Holdings offers shareholders a better long-term deal than an unsolicited offer from Validus Holdings, Chief Executive Marston Becker said Thursday.

Max’s deal is richer on a book-value basis, even though Validus’ stock offer bears a higher per-share price, he said. “You can get a little bit more market value today, but this is a stock not a cash deal. And with us, you get 29 percent more in hard assets than you would get from Validus,” based on tangible book value, a common metric for insurance company valuations.

He added that he expected the deal between Max and IPC to be more accretive to shareholders over the long term.

On March 2, property-catastrophe reinsurer IPC and Max, a provider of insurance and reinsurance, said they had reached a definitive merger deal. That pact values each IPC share at 1.5554 Max shares, or $27.76 based on Tuesday’s close.

Under Validus’ March 31 bid each IPC common share would be exchanged for 1.2037 Validus shares, or $28.78 per share based on Wednesday’s close. Based on diluted tangible book value, the Validus offer is valued at $26.19 a share, compared with Max’s $33.83 deal, a 29 percent premium, Becker said.

Validus said in a statement that Max Capital made “a number of inaccurate statements and misleading claims.”

“The 8.1 percent increase in IPC’s share price between the announcement of Validus’ superior proposal on Tuesday morning and yesterday’s close shows that the market recognizes the superiority of our offer over a merger with Max Capital, whose performance and market position are inferior to Validus, and who brings significant balance sheet exposure to high risk assets,” said Ed Noonan, Validus’ Chairman and Chief Executive Officer.

Shares of IPC, which sells property-catastrophe coverage to other insurers and reinsurers, closed at $26.88, down 2.18 percent, on the NASDAQ on Thursday.

Becker said merging with his company also gave IPC shareholders greater say in the combined firm since both companies would have representation on the board. “Validus’ proposal is for a change in control,” he added.

Validus, also based in Bermuda, predominately sells property-catastrophe reinsurance, much like IPC. It was formed three years ago by Aquiline Capital, a private equity firm formed by Jeffrey Greenberg, who had been chief executive of insurance broker Marsh & McLennan Cos Inc.

IPC was formed more than 15 years ago, the brainchild of American International Group Inc’s then-CEO Maurice “Hank” Greenberg, father of Jeffery Greenberg.

The scuffle over who will win IPC’s hand marks the first acquisition activity among Bermuda reinsurers in more than a decade. Bermuda, a mid-Atlantic British territory, is a large insurance market.

DIVERSIFICATION GAME
Becker said IPC and Validus’ similar books of business could be a drawback for investors, since IPC has been seeking to diversify. Max’s deal offers IPC a better opportunity to diversify since it sells about equal amounts of property and casualty insurance, he added.

“The rating agencies have expressed the viewpoint that they would like to have more diversification among the monoline property-catastrophe insurers which is one of the reasons IPC was heading down this road,” he said.

Becker said he and IPC management had met with the major rating agencies about their proposed merger, but that it was too soon to tell if their combination could win Max a higher financial strength rating.

Max is currently rated “A-minus” by A.M. Best, an insurance rating agency, while IPC has a higher “A” rating.

The Max-IPC deal is still subject to regulatory approvals, but Becker said he expected approvals to be received in the coming months, and to close the deal with IPC in June.

IPC on Tuesday said its board will consider Validus’ offer, consistent with its regulatory and legal obligations. Validus has given IPC until April 15 to make a decision on its offer.

(Reporting by Lilla Zuill; Editing by Marguerita Choy)