Validus Sweetens Offer for IPC to $1.69 Billion; Max Cap, IPC Comment

Validus Holdings Ltd slightly sweetened its hostile bid for IPC Holdings Ltd. to $1.69 billion Monday, in its latest attempt to wrest the Bermuda reinsurer from rival Max Capital Group.

Validus’ new offer of $30.14 per share includes $3 of cash and 1.1234 Validus shares for each IPC share, marking a 13.2 percent premium to the company’s closing stock price Friday.

But the offer is only slightly more than Validus’ initial counter-bid on March 31, which valued IPC at $29.98 per share, or $1.68 billion — something that Max was quick to point out.

“(It’s) not a lot of money,” Morningstar analyst Bill Bergman said. “But it is sweeter and the board is going to have to respect that at IPC.”

“Validus sees this as a cost effective way to gain scale,” Bergman said. “At the same time the relationships between IPC and Max corporate guys are also very valuable relative to the Validus offer.”

IPC’s shares closed up 21 cents to $26.84 in Nasdaq trading Monday, below the new offer price, reflecting uncertainty about a deal.

IPC decided to pursue a deal more than a year ago, wanting to broaden its business beyond the property-catastrophe coverage it has written since inception 15 years ago.

It has said that Validus, which was formed in 2005 to provide property-catastrophe reinsurance, was not seen as a fit for it because their businesses are too similar.

Max claims its deal offers IPC a better opportunity to diversify since it sells about equal amounts of property and casualty insurance.

In a separate statement, IPC said its board would review the revised offer and urged shareholders to take no action regarding the offer until it had made its recommendation.

Earlier this month, IPC Chairman Kenneth Hammond told Reuters that the reinsurer would not rush into a deal with Validus even if investors voted down its agreement with Max.

CASH VERSUS STOCK
Under Validus’ initial offer, launched on March 31, IPC shareholders would have received 1.2037 Validus voting common shares, and no cash, for each of their common shares.

At Friday’s close, the initial offer would come to $1.63 billion, or $29.08 per share, based on 55.95 million IPC shares outstanding as of May 9. Validus shares are down about 5.2 percent since March 30, the day before it made its unsolicited bid.

“Based upon the decline in Validus’ stock price since its initial offer, notwithstanding the strong equity markets, this change simply brings them back to where they originally started,” Max Chief Executive Marston Becker said in a separate statement.

But Validus highlighted the cash part of its revised bid. “By adjusting our exchange ratio, we are able to provide the IPC shareholders with a meaningful cash component, a request we have heard repeatedly from IPC shareholders whom we’ve talked to extensively over the last few weeks,” Validus Chief Executive Ed Noonan said in a statement.

IPC shareholders are due to vote June 12 on the Max deal, which values IPC at $1.46 billion based Friday’s close.

IPC’s board has urged shareholders to approve the Max transaction, saying the two companies are the best fit and that the deal is “superior” when measured by book value.

IPC, on paper, is the acquirer in the Max deal, since shareholders are to own 58 percent of the combined company. But under the agreement, IPC will largely cease to exist. Its 32 employees will be subsumed into Max’s larger staff, the Max name will be retained, and Max’s Becker will be CEO.

IPC was formed by Maurice “Hank” Greenberg, who solicited multiple investors to create the company. American International Group Inc was IPC’s largest shareholder until 2006, when AIG sold its stake.

Validus was formed by Aquiline Capital, a private equity firm formed by Jeffrey Greenberg, who had been chief executive of insurance broker Marsh & McLennan Cos Inc.

Validus stock closed down 1.4 percent at $23.82 on the New York Stock Exchange. Max ended up 2.1 percent $17.18 on the NASDAQ.

(Editing by Lisa Von Ahn, Brian Moss, Tim Dobbym and Steve Orlofsky)