Validus Holdings Ltd. said it has agreed to buy Bermuda reinsurance rival IPC Holdings Ltd. for $1.65 billion in cash and stock, beating another rival, Flagstone Reinsurance Holdings Ltd, and likely ending a months-long bidding war.
On a conference call with investors held by both companies, Validus management said they expected the acquisition to close before the end of the third quarter, and as early as late next month.
IPC accepted Validus’ offer after months of rebuffing the company, as it was sweetened to give its shareholders 0.9727 of a Validus share for each of their shares and $7.50 in cash. That values IPC at $29.48 per share, or 6.8 percent above its Wednesday closing price.
Validus’ previous offer included more shares but only half as much cash. The company’s shares were down 3.6 percent at $21.79 at midday on the New York Stock Exchange. IPC shares were up 21 cents at $27.82 and Flagstone shares were up 7.4 percent at $10.45.
The deal looks set to end four months of uncertainty for IPC, which had initially planned a tie-up with Max Capital Group, only to have it derailed by Validus’ unfriendly rival offer.
Flagstone, the third bidder to emerge, on July 1, offered 2.638 of its common shares and $5.50 in cash for each IPC share. That valued IPC at about $1.74 billion, or $31.17 per share, based on Wednesday’s close. The company said it was “surprised and disappointed” in a statement issued after Validus and IPC’s joint agreement was announced.
Buying IPC gives the buyer more capital, allowing it to sell more property catastrophe reinsurance just as rates are rising. Validus will have about $3.4 billion in shareholders’ equity after the purchase closes.
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IPC’s board entertained a number of suitors’ offers before agreeing to be bought by Validus, interim CEO John Weale told investors. He added that a variety of factors, not solely price, were considered in deciding which deal was best for shareholders over time. IPC shareholders will have roughly one-third ownership of Validus after the deal.
A.M. Best’s initial reaction was to cut IPC’s rating to “A-” after the deal was announced, and Validus, which is rated “A-,” had its ratings put under review with negative implications.
“We don’t expect anything imperiling the ‘A-‘ rating,” said Validus Chief Executive Ed Noonan.
Validus was created in 2005, less than two months after Hurricane Katrina, which led to contraction in the property-catastrophe reinsurance market. It was backed by Aquiline Capital Partners LLC, a private equity firm run by former Marsh & McLennan Cos Chief Executive Jeffrey Greenberg, who remains on Validus’ board.
Greenhill & Co advised Validus, while Skadden, Arps, Slate, Meagher & Flom LLP, Cahill Gordon & Reindel LLP and Appleby provided legal advice. JPMorgan and the law firms Sullivan & Cromwell LLP and Mellon Jones & Martin advised IPC.
(Reporting by Jonathan Stempel and Lilla Zuill; editing by John Wallace, Maureen Bavdek and Matthew Lewis)
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