After months-long battle, reinsurance and insurance coverage provider Validus Holdings, Ltd. (VR) and its rival IPC Holdings, Ltd. (IPCR) Thursday said that the boards of directors of both companies have approved a definitive amalgamation agreement by which Validus will acquire IPC. The acquisition price is reported to be $1.65 billion, representing an adjustment to the structure of Validus' previous offer of IPC. The transaction is expected to close in the third quarter of 2009.
Background of Validus-IPC deal
The amalgamation agreement announced today is the climax of a takeover battle that began on March 31, when Validus delivered a binding offer to the board of directors of IPC for the merger of Validus and IPC in a stock deal. Validus offered 1.2037 Validus common shares for each IPC common share, valuing IPC's common equity at $29.98 per share or $1.68 billion.
However, in early March, IPC had reached a definitive amalgamation agreement with insurer Max Capital Group Ltd. (MXGL). As per that deal, holders of Max common stock offered to receive, at a fixed exchange ratio, 0.6429 IPC shares for each Max share. Upon closing of the tax-free, stock-for-stock merger, IPC shareholders were offered to own about 58% of the combined company on a fully diluted basis with Max shareholders owning about 42%.
Validus then said that it would be able to close the amalgamation with IPC more quickly than Max as it does not require the approval of U.S. insurance regulators. Validus also requested IPC to reach a determination by 5:00 p.m., Bermuda time, on April 15.
In early April, Max sent a letter to the board of IPC, emphasizing the superiority of its merger deal over the proposal made by Validus. On April 7, IPC's board unanimously reaffirmed its recommendation for IPC shareholders to approve the definitive amalgamation agreement with Max.
Meanwhile, Validus filed preliminary proxy materials with the SEC in connection with IPC's Annual General Meeting of shareholders, urging IPC shareholders to oppose the issuance of IPC shares in connection with the amalgamation agreement between IPC and Max. Validus also asked IPC shareholders to vote against all proposals in connection with the Max transaction.
On April 28, Validus announced the filing of legal proceedings in the Supreme Court of Bermuda against IPC and Max, challenging the $50 million termination fee and "no-talk" provision contained in the agreement between IPC and Max. On April 30, Validus outlined a three-part plan to acquire IPC that would allow IPC shareholders to obtain the benefit of Validus' previously announced offer notwithstanding the continued lack of cooperation of the IPC board.
On May 12, Validus announced the commencement of an Exchange Offer for all of the outstanding common shares of IPC. Shareholders of IPC were offered to receive 1.2037 Validus voting common shares for each IPC common share in the Exchange Offer.
On May 18, in an attempt to block the merger of IPC with Max, Validus raised its bid for IPC and said that IPC shareholders will receive $3 in cash for each share they hold and 1.1234 Validus voting common shares. The sweetened bid offered a total consideration of $30.14 per IPC share based on Validus' closing price on May 15.
Amid IPC's attempts to gain shareholders' support for its merger deal with Max, Validus on June 8 further increased its bid price for IPC. Validus then offered $3.75 in cash for each IPC common share and 1.1234 Validus voting common shares. However, Max brushed aside the latest sweetened offer by Validus, saying the bid once again failed to provide IPC shareholders with a financially attractive outcome. In response, Validus said that its offer provides a 12.5% premium to IPC shareholders and the Exchange Offer can close by June-end.
On June 12, Max terminated its proposed acquisition deal with IPC as IPC shareholders rejected the proposal at the company's annual general meeting. On the same day, IPC said that it will consider the proposal from Validus.
On June 23, IPC said its Board continues to recommend against the current Validus offer and is willing to work with Validus to encourage it to improve the terms of its offer. IPC also revealed that its board is seeking better offers representing more value to shareholders than Validus' offer.
On July 1, Flagstone Reinsurance Holdings Ltd. (FSR) entered into the fray, offering 2.638 of new common shares for each IPC common share plus $5.50 per share in cash for a total consideration of $33.62 per share. Validus, however, reaffirmed its commitment to its offer, saying it is the "best and final offer."
Amalgamation Agreement Details
Validus and IPC said that the final transaction terms represent an adjustment to the structure of Validus' previous offer of IPC. Under the revised terms of the deal, IPC shareholders will receive $7.50 in cash and 0.9727 Validus voting common shares for each IPC common share.
According to the companies, the revised terms provide IPC shareholders with significantly greater cash consideration, while not changing the overall transaction value. The revised consideration will give IPC shareholders a premium of 24.9% and $31.73 per share based on the companies' closing stock prices on March 30, the last trading day before the announcement of Validus' initial offer.
Upon closing of the transaction, IPC shareholders will receive approximately $424 million in cash in aggregate and will own about 38% of the combined company on a fully diluted basis. Validus' shareholders will own approximately 62% of the combined company.
Validus said it will be withdrawing and terminating its exchange offer for all of the outstanding common shares of IPC. The company will instruct BNY Mellon Shareowner Services to promptly return all IPC common shares previously tendered to Validus. Additionally, Validus has terminated its solicitation efforts in connection with its other previously announced alternative steps to complete a transaction with IPC, including a scheme of arrangement and calling of a special meeting of IPC shareholders.
According to Validus, the amalgamation agreement will create a leading Bermuda carrier in the short-tail reinsurance and insurance market. The deal also provides greater certainty for IPC's shareholders with no termination rights related to catastrophe losses. The combined company will have $3.4 billion in GAAP shareholders' equity, enabling the company to capture highly attractive market opportunities in the global insurance and reinsurance markets.
Validus said it will continue to be led by its current senior management team, including Ed Noonan, Chairman and Chief Executive Officer.
Commenting on the deal, Ed Noonan, Validus's Chairman and Chief Executive Officer, stated, "This is a compelling strategic combination that positions us exceptionally well to build on our solid track record of underwriting performance and book value growth…In addition, clients of both companies will benefit from our strong commitment to existing business lines, superior technical expertise and increased capacity to meet their needs."
Aquiline Capital Partners LLC, Vestar Capital Partners, and New Mountain Capital, LLC, which collectively owned approximately 38% of Validus' outstanding voting common shares as of April 30, have agreed to vote in favor of the issuance of Validus shares in connection with the transaction. Validus has also agreed to pay an upfront termination fee of $50 million due under the IPC - Max transaction.
Kenneth Hammond, Chairman of IPC, commented, "Over the past several weeks, we conducted a thorough and intensive process that included negotiations with, and offers from, multiple parties. We believe that the agreement we announced today represents the best outcome for our shareholders."
Greenhill & Co., LLC acted as financial advisor to Validus and Skadden, Arps, Slate, Meagher & Flom LLP, Cahill Gordon & Reindel LLP and Appleby provided legal advice.
Meanwhile, Flagstone today said in a statement that it is "surprised and disappointed" with the definitive agreement for amalgamation between IPC and Validus.
Flagstone Chairman Mark Byrne, said, "We are surprised and disappointed that the IPC Board chose the Validus offer over our proposal, which we felt offered superior economics in the short term, and better prospects in the long term. As we close the file on this matter, we wish the Board, shareholders, and employees of IPC well."
VR is trading at $21.76, down $0.84, on a volume of 1.87 million shares.
IPCR rose $0.16 and is trading at $27.77, on a volume of 1.51 million shares.
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