NU Online News Service, March 31, 3:36 p.m. EDT

Less than a month after Max Capital and IPC Re announced theirboards approved a merger deal valued at roughly $900 million,Validus Holdings has presented the IPC board with a rival bidvalued at $1.68 billion.

Both reinsurance firms are located in Bermuda. The Validus offerwas detailed in a press statement today, which includes the fulltext of a letter sent by Edward Noonan, chairman and chiefexecutive officer of Validus, to IPC President and CEO James Bryce,describing the Validus offer as a "superior amalgamationproposal."

The letter highlights what Validus said is better value, bettertrading characteristics for shares of the combined company andstrategic benefits of combining two operations dedicated toshort-tail lines of business.

In addition to these items, Mr. Noonan during a conference calltoday spoke of an additional deal motivator–the prospect ofcreating a "new market leader" after a period of turmoil in theindustry.

"This is a point in time when the industry is reshaping itself,and out of this will emerge some new leaders. We think the combinedcapital base [and] business platforms of the two companies willallow us to emerge as one of the leaders," Mr. Noonan said.

"We would create a combined entity with a capital base of $4.1billion at a point in time when some of the biggest players in theindustry are pulling back, dealing with their asset problems andreducing risk," he added later.

Outlining exactly how the deal would be done, Validus said itdelivered an offer to the IPC board to acquire the company in astock-for-stock merger (known as an amalgamation under Bermudalaw). Under terms of the binding offer, which is not subject to duediligence, each IPC common share would be exchanged for 1.2037Validus common shares.

Based on yesterday's closing market prices ($24.91 for Validusand $25.41 for IPC), the Validus offer represents an 18 percentpremium to IPC's March 30 closing stock price and values IPC'scommon equity at $1.68 billion.

Should the deal be completed, Validus shareholders would own 57percent of the combined company and IPC shareholders would own 43percent.

Under terms of the alternative Max-IPC proposed amalgamation,announced on March 2, IPC shareholders would own the majority ofthe resulting company–approximately 58 percent, with Maxshareholders owning about 42 percent.

According to the joint statement released by Max Capital and IPCearly this month, terms of the amalgamation agreement, which theirrespective boards approved, had Max stockholders receiving 0.6429IPC shares for each Max share. The deal value exceeded $900 millionfor the more than 56 million outstanding Max shares.

Both proposed deals are subject to shareholder approval andapprovals by Bermuda regulators. Validus Chief Financial OfficerJeff Consolino noted that the Validus deal, unlike the Max deal,would not be subject to U.S. regulatory approvals because no U.S.companies are involved.

Aside from deal value, key differences are composition ofinsurance business and investments, Validus executives said.

While both Max and Validus said they offered businessdiversification benefits in their proposals, the combination withMax would bring liability business into the overall mix, while thediversifying business in the Validus deal is short-tailed businessfrom Validus Lloyd's operation, Talbot.

The Validus executives, who said they were not contacted by IPCas it investigated potential partners, touted the benefits ofcombining their catastrophe reinsurance operations and thediversifying short-tail insurance business from Validus, at a timewhen the rates are increasing only for these capital-intensiveshort-tail lines.

They said that while both deals would result in a mix that'sabout 64 percent reinsurance and 36 percent insurance, a mergerwith Validus would have 95 percent of the business in short-tailedlines, while the Max-IPC combination would mean roughly a 50-50split of long- and short-tailed business.

The Validus executives also noted that Validus' entireinvestment portfolio is in cash and fixed income securities, whileMax Capital has dabbled in the more volatile world of alternativeinvestments.

According to a registration filed with the Securities andExchange Commission on March 27, the board-approved amalgamationagreement between IPC and Max Capital can be terminated undercertain conditions, one of which might be a change in therecommendation by one party's board to its shareholders.

(Susanne Sclafane can be reached at [email protected],201-526-1246)