The board of IPC Holdings Ltd. has finally agreed to a mergerproposal from Validus Holdings Ltd. after spurning an initial offerand multiple court battles with its corporate suitor.

Upon closing of the transaction, IPC said its shareholders willreceive approximately $424 million cash in aggregate and will ownapproximately 38 percent of the combined company, while Validus'sshareholders will own approximately 62 percent.

In response to the agreement,Oldwick, N.J.-based A.M. Best Company put the “A-minus (Excellent)”financial strength rating and issuer credit rating of “A-minus” forBermuda-based Validus Reinsurance Ltd. “under review, with negativeimplications.”

Validus began bidding for its neighboring Bermuda company afterthe IPC board had approved a deal with Max Capital.

In the wake of the Validus offer, stockholders rejected Max onJune 12, and IPC said it would examine Validus along with otherpossible suitors. In addition to Validus, the company received anoffer from Flagstone Re.

Holders of IPC common stock under the latest Validus proposalwill receive $7.50 per share in cash and a fixed exchange ratio of0.9727 Validus shares for each IPC share, according to theagreement.

IPC said the revised amalgamation agreement with Validus“provides greater certainty for IPC's shareholders with notermination rights related to catastrophe losses.”

Validus said the deal creates an entity that will have a strongbalance sheet and conservative investment portfolio, in addition tostronger relationships with major reinsurance brokers.

Validus had gone to court in Bermuda pursuing several legalavenues to acquire IPC, including ways to take the company's offerdirectly to the shareholders if the IPC board continued toresist.

Kenneth L. Hammond, chair of IPC, said the Validus agreement's“significantly higher cash component and absence ofbook-value-related termination rights increases the certainty ofvalue and lessens the risk for IPC's shareholders. At the sametime, IPC shareholders will still be able to participate in theupside of owning shares in a larger, stronger and bettercapitalized underwriting platform.”

Ed Noonan, chair and chief executive officer of Validus, saidthat because of this deal, his firm “will have significantlygreater size and scale to take advantage of attractive rate trendsacross our business lines and growing overall demand forreinsurance from capital-constrained businesses.”

Mark Byrne, chair of Flagstone Re–which bid $1.8 billion forIPC–said his firm was “surprised and disappointed that the IPCboard chose the Validus offer over our proposal, which we feltoffered superior economics in the short term and better prospectsin the long term. As we close the file on this matter, we wish theboard, shareholders and employees of IPC well.”

A.M. Best said the “under review” status for Validus “reflectsthe uncertainties associated with this transaction, including theexecution risk in completing the deal as well as integrating bothcompanies.”

The rating firm cited the heightened risk profile of thecombined entity “due to the significant property-catastrophebusiness written by Validus Holdings and IPC.” Timing thetransaction during the Atlantic windstorm season added to theseconcerns, according to A.M. Best.

Completion of the transaction is contingent upon customaryclosing conditions, including the approvals of shareholders of bothcompanies, IPC and Validus said. The transaction is expected toclose in the third quarter of 2009.

Validus, which was incorporated Oct. 25, 2005, had among itsinitial investors Aquiline Capital Partners, the private equityfirm headed by former Marsh & McLennan CEO Jeffrey Greenberg,along with other private equity funds.