NU Online News Service, April 22, 10:46 a.m.EST

Frederick H. Eppinger, chief executive officer of The Hanover,says he certainly won’t apologize for good timing, but the recentbid to acquire Chaucer Holdings was not driven by the state of theLloyd’s market.

The acquisition “was more strategic than opportunistic,”Eppinger says during an interview with NU Online News Service.“We’ve been working at this [finding a good acquisition partner]for over a year.”

Specifically with Chaucer, Eppinger says Hanover worked withthem for a month before bidding $510 million this week.

The topic of mergers and acquisitions at Lloyd’s ofLondon has been often debated, as the soft market seemed tohave created ripe M&A conditions.

Now, with recent catastrophes, rates are “firming fast,”Eppinger says. He adds that typically, M&A activity normallyoccurs within the last couple of soft market years and the firstfew years of market hardening.

Nevertheless, Hanover’s attempt at buying Chaucer—a leadingLloyd’s specialist insurer—was motivated more by the recognitionthat Chaucer was a “wonderful counterparty” to Worcester,Mass.-based Hanover’s desire to grow specialty lines as part of amaster plan initiated about seven years ago, Eppinger says.

“I like their portfolio,” Eppinger says of Chaucer, whichunderwrites international global marine, energy, non-marine andaviation risks, as well as motor vehicle and nuclear business inthe United Kingdom.

“We have complimentary capabilities,” he adds. “I like thesituation. This gives us both more financial opportunities.”

For this reason, Eppinger says, he predicts there will beminimal integration challenges.

“There is not a lot of overlap,” he says. “There’s no risk ofsmashing two things together.”

The companies are expected to take advantage of newcross-selling chances. Hanover, which provides products toindividuals, homes, and business, gets access to Lloyd’s. Chaucercan access Hanover’s specialty segment through its independentagents and brokers in the U.S.

Chaucer CEO Robert Stuchbery plans to stay on board. So will thetalent Chaucer brings to the table, which was a big part of theacquisition value, adds Eppinger.

Eppinger says he is confident the purchase price will beaccepted by enough Chaucer shareholders. Chaucer’s board ofdirectors and some of its large shareholders have approved, but oneshareholder says the $510 million offer is inadequate.

“I’m very confident this is a fair deal,” for Hanover andChaucer investors, Eppinger says. “Historically in London, when youhave the support we have, it goes through. The email traffic hasbeen nice—so positive.”

The chief executive says “you almost have to expect” at leastone shareholder group to “agitate for a bigger price.” According toa quarterly report by Advisen, suits filed for breach offiduciary duty—normally filed after an M&A—drove an increase in first-quarter securitieslawsuits.

“It’s almost automatic,” says Eppinger, who clarifies thatHanover doesn’t need approval from 75 percent of Chaucershareholders, as has been reported, for the deal to go through. Itneeds 75 percent approval from the Chaucer shareholders thatvote.

Hanover says it plans to finance the purchase with cash, andabout $250 million of new senior debt.

The acquisition should be neutral to modestly beneficial toHanover’s earnings in 2011, and have a more meaningful impact onearnings and return on equity in 2012, according to Eppinger.