Max Attacks Validus Bid Citing Diversification Issue

"By contrast, Max's track record of building a diversified platform without diluting shareholder value should lead to better long-term growth prospects and value creation following completion of the pending IPC-Max merger," he said.

Referring to its previous March 2 amalgamation agreement with IPC, Max said, "The boards of both companies have previously stated that the combination of Max with IPC would create a strong company with a balanced, diversified portfolio of risk across a mix of geographies and business lines with the opportunity to generate more stable and attractive returns on capital."

Mr. Becker said, "In today's unprecedented business environment and cycle, we believe that diversification, in terms of global presence and both short- and long-tail exposures, significantly reduces risk and provides a more solid platform for building sustained long-term value."

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

During a presentation describing the proposed deal, executives of Max and IPC highlighted the fact that their businesses are complementary with little overlap. They said the combined company would have 39 percent of its total $1.7 billion in gross premiums in short-tail property and property cat lines; 32 percent in long-tail p-c; 15 percent in life and annuity lines; and 14 percent in other short-tail lines.

Yesterday, when Validus offered its own deal–a stock-for-stock deal in which each IPC common share would be exchanged for 1.2037 Validus common shares–Validus CEO Edward Noonan highlighted the resulting concentration in property lines as a "superior" outcome given market conditions.

Capital-intensive short-tail lines are currently the segment of the business where price momentum is the strongest, he said, noting that the Validus-IPC combination offers diversification because Validus writes both property-catastrophe reinsurance and other short-tail non-cat business, including insurance through it's Lloyd's operation, Talbot.

While Validus executives also said the combination with IPC would result in stockholder equity of $3.8 billion, compared to $3.1 billion for Max and IPC combined, the Validus executives could not estimate to what extent the new entity would be overcapitalized if they merged. They stated, however, that their long-term strategy is to return excess capital.

In contrast, with the Max-IPC deal offering diversification into less capital-intensive lines, Mr. Becker during the early March conference put an estimate of excess capital in the $300-to-$400 million range.

"While in normal times we might be inclined to adjust this at closing, in the present economic environment we believe this anticipated overcapitalization will be a competitive strength," he added.

For its part, IPC responded to yesterday's offer from Validus with a brief press statement. "IPC continues to be bound by the terms of the amalgamation agreement [with Max Capital] and the parties have recently filed a joint proxy statement/prospectus with the Securities & Exchange Commission," the statement said.

"IPC's board of directors will review the terms of the proposal submitted by Validus in a manner consistent with its obligations under the Amalgamation Agreement and applicable Bermuda law."

"IPC will have no further comment on this matter until IPC's board of directors makes a determination regarding Validus' offer," the statement said.