The board of directors of IPC Holdings Ltd. said last week that it would stay on track with its decision to merge with Max Capital Group Ltd., spurning an offer from Validus Holdings Ltd. and seemingly ending a heated contest between the two suitors.
A day after IPC's announcement, however, Validus shot back a letter to IPC's board, stating that it would pursue a proxy fight, taking its proposal directly to shareholders.
On April 7, IPC, a Bermuda-based property-catastrophe reinsurer, said its board had voted unanimously to reaffirm its recommendation that IPC shareholders vote to approve the definitive amalgamation (the name for a stock for stock acquisition transaction under Bermuda law) between IPC and Max.
"The IPC board continues to believe that the combination with Max will create a stronger and more diversified underwriting franchise with less correlated risk," Kenneth L. Hammond, IPC's chairman of the board, said in a statement.
Both Max and Validus say they offer diversification benefits for IPC. A combination with Max would bring liability business into the mix, while Validus brings short-tailed business other than property-catastrophe reinsurance, such as non-cat fire, marine and terrorism, including insurance business from its Lloyd's operation, Talbot.
Mr. Hammond added, "Our newly combined entity will have the scale and flexibility to better manage capital and take advantage of attractive opportunities in the property-casualty marketplace, as and when they arise.
"In addition, our transaction with Max has more certainty and a clearer path to close, and we expect it to close more quickly than any Validus transaction," he added.
Besides the Max merger giving it more diversification and creating more value for IPC's shareholders, IPC said a deal with Validus is "less certain" and riskier for shareholders, taking longer to close.
The company said it would need to go through a due diligence process with Validus, if shareholders first reject the Max deal, and such a deal would not close until the middle of the hurricane season. Merging with Max would be completed at the start of the season and has already received regulatory approvals.
Max and Validus, both Bermuda-based companies, have been engaged in a battle over acquiring IPC since the end of March, when Validus made an unsolicited bid to acquire IPC. Max and IPC had entered into a merger agreement at the beginning of the month.
Earlier last week Validus claimed that Max had miscalculated the value of the offer to IPC–a claim Max summarily rejected.
Responding to the IPC board announcement, Validus issued a statement in which Ed Noonan, Validus' chairman and chief executive officer, said, "We are extremely disappointed that IPC's board of directors has rejected our proposal in favor of an obviously inferior alternative.
"While we would have preferred to work cooperatively with IPC, we remain fully committed to our proposal and expect to use all available means to complete our transaction," he continued. "We encourage IPC shareholders to express their support for our proposal."
In a letter to Mr. Hammond, Mr. Noonan said that Validus has retained a proxy solicitor that will soon file materials advising shareholders to vote against the Max deal.
"To the extent that Max will release you from the restrictive terms of the Amalgamation Agreement, we continue to stand ready to discuss your objectives and how our business meets those objectives. Until you agree to discuss our proposal with us, we have no choice except to communicate directly with your shareholders," the letter said.
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