NU Online News Service, June 3, 3:11 p.m. EDT
Max Capital Group Ltd. has highlighted two reports from proxy advisory firms as further ammunition in its bid to acquire IPC Holdings, Ltd., while a third report highlights the benefits of a rival offer from Validus Holdings.
Validus has attempted a hostile takeover of IPC, and continues to pursue ways to close the deal over the objections of IPC's board, which favors the Max proposal.
Max said a PROXY Governance Inc. report states, "To the extent that Validus does not offer as meaningful a business diversification [relative to Max, IPC] shareholders should expect little value growth from either the market's reassessment of the business model or from the opportunity to redeploy the $300-to-$400 million in monoline-related risk-based capital currently required under the ratings agencies models….We believe shareholders will be better served by supporting the proposed transaction with Max Capital."
A Glass, Lewis & Co. report states, "We believe the proposed merger between IPC and Max offers compelling strategic benefits for [IPC] and its shareholders….The combination with Max is expected to diversify the company's operations and earnings base, thereby reducing risk and earnings volatility….We believe shareholders should support the proposed transaction with Max."
However, a third report by RiskMetrics Group's ISS Governance Services states, "Though historically diversified reinsurers, including Max, have traded at a premium, short-tail centric insurers, including Validus, currently trade at a premium…"
ISS said that "given Validus and short-tail centric peers' multiple premium, IPC shareholders would immediately benefit from an IPC/Validus transaction."
"The Validus offer is a 14.4 percent premium to IPC's share price as of June 1, 2009, and a 17.6 percent premium to IPC's unaffected share price on February 27, 2009, the day prior to the Max announcement," said ISS.
"Given that IPC's share price did not trade up upon the Max transaction announcement and continues to trade at a multiple discount to its peer group, the downside risk of voting against the proposed Max merger seems limited, even if an alternative Validus transaction is not consummated," the firm said.
"In conclusion, while recognizing that diversified reinsurers have generated greater risk-adjusted ROE, and have historically traded at a valuation premium, IPC shareholders have to base their decision on the current outlook for diversified reinsurers including Max.
"Furthermore, unlike in other noncontested M&A transactions, in this case, IPC shareholders have been presented with what appears to be a viable alternative to the Max deal. Moreover, if shareholders vote down the Max transaction, perhaps it will be restructured to provide additional value to IPC shareholders."
W. Marston Becker, chairman and chief executive officer of Max, contested the ISS report, stating, "ISS places no value on diversification and appears to favor an illusory market premium for a deal that may never happen over the creation of a platform that will create significantly more value for shareholders over time through more stable and consistent performance."
IPC shareholders are scheduled to vote on the merger with Max at a June 12 company meeting.
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