IPC Board Finally Takes Bid By Validus After Long Battle

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

Upon closing of the transaction, IPC said its shareholders will receive approximately $424 million cash in aggregate and will own approximately 38 percent of the combined company, while Validus's shareholders 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” for Bermuda-based Validus Reinsurance Ltd. “under review, with negative implications.”

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

In the wake of the Validus offer, stockholders rejected Max on June 12, and IPC said it would examine Validus along with other possible suitors. In addition to Validus, the company received an offer from Flagstone Re.

Holders of IPC common stock under the latest Validus proposal will receive $7.50 per share in cash and a fixed exchange ratio of 0.9727 Validus shares for each IPC share, according to the agreement.

IPC said the revised amalgamation agreement with Validus “provides greater certainty for IPC's shareholders with no termination rights related to catastrophe losses.”

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

Validus had gone to court in Bermuda pursuing several legal avenues to acquire IPC, including ways to take the company's offer directly to the shareholders if the IPC board continued to resist.

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

Ed Noonan, chair and chief executive officer of Validus, said that because of this deal, his firm “will have significantly greater size and scale to take advantage of attractive rate trends across our business lines and growing overall demand for reinsurance from capital-constrained businesses.”

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

A.M. Best said the “under review” status for Validus “reflects the uncertainties associated with this transaction, including the execution risk in completing the deal as well as integrating both companies.”

The rating firm cited the heightened risk profile of the combined entity “due to the significant property-catastrophe business written by Validus Holdings and IPC.” Timing the transaction during the Atlantic windstorm season added to these concerns, according to A.M. Best.

Completion of the transaction is contingent upon customary closing conditions, including the approvals of shareholders of both companies, IPC and Validus said. The transaction is expected to close in the third quarter of 2009.

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