The takeover battle between Aspen Insurance Holdings Ltd. and Endurance Specialty Holdings Ltd. escalated on Thursday, with Aspen’s board of directors announcing a shareholder rights plan—commonly known as a poison pill—to fend off a hostile bid from Endurance.
The plan, issuing one preferred share on each share of the company’s ordinary shares (issued and outstanding as of April 28, 2014), gives holders the right to acquire Aspen shares at a discount in the event that a person or group acquires 10 percent or more of the company.
The trigger is 15 percent when the acquirer is a passive institutional investor, Aspen explained in a press statement.
In a separate statement, Michael J. McGuire, chief financial officer of Endurance, reacted. “A poison pill is a well-documented defensive step typically taken by an entrenched board of directors. It’s interesting [that] Aspen’s board adopted a poison pill that divides their shareholders into different categories—good and bad, passive and active—a division that is currently the subject of litigation in an unrelated situation,” he said in the statement.
(McGuire’s comment on the unrelated situation seems to be a reference to a lawsuit in the Delaware Court of Chancery pitting activist investor Dan Loeb and his Third Point LLC against auction house Sotheby.)
On Monday, Endurance announced that repeated refusals by Aspen’s board and management to engage in discussions about a potential deal had prompted Endurance to advise Aspen shareholders of its $3.2 billion—$47.50 per share—bid directly. The proposed deal offers Aspen shareholders the right to receive the consideration all in cash, all in Endurance shares or in a cash-stock combination.
Endurance Chief Executive Officer John Charman committed to purchase $25 million worth of Endurance sales to demonstrate his belief in the benefits of the combination.
Later on Monday, Aspen’s board reacted with a letter rejecting Charman’s offer and spelling out its objections to what it said was an “ill-conceived proposal” that undervalued Aspen and represented a strategic and cultural mismatch with an underperforming competitor.
“The rights plan is designed to deter abusive tactics from being used in a proposed takeover, to ensure that shareholders receive fair and equal treatment in any proposed takeover of the company, and to provide that any transaction would appropriately reward our shareholders and be beneficial to our company,” Aspen said in Thursday’s statement.
Glossaries of investment and finance terms define shareholder rights plans—also known as poison pills—as defensive tactics used by takeover targets to ward off unwelcome suitors.
By allowing current shareholders to buy the company’s shares at a discount, a hostile attack can be thwarted because the current holders can buy more shares than the unwanted acquirer.
As a result, the bidder may be forced to first negotiate with the board so that the plan is revoked.
“At a time when the Aspen board should be seriously considering an opportunity to deliver significant value to its shareholders, it is instead focused on blocking them from receiving that value and on taking actions to entrench themselves,” McGuire said. “This is not a surprise given the lack of alignment and clear disdain Aspen’s board has shown for its shareholders in summarily rejecting our proposal without any discussion whatsoever,” he continued.
Aspen’s rights plan expires on April 16, 2015, and the board of directors may terminate the rights plan at any time if it no longer believes that the rights plan is in the best interests of the company and its shareholders, Thursday’s announcement from Aspen said.
McGuire said that Endurance remains fully committed to its offer to Aspen shareholders, which represented a 21 percent premium to the April 11 closing price and represents roughly a 7 percent premium today. “As if it weren’t clear before, Aspen shareholders now have further evidence of their board’s deliberate actions to prevent them from receiving attractive value for a strategically sound acquisition,” McGuire concluded.
Aspen said that a summary of the rights plan will be mailed to shareholders. Additional information regarding the rights plan will be contained in the Form 8-K to be filed by Aspen with the U.S. Securities and Exchange Commission.
Goldman, Sachs & Co. is acting as financial advisor and Wachtell, Lipton, Rosen & Katz and Willkie Farr & Gallagher LLP are acting as legal advisors to Aspen.