Tower Group International’s board of directors unanimously rejected a surprise acquisition bid submitted earlier this week from an Eastern European Insurer, choosing instead to focus on an ongoing M&A agreement with ACP Re.
Euroins Insurance Group (EIG), which does business in countries including Romania, Bulgaria and Macedonia, had submitted a $3.75-per-share non-binding offer to buy Tower Group, a deal that it said would recapitalize the troubled insurer “to industry norms” and could close within a matter of weeks.
Tower Group’s board of directors wasn’t impressed, noting in a May 15 statement that that the EIG offer “does not constitute and could not reasonably be expected to lead to a superior proposal” as defined in its January 3, 2014 merger agreement with ACP Re.
“Tower’s board of directors believes that the transaction proposed by EIG is inferior to the transaction contemplated by the merger agreement with ACP Re, Tower Group added.
Tower group explained the EIG offer is “less certain, is risker for Tower and its shareholders, and would take longer to complete as compared to the transaction contemplated by the merger agreement with ACP Re.”
Tower’s merger agreement with ACP Re may not necessarily be a sure thing. It was initially worth $172 million when announced in January, but both parties recently amended the as-yet-unconsummated deal. Among the changes: a per-share consideration of $2.50 per share for holders of Tower’s common shares, down from $3 per share. Tower also will pay a reduced fee, should the M&A deal fall apart.
The drama at Tower has only accelerated. Tower recently announced that it fired PreicewaterhouseCoopers as its accounting firm, six months after disclosing it would restate previously filed financial statements for 2011 and 2012 due to “inadvertent mistakes.” BDO is Tower’s new public accounting firm as of the 2014 first quarter.
Late last year, Tower also disclosed worries “about the company’s ability to continue as a going concern.
Earlier in May, A.M. Best downgraded Tower’s financial strength ratings for the third time in recent months, in part because of concerns about its financial liquidity and the risk that it is overextended financially. On May 13, Fitch Ratings slashed the insurer financial strength ratings of Tower’s operating subsidiaries to ‘CCC’ from ‘B,” and subsequently withdrew all the ratings including the ‘CC’ issuer default rating of the parent, due to insufficient information.