Characterizing details of an announcement by the board of Aspen Insurance Holdings rejecting another cash-stock offer from Endurance as “combative,” Endurance offered its own view of what it termed “misleading assertions” from the target company.
“The announcement made by Aspen today in response to our transaction proposal and exchange offer is simply more of the same—a self-interested cadre of Aspen insiders taking every action in their power to deny their own shareholders, the true owners of the company, the opportunity to realize the compelling value we have proposed,” said Endurance’s Chair and Chief Executive Officer John Charman, in a statement Tuesday, released hours after Aspen’s board rejected what Endurance contends is a sweetened cash-stock offer from and attacked the bidder’s tactics to engage Aspen shareholders directly.
“We urge Aspen shareholders to speak forcefully by supporting our two shareholder proposals—calling for a special general meeting to increase the size of the Aspen board, which will lead to a majority of Aspen’s directors standing for election at its 2015 annual general meeting, and endorsing the pursuit of a court-sanctioned scheme of arrangement,” he said.
Earlier on Tuesday, Aspen’s Chair Glyn Jones had called these schemes “desperate attempts to force through an inadequate offer,” urging shareholders not to support the proposals first revealed by Endurance on June 2.
On June 9, Endurance announced it had commenced its exchange offer for all of Aspen’s outstanding shares. Under the offer, each person or investment firm holding Aspen common shares would have the right to receive all cash at $49.50 per share; all Endurance common shares; or a combination of cash and Endurance common shares.
The $49.50 per share price was $2 higher than Endurance’s initial offer in April.
On Tuesday morning, Aspen’s board said it considered the offer carefully, concluding, among other things, that Endurance’s offers are becoming less attractive.
“Endurance touts a ‘headline price’ that simply does not exist,” Aspen said, referring to the stock component of Endurance’s is exchange offer. That component “is currently—and has since announcement of its offer on April 14—been worth less than that headline price” of $49.50, which Endurance has been touting, Aspen’s board said.
Aspen’s math as of June 13, based on the proposed exchange ratio (0.9197 shares of Endurance common stock per Aspen share) and Endurance’s stock representing 60 percent of the deal consideration, results in a value of only $47.48 per Aspen share, the company said.
In addition, Endurance’s common stock is “unattractive currency,” Aspen said in its statement, suggesting that Endurance’s financial results are too dependent on underperforming crop business and on loss reserve releases.
Endurance uses words like “myopic” and “distorted” to counter the underwriting return metrics (calendar-year loss ratios excluding catastrophe losses and reserve changes) used by Aspen to convince its stakeholders that there’s greater value in a standalone strategy while defending its own track record.
“Endurance has taken a prudent approach with respect to its reserving. The majority of Endurance’s reserve releases have come from its short tail lines and 74 percent of Endurance’s casualty and professional lines reserves are IBNR.
“Endurance has been a leader in the industry in transparency with respect to the publication of its global loss reserve triangles, while Aspen has lagged in its own public reserve disclosure,” Endurance said in its response.
Aspen’s take on the crop business is “misguided,” also, Endurance contends, noting that since acquiring the agriculture insurance business in late 2007, it has generated $80 million of profit, highly attractive returns on equity and steady policy count growth.
Indeed, Charman highlighted Endurance’s crop insurance expertise as a differentiator that keeps the company relevant in the reinsurance arena during the Standard & Poor’s Insurance conference last month. His argument centered on the intellectual capital and technology of the crop segment. “The chairman of my crop business is going to Paris next week talking to two French companies exchanging intellectual capital. That allows us to have a much broader relationship with those companies,” he said.
Endurance also criticized Aspen’s failure to include catastrophe losses and expenses in metrics it used to compare the relative performance of the two companies.
The first omission “obscures the key underwriting of catastrophe exposures, an area where Endurance is recognized as an industry leader.”
The second “conveniently disregards Endurance’s greater efficiency as manifested in its lower expense ratio than Aspen over the past five years.”
The Endurance announcement also calls into question an “inadequacy opinion” that Aspen said it received from Goldman Sachs on Endurance’s exchange offer.
“The documents are conspicuously devoid of any substantive disclosure of the financial rationale or metrics used by Aspen’s financial advisor to reach that position, which we firmly believe is unsupportable.”
Endurance’s answer also covers familiar ground about deal synergies that the company has set forth in earlier announcements.
As to its proposals to move the deal forward by adding board members or initiating a court- ordered shareholder meeting, Endurance says: “Requesting Aspen shareholders to exercise their long recognized right to vote on matters of great significance to the company is neither a ‘coercive’ nor ‘desperate’ action,'” countering the characterizations of Aspen’s board.
“Aspen’s criticisms of Endurance’s actions are just more hollow rhetoric designed to misdirect Aspen shareholders from the efforts of Aspen’s board to disenfranchise its shareholders,” Endurance said.