Flagstone Outbids for IPC

On July 1, Wednesday, Flagstone Reinsurance Holdings Limited (FSR - Snapshot Report) offered to buy IPC Holdings Ltd. (IPCR), which Flagstone said is superior to the Validus (VR - Snapshot Report) offer.

Flagstone has offered 2.638 of its common shares for each IPC common share plus $5.50 per share in cash, valuing IPCR at $33.62 per share. This results in a premium of 21.1% over IPCR’s Wednesday closing price of $27.77.

The Validus bid was 1.1234 of its shares plus $3.75 in cash, valuing IPCR at $28.86 a share. Following the announcement by Flagstone, Validus has "reaffirmed" its offer today.

Last week, IPCR’s Board had opposed the Validus offer, stating that it is at a discount to its book value. However, Validus refused to budge in economic terms, considering the offer to be "full and fair." IPCR had been negotiating with Validus while testing waters with other parties for the best deal.

The amalgamation agreement of IPCR with Max Capital Group Ltd (MXGL) was terminated on June 12, following the disapproval of the proposal by IPCR’s shareholder at its general meeting, though Max's stockholders had voted in favor of the amalgamation.

Merger and acquisition activity in the reinsurance sector has picked up in the second quarter, as companies with stronger balance sheets are considering expanding their platforms in markets which they found difficult to access previously.

We note that IPCR has built a track record of strong underwriting results while maintaining a strong balance sheet and ROE. The company is also poised to benefit from rates increases in 2009. Though there are a number of risks and uncertainties regarding IPCR now, we expect the amalgamation to benefit the shareholders of IPCR as a result of enhanced scale and size, coupled with an increased capital base. As such, we are reiterating our Hold recommendation on the shares of IPCR.

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