Aspen Insurance Holdings Ltd. (AHL - Free Report) turned down the offer to be acquired by Endurance Specialty Holdings Ltd. for $3.2 billion citing that it is not in favor of its shareholders.
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Endurance Specialty has been approaching Aspen Insurance since late Jan 2014 and this $3.2 billion offer is a new addition to that tally.
Endurance Specialty offered to buy each share of Aspen Insurance for $47.50, which was 11% more than the latter’s closing price of $39.37 on April 11, 2014. In this regard, Aspen Insurance’s shareholders can opt for cash, 0.8826 of an Endurance Specialty share, or a combination of both, for each share held.
Endurance Specialty has a sturdy financial position including strong cash balance and good cash flow from operations that would support the acquisition. The company also reported solid earnings results in the last reported quarter. The proposed acquisition would only enrich the numbers, going forward
Endurance Specialty believes the merging of the two companies would increase its profitability as well as reduce annual costs by more than $100 million, inducing an upward pressure on the company’s earnings per share. Moreover, Endurance Specialty believes the combined entity would derive over $5 billion of gross premiums annually.
However, Aspen Insurance believes the offer made has undervalued the company. Also, there exists strategic mismatch between the two companies which can cause significant execution risk. Aspen Insurance itself has a proven track record of performance and it has its own strategy to enhance shareholders’ value. Additionally, the company has been witnessing operational synergies of late which increase its competitiveness in the market.
Aspen does not consider Endurance a strategic fit for several reasons. According to Aspen, Endurance has an unprofitable insurance business and an unstable crop business. Moreover, Endurance’s open disregard of Llyod’s, the primary catalyst of Aspen’s international insurance business is a major reason inducing Aspen’s disinterest in the merger.
Aspen Insurance and Endurance Specialty are top-ranked stocks in the property and casualty insurance space, both sporting a Zacks Rank #1 (Strong Buy). Some other stocks worth mentioning in the same space include Alleghany Corp. (Y - Free Report) and AmTrust Financial Services, Inc. (AFSI - Free Report) . Both these stocks sport a similar Zacks Rank #1.