IPC Shareholders Shoot Down Max Capital Merger

IPC Holdings Ltd. shareholders have voted down the proposed Max Capital Group Ltd. merger, which now opens the door for rival Validus Holdings Ltd. to pursue its counteroffer.

"A significant majority" of shareholders voted down the Max proposal, which was essentially a referendum on the Validus proposal, Ed Noonan, Validus chairman and chief executive officer, said in an interview with BestWeek.

"I think the really exciting thing is now we have the chance to create an excellent position as major global player in short-tail reinsurance and insurance lines," Noonan said. He said a combined IPC/Validus would have about $1.7 billion in premium and shareholder equity of $3.7 billion.

With IPC shareholders voting down the Max proposal, Noonan said he'd expect the IPC board to reconsider the Validus offer. Plus, IPC shareholders can tender their share to Validus without waiting for IPC's board to sign the agreement, he said.

IPC had planned to marry Max Capital to form the sixth-largest global underwriter in Bermuda. The combined company would have been named Max Capital Group and will have $3 billion in shareholder equity and total assets of about $10 billion (BestWire, March 3, 2009).

However, IPC shareholders rejected the proposal at its shareholder meeting on the morning of June 12. Max Capital responded by terminating the agreement.

"“The board, employees and shareholders of Max were excited about the deal with IPC, and we are, of course, disappointed that IPC’s shareholders did not approve it," W. Marston (Marty) Becker, chairman and chief executive officer of Max Capital, said in a statement. Max shareholders had approved the proposed merger on June 12.

"We believed and continue to believe that the combination of Max and IPC would have created significant value for both companies’ shareholders. However, we also believe that maintaining our perspective and discipline as a participant in this process was in the best interest of our shareholders. Max is a strong, diversified underwriting company and will continue to focus on building the value of our global business for our shareholders,” Becker said.

Since IPC (NASDAQ: IPCR) and Max (NASDAQ: MXGL) first announced wedding plans in March, persistent Validus (NYSE: VR) has tried to woo IPC away. Validus made three counteroffers to purchase IPC, each offering IPC shareholders a sweeter deal. After Validus offered to pay IPC shareholders cash in addition to stock, Max Capital upped its offer to IPC to also include cash dividends.

Validus also filed a couple of lawsuits in Bermuda in an attempt to force IPC to hold a shareholder meeting to consider its proposal and to throw out a $50 million break-up penalty between IPC and Max. The court rules that while it theoretically had the power to order such a meeting, it would do not so because, in part, of the unprecedented nature of the Validus' hostile takeover attempt. Also, the court noted in its ruling that if IPC shareholders were interested in the Validus proposal, they could vote against the Max transaction.

For weeks now, the three companies have traded public barbs, with both Max and Validus insisting their dowry was better for IPC shareholders. The companies had used different approaches to measure IPC's book value per share, with both companies arguing their method is the correct way.

Throughout it all, the board of IPC had asked that shareholders still vote in favor of the Max merger plan.

Shares of Validus were trading at $22.67 a share in the late morning on June 12, down 4.19% from the previous close. Max Capital shares were trading at $17.05 a share, down 2.74%, and IPC shares were trading at $27.42, down 0.11%.

(By Meg Green, senior associate editor, BestWeek: [email protected])