Aspen Board Rejects Endurance Offer Again
Aspen Insurance Holdings Limited said today that the company’s Board of Directors, after careful consideration and discussions with its financial and legal advisors, unanimously agreed to reject the unsolicited exchange offer from Endurance Specialty Holdings Ltd to acquire all of the outstanding shares of Aspen for a combination of common stock and cash.
A spokesperson said, “The Board determined the offer is not in the best interests of Aspen or its shareholders and recommends that Aspen shareholders reject the offer and not tender their shares to Endurance. The Board noted that the value offered by Endurance is unchanged from the unsolicited proposal Endurance made on June 2, 2014, which Aspen’s Board thoroughly considered and rejected.
A spokesperson said “Aspen today issued an investor presentation detailing the company’s strong standalone growth strategy, clear path for continued improvement in return on equity, and the inadequacy of Endurance’s offer. The presentation is available on the investor relations page of Aspen’s website.”
Glyn Jones, Chairman of the Board of Directors, said, “The Aspen Board of Directors is unanimous in its belief that the Endurance offer significantly undervalues Aspen and fails to reflect the value of our business and strong future prospects. We are highly confident that Aspen can achieve more value for its shareholders – and without the significant risks that are inherent in a merger with Endurance – by continuing to execute its strategic business plan.”
Mr. Jones added, “Beyond the offer’s significant undervaluation of our company, we believe that there is a fundamental strategic mismatch between Aspen and Endurance and that a combination would create significant dis-synergies. Additionally, the 60 percent stock component of Endurance’s offer is highly unappealing given Endurance’s unattractive business mix, with an over-reliance on the volatile, low-margin and challenged crop insurance business and a dependency on reserve releases to fuel earnings.
“We urge shareholders not to tender their shares into Endurance’s offer.”
“The reasons for the Board’s recommendation are set forth in a Schedule 14D-9, which is being filed with the
Securities and Exchange Commission and disseminated to shareholders. Among the specific
reasons cited in Aspen’s Schedule 14D-9 are the following:
“1. Aspen’s diluted book value per share at March 31, 2014 was $42.72, up 4.4 percent from December 31, 2013. Endurance’s “revised” offer is a step backwards, representing a lower premium over diluted book value per share than its initial offer. Moreover, Endurance touts a “headline price” that simply does not exist.
“Endurance has been publicly stating that it is offering “$49.50” per share, but the stock component of the offer consideration is currently – and has since announcement of its offer on April 14 been – worth less than that headline price. Based on the proposed exchange ratio, as of June 13, 2014, the last practicable trading date before filing, the Endurance Common Stock offered at an exchange ratio of 0.9197 shares of Endurance Common Stock per Aspen share, and which constitutes 60 percent of the total consideration offered for Aspen, had a value of only $47.48 per Aspen share.
“2. Endurance’s offer significantly undervalues Aspen, and Aspen is confident that its strategic plan will deliver value to Aspen shareholders that is superior to the Offer. Aspen is successfully executing on its plan. In the first quarter of 2014, its annualized operating return on average equity was 14.8 percet. This was the highest quarterly ROE since Aspen began significant investments in the business.
“As a result, as Aspen stated on its earnings call on April 23, 2014, it believes that the Company is well positioned to achieve its 10 percent operating ROE objective in 2014, and would expect operating ROE in 2015 to increase over 2014 on the order of 100 basis points.1 Beyond 2015, it would expect to obtain additional continued benefits to its ROE from increasing operating leverage.
“Aspen has built a business that is poised to deliver growth across its diversified platform, with strength in its U.S. insurance business, a valuable Lloyd’s franchise and an industry-leading reinsurance business.
“3. Endurance has historically underperformed, and there are a number of reasons why Aspen does not believe Endurance’s claims about its prospects and believes that Endurance’s stock is not an attractive currency, particularly in comparison to Aspen’s shares, including:
- Endurance is over-reliant on crop insurance, a business which is troubled, low-margin, recently volatile
and exposed to major risks. - Endurance’s results are heavily dependent upon reserve releases.
- Endurance’s dependence on reserve releases also indicates a subpar underwriting performance. The insurance business underwriting performance has been especially lackluster compared to Aspen’s. Endurance’s insurance calendar-year loss ratios ex-reserve development and catastrophe losses were 30 points higher than Aspen’s in 2012, and 20 points higher in 2013.
“4. There are a number of important reasons why the combination of Aspen and Endurance is not a financially attractive alternative for Aspen shareholders. In particular, Aspen believes Endurance’s estimate for dissynergies dramatically understates the real-world impact of combining Aspen’s and Endurance’s businesses, and that the loss of business resulting from dis-synergies would cause significant financial harm to its shareholders.
“Aspen’s dissynergies estimates are consistent with feedback received from clients, brokers and employees, and the company expects that the business lost would be among the most valued and would not be easily replaced.
“5. The terms and availability of Endurance’s financing remain unclear and continue to lack certainty. Endurance’s $1 billion bridge loan facility is temporary, maturing in less than one year, and the intended “take-out” financing is not committed. It appears that Endurance intends to replace the bridge loan by issuing a substantial amount of common equity, at an uncertain price expected to be at a discount to market.
“6. The proposal to increase the size of Aspen’s board to 19 would create an unwieldy and untenable corporate governance structure and Endurance’s scheme of arrangement would be an unprecedented usurping of an independent board’s judgment in its attempt to acquire Aspen at a price that significantly undervalues Aspen.
“7. Endurance’s completion of the offer is subject to a litany of conditions that run for six pages of Endurance’s offer filing, creating major uncertainty as to whether the Offer could be completed and, if completed, when and at what price.
“8. Goldman Sachs rendered its oral opinion to the Aspen board, subsequently confirmed in writing, that as of June 13, 2014 and based upon and subject to the factors and assumptions set forth in the written opinion, the consideration proposed to be paid to the holders [other than Endurance or its affiliates] of Aspen shares pursuant to the Offer was inadequate from a financial point of view to such holders.
“The full text of the written opinion of Goldman Sachs, dated June 13, 2014, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is attached to Aspen’s Schedule 14D-9 filing. Goldman Sachs provided its opinions for the information and assistance of the Aspen board in connection with its consideration of the Offer.
“The opinion of Goldman Sachs is not a recommendation as to whether or not any holder of Aspen shares should tender such shares in connection with the offer or any other matter.
“Aspen also announced today that it has filed a preliminary revocation solicitation statement with the SEC in connection with Endurance’s plan to seek support from Aspen shareholders to requisition the Aspen board to convene a special meeting of shareholders, at which meeting Aspen shareholders would vote on a proposal to increase the size of Aspen’s board, and support Endurance petitioning the Supreme Court of Bermuda to request that the Court order a shareholder meeting, at which Aspen shareholders would vote on a proposal to approve a scheme of arrangement.
Commenting on Endurance’s coercive tactics, Mr. Jones said, “Both Endurance proposals are part and parcel of its desperate attempts to force through an inadequate offer for Aspen. We strongly urge shareholders not to support Endurance’s pursuit of an involuntary scheme of arrangement. If it proceeds, this convoluted legal maneuver could result in a ‘take-it or leave-it’ shareholder vote on a transaction under the terms currently proposed by Endurance.
“In addition, Endurance’s attempt to expand the Board, if successful, would result in an unwieldy and highly anomalous 19-member board ill-suited to protect the interests of Aspen shareholders. Our Board strongly believes that the continued execution of our strategic plan will generate significantly greater long-term value than Endurance’s offer.”
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