Aspen explains rejection of revised Endurance proposal
Aspen has announced that its directors unanimously rejected a revised unsolicited proposal from Endurance to acquire the company for a combination of Endurance common stock and cash.
The directors rejected a proposal made privately by Endurance in May on substantially the same terms as are contained within this more recent proposal.
Glyn Jones, chairman of the board of directors, has released a statement addressing the fundamental flaws which Endurance has failed to acknowledge in its revision.
“Endurance’s revised proposal represents a backwards step in their efforts to pursue what has always been an ill-conceived transaction. Given Aspen’s strong 4.4 percent book value growth in the first quarter, Endurance’s new proposal represents an even lower multiple of book value per share than its initial proposal, and the stock portion of the proposal lags even further behind given the decline in Endurance’s stock price since its initial proposal.”
“In addition to grossly undervaluing Aspen, the proposal represents a strategic mismatch and, based on our conversations with major clients and brokers, would result in significantly greater dis-synergies than Endurance claims. Moreover, the revised proposal does nothing to address additional serious concerns we raised with respect to Endurance’s prior proposal, including a stock consideration that is highly unappealing and financing terms that remain unclear and lack certainty.”
“We are confident that Aspen can achieve more value for its shareholders – and without the risks that are inherent in a merger with Endurance – by continuing to execute its standalone plan. As demonstrated by our strong first quarter results, we are delivering on that plan.”
Jones says that rather than offering a transaction that provides Aspen’s shareholders with superior value, Endurance is offering coercive legal tactics in a desperate attempt to continue to advance an unattractive proposal that neither its board nor shareholders support. “Endurance’s potential plan to seek a court petition for an involuntary scheme has never been used successfully in Bermuda to attempt to affect a hostile acquisition.” claims Jones.
In its most recent consideration of this issue, the Bermuda Supreme Court described this stratagem as an ‘unprecedented course to embark upon a hostile bid by way of a scheme in the teeth of the board’s opposition.’
Jones continues, “As illustrated by these desperate and unusual legal tactics of Endurance, Aspen continues to believe that Endurance simply has no clear or compelling path to force its unattractive proposal on our board and our shareholders. We intend to defend vigorously against these latest coercive tactics by Endurance.”
Aspen noted that the problems the company identified with respect to Endurance’s prior proposal remain unaddressed in Endurance’s revised proposal. Aspen believes that, among other things:
• Endurance stock as consideration is unappealing and its business mix is unattractive, with an overreliance on the volatile and challenged crop insurance business and an ongoing dependency on reserve releases to fuel earnings.
• The availability and terms of the cash consideration remains highly uncertain. Endurance disclosed that CVC is no longer standing by its commitment to provide financing for the proposal. Endurance is now relying on an affiliate of its financial advisor to provide a short-term loan, and has granted equity options to CVC on undisclosed terms, highlighting its lack of commitment to long-term financing for a transaction, the details of which could have a significant negative effect on shareholder value.
• Aspen would expect significant dis-synergies from a combination. Given the overlap between the two companies, Aspen believes a combination would result in significant loss of existing attractive business. As a result of the cultural mismatch between Endurance’s top-down management style and Aspen’s collegial, teamwork-oriented culture, Aspen sees that the possibility of losing key personnel, including some of its underwriters, is a serious and real risk.
Aspen also notes that over 60 percent of shareholders who voted at Endurance’s May 21st annual meeting rejected Endurance’s existing compensation arrangement for top executives, including the compensation package and terms of chairman and CEO John Charman.
Aspen says that this is a major and highly unusual rejection of a “Say-on-Pay” referendum by shareholders, and raises serious concerns about Endurance’s ability to win approval for the transaction from its own shareholders, which would be required to complete a transaction.
It also raises questions about the behaviour of Endurance’s management team and board, which enacted the compensation plan either oblivious to or not caring about, the concerns of its own.