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The premium of the transaction that Endurance is pursuing in its bid for Aspen has come under increasing pressure since it was announced, while Endurance and Aspen shareholders face a potential dilution of value if the deal goes ahead.
That is according to a recent analysis of the deal carried out by Seeking Alpha, which states that the value of the transaction has diminished and that Endurance - and to a lesser extent Aspen - shareholders would stand to lose value in a new combined entity.
Seeking Alpha believes that as it stands the transaction will in fact prove dilutive to Endurance shareholders, calculating that the diluted book value per share of the combined entity would be $49.93, a 13.2 percent reduction on Endurance’s current diluted book value per share of $57.53.
The analysis states that Endurance’s willingness to pursue the deal regardless of the threat posed by dilution suggests a drive to achieve diversification, a miscalculation regarding the implications of a dilution of share value, or a belief that the combined entity will be able to drive strong value.
On current ROE estimates however, the report states that should the transaction go through, it would take 16 years for Endurance shareholders to claw back the diluted share value.
The part cash, part stock offer has already come down from the figure initially offered and should further downward pressure be exerted on Endurance’s share price, it would further exacerbate the situation.
Aspen shareholders who would acquire stock in Endurance as part of the deal would also be potential losers, according to the report. Aspen shareholders could expect to see their ROE diminish in a new combined entity it says, arguing that deal and integration risk could well lead to worsening returns.
Seeking Alpha argues that the transaction will entail a complex transaction without clear synergies. It also says that the final price is unclear and may not meet initial expectations.
The report criticised the motives behind Endurance’s pursuit of Aspen, which it characterised as a failed merger turned hostile acquisition.
Endurance, Aspen, M&A