29 July 2014News

Where now for Endurance?

The recent shareholder vote against both of Endurance’s proposals is the latest blow for Endurance CEO, John Charman as he attempts to wrestle control of Aspen from its board and management, but will this be the end of the matter?

While a significant majority of Aspen shareholders voted against Endurance’s two proposals—the first to call a special meeting at which shareholders would vote on a proposal to increase the size of Aspen’s board to 19 directors and the second to support Endurance petitioning the Supreme Court of Bermuda for an involuntary scheme of arrangement—consensus may change with time, especially if Endurance puts forward an improved offer.

Statements from proxy advisors ISS, Egan-Jones and Glass Lewis suggesting Endurance’s proposals would not deliver value for Aspen shareholders were compelling and might have served to swing the recent vote, but it remains to be seen whether they will derail Charman’s ambitions.

Endurance came out strongly against the proxy advisors statements, with Charman saying that he was “disappointed” at the views expressed.

Endurance added that the proxy advisory firms had not taken a position on its tender offer; rather they had spoken out against Endurance’s attempts to expand the board and use a scheme of arrangement to force through the transaction.

Such statements suggest that there is belief in the value of the transaction at Endurance, but what steps will Endurance take now?

The first possibility is that Endurance will withdraw its offer. On recent form and with Charman at the helm, this option appears unlikely.

Endurance has already shown itself willing to increase its offer and tactics such as its direct approach to Aspen shareholders in order to force a decision, suggest a renewed offer is possible.

An initial step may be to extend the deadline for a decision on its two proposals—to enlarge the board and to institute a scheme of arrangement to force Aspen to the negotiating table—allowing new shareholders the opportunity to vote on the suggestions.

Shareholder turn-over at Aspen has however been limited and such a tactic would likely only be used to buy time while Endurance looks to raise capital for a renewed assault.

That appears the most likely scenario as there has been considerable time, expense and buy-in in the months since the transaction was initiated and few would count against Charman continuing his pursuit.

The question then becomes how much will Endurance have to increase its offer to push through its proposal and how easily will Charman and Endurance be able to raise the funds?

An increase in its current offer of $49.50 per share would likely tip the scales in Endurance’s favour, but it would need to be by a meaningful amount and by acquiring at a premium in a soft cycle, Endurance would be paying to gain more exposure to a tough market.

This suggests tough decisions ahead for Endurance, which will be loath to break off its pursuit, but will need to source capital in the teeth of proxy advisor and shareholder opposition to its initial and revised offers.