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Aspen Insurance remains independent after Endurance's hostile takeover bid fails

Endurance pulls $3.2B offer for Bermuda rival


Endurance Specialty Holdings Ltd.'s abandonment of its $3.2 billion hostile takeover bid for fellow Bermudian insurer and reinsurer Aspen Insurance Holdings Ltd. recognized Aspen shareholders' tepid response to proposals meant to seal the deal.

After more than three months of wrangling and harsh words, Endurance last week terminated its proposal to buy Aspen in a cash-and-stock deal.

And an immediate replacement bid by another suitor seems unlikely.

Aside from chastising Aspen for “defensive self-preservation tactics rather than value creation,” Endurance Chairman and CEO John Charman said in a statement that Endurance's management and board “recognize the importance of being responsible custodians of our own shareholders' capital.”

In response to Endurance dropping its takeover attempt, Aspen CEO Chris O'Kane said in a statement that the insurer is “intensely focused on the continued successful execution of our strategic plan, building value for our shareholders and serving our customers.”

Endurance giving up on its takeover was “not a complete surprise,” said Mark Goodman, Chicago-based partner at law firm Freeborn & Peters L.L.P.

“We all have to know when to fold them,” Mr. Goodman said. “I give Endurance management credit; this is probably the better part of valor to accept defeat and move on rather than eating up management time and attention to pursue what looks to be an unobtainable goal.”

In a note sent after the termination, New York-based Amit Kumar, vice president and senior analyst of insurance for Macquarie Capital (USA) Inc., said the termination of Endurance's bid for Aspen was “widely anticipated.”

Endurance approached Aspen privately in mid-February and then bid publicly in mid-April after Aspen rejected negotiations.

Endurance maintained its $3.2 billion bid but increased the cash component on June 2 and appealed to shareholders to increase the size of Aspen's board and adopt Endurance's scheme of arrangement. However, at least three-quarters of Aspen's shareholders rejected the proposals.

The rejections drained life from Endurance's bid, observers say.

“They were hoping to generate some sort of support from shareholders that (Endurance) could at least point to to try to advance their cause,” support that did not materialize, said Brian Schneider, Chicago-based senior director of insurance at Fitch Ratings Inc.

“Endurance's goal was to gain enough momentum with regard to shareholder support to induce Aspen's management to actually start negotiating with them,” said Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. in Baltimore.

There have been few successful hostile takeovers in the insurance sector, especially among Bermuda reinsurers, Mr. Schneider said.

“I think the industry has been somewhat reluctant to do hostile deals. We haven't really seen that many recently that have been successful,” he said.

“We don't see a lot of hostile takeovers in the insurance industry,” Mr. Goodman said. “We haven't seen many since the 1980s,” when financing was inexpensive and companies were seen as undervalued.

Financing also is inexpensive now, but “I don't really think you can say that companies are seen as undervalued,” he said, adding that he does not expect other bidders for Aspen. If there was such another interested party, Aspen management would have found them, said Mr. Goodman.

“I don't see anybody else,” said Mr. Schneider of Fitch.

In a note, Mr. Kumar said Macquarie met with Endurance on July 11, and “management noted that if the deal did not materialize, they did not "need' to acquire another company and currently have no plan B in place. Management also noted that they are not serial acquirers.'”

“All of us have been talking about consolidation since 2007 and 2008,” Mr. Kumar said in an interview. “I think the reality is one has to step back and ask themselves about the social issues. I think a lot of people are approaching this as a mathematical exercise rather than stopping and asking themselves: "Do the cultures match? Are there really any expense benefits?”

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