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LONDON -- U.K. companies can now insure the risk of financial losses from failed takeover bids or merger negotiations.
A new product, Aborted Bid Costs Insurance, was developed by underwriters at Lloyd's of London and TOI Corporate Services Ltd., a Guildford, England-based underwriting manager specializing in creating commercial insurance products. The coverage is being offered through Lloyd's broker Prentis Donegan & Partners.
ABC Insurance will reimburse a private or public company for the direct costs associated with an agreed bid, merger, acquisition, management buyout or related transaction that is aborted for identifiable reasons outside the control of the policyholder.
Events giving rise to such claims could include regulatory intervention, a counterbid, or withdrawal by the other party to the transaction.
Coverage is available for up to 1% of the value of a transaction for a premium of about 3% of the sum insured.
ABC Insurance initially is available only to U.K. companies, though TOI Managing Director Sandra Ringsell said lawyers are currently working on gaining approval for a policy to cover U.S. companies. The coverage should be available in the United States by September, she estimated.
Ms. Ringsell said independent studies indicate that about one in eight corporate mergers or takeover transactions ends in failure.
There have been a number of recent examples in the United Kingdom of failed deals, including aborted combinations of Ernst & Young and KPMG Peat Marwick, Glaxo Wellcome P.L.C. and SmithKline Beecham P.L.C. and Royal Bank of Scotland Group P.L.C. and Birmingham Midshires.
Adrian Blackshaw, a director of TOI, said the costs of aborted mergers or acquisitions can be considerable, involving a great deal of management time and expense. They can include fees paid to financial advisers, lawyers, stockbrokers, public relations advisers, accountants and management consultants.
Mr. Blackshaw forecasts that ABC Insurance will become as commonplace as professional liability and product liability insurance.
TOI Corporate Services already offers Hostile Takeover Insurance, which covers a policyholder for the costs associated with defending against an unwanted takeover bid.