DEFM14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Filed by the
Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
o Preliminary
Proxy Statement
o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
þ Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to § 240.14a-12
VALIDUS HOLDINGS, LTD.
(Name of Registrant as Specified in
Its Charter)
Payment of Filing Fee (Check the appropriate box):
o No
fee required.
|
|
o |
Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
|
|
|
|
|
(1)
|
Title of each class of securities to which transaction applies:
|
|
|
|
|
(2)
|
Aggregate number of securities to which transaction applies:
|
|
|
|
|
(3)
|
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(Set forth the amount on which the filing fee is calculated
and state how it was determined):
|
|
|
|
|
(4)
|
Proposed maximum aggregate value of transaction:
|
|
|
þ
|
Fee paid previously with preliminary materials.
|
|
o
|
Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its
filing.
|
|
|
|
|
(1)
|
Amount previously paid:
|
|
|
|
|
(2)
|
Form, schedule or registration statement no.:
|
19 Par-La-Ville
Road
Hamilton HM11
Bermuda
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 25, 2009
May 26,
2009
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Validus Holdings, Ltd. will be held at 19 Par-La-Ville
Road, Hamilton HM11, Bermuda, on June 25, 2009, at
10:00 a.m., Atlantic Time, for the following purposes:
|
|
|
|
|
to approve the issuance of Validus voting common shares, par
value $0.175 per share, in connection with the acquisition of
all of the outstanding common shares, par value $0.01 per share,
of IPC Holdings, Ltd. pursuant to the Validus Amalgamation
Agreement (as defined in the proxy statement on the following
pages), the Scheme of Arrangement (as defined in the proxy
statement on the following pages), the Exchange Offer (as
defined in the proxy statement on the following pages) or
otherwise; and
|
|
|
|
to transact such further business, if any, as may be lawfully
brought before the meeting, including to approve the adjournment
of the meeting for the solicitation of additional proxies in
favor of the above proposal.
|
For further information concerning matters to be acted upon at
the Validus special meeting, you are urged to read the proxy
statement on the following pages.
If you are a shareholder of record, please complete, sign, date
and return the enclosed proxy in the return envelope furnished
for that purpose, as promptly as possible, whether or not you
plan to attend the meeting, or follow the instructions on the
Validus proxy card to complete your proxy card on the Internet
at the website indicated or by telephone. If you own your shares
through a bank, broker, or other nominee, you will receive
instructions from that institution on how to instruct them to
vote your shares, including by completing a voting instruction
form, or providing instructions by Internet or telephone. If you
do not receive such instructions, you may contact that
institution to request them. If you later desire to revoke your
proxy for any reason, you may do so in the manner described in
the attached proxy statement. Only shareholders of record as
shown on the transfer books of Validus at the close of business
on May 15, 2009 will be entitled to notice of, and to vote
at, the Validus special meeting or any adjournments thereof. See
The Validus Special Meeting beginning on page 95 in
the proxy statement for more information.
By Order of the Board of Directors,
Lorraine Dean
Secretary
19 Par-La-Ville
Road
Hamilton HM11
Bermuda
SPECIAL
MEETING OF SHAREHOLDERS
PROXY STATEMENT
This proxy statement is furnished to the holders of Validus
voting common shares, $0.175 par value per share (the
Validus Shares and, together with any non-voting
common shares, $0.175 par value per share, the common
shares) in connection with the solicitation of proxies by
the board of directors of Validus Holdings, Ltd.
(Validus) to be voted at a special meeting of
shareholders (the Validus special meeting) on
June 25, 2009, at 10:00 a.m., Atlantic time, at the
registered office of Validus, located at 19 Par-La-Ville
Road, Hamilton HM11, Bermuda.
Validus shareholders will be asked at the Validus special
meeting:
|
|
|
|
|
to approve the issuance of Validus Shares (the Share
Issuance) in connection with the acquisition (the
Acquisition) of all of the outstanding common
shares, par value $0.01 per share (the IPC Shares)
of IPC Holdings, Ltd. (IPC), pursuant to the
Amalgamation Agreement (as defined below), the Exchange Offer
(as defined below) and the Scheme of Arrangement (as defined
below) or otherwise (the Share Issuance
Proposal); and
|
|
|
|
to transact such further business, if any, as may be lawfully
brought before the meeting, including to approve the adjournment
of the meeting for the solicitation of additional proxies in
favor of the above proposal (an Adjournment
Proposal).
|
On March 1, 2009, IPC entered into an Agreement and Plan of
Amalgamation, as amended on March 5, 2009, among Max
Capital Group Ltd. (Max), IPC and IPC Limited (the
Max Amalgamation Agreement) which would result in
the amalgamation of Max with IPC Limited, a wholly-owned
subsidiary of IPC that was formed for the purpose of the
amalgamation (the Proposed Max Amalgamation).
On March 31, 2009, Validus publicly announced that it had
delivered to IPC an offer to acquire each outstanding IPC Share
in exchange for 1.2037 Validus Shares (the Initial Validus
Offer). IPC announced on April 7, 2009 that its board
of directors had determined that the Initial Validus Offer did
not constitute a superior proposal to the Proposed Max
Amalgamation and reaffirmed its support of the Proposed Max
Amalgamation. On May 18, 2009, Validus publicly announced
that it had delivered to IPC an increased offer (the
Validus Amalgamation Offer) to acquire each
outstanding IPC Share in exchange for (i) 1.1234 Validus Shares
and (ii) $3.00 in cash. Validus has also delivered a
proposed agreement and plan of amalgamation and an amendment
thereto (as amended, the Validus Amalgamation
Agreement) signed by Validus so that, upon a termination
of the Max Amalgamation Agreement, IPC would have the certainty
of Validus transaction and would be able to sign the
Validus Amalgamation Agreement. IPC announced on May 21,
2009 that its board of directors had determined that the Validus
Amalgamation Offer did not constitute a superior proposal to the
Proposed Max Amalgamation and reaffirmed its support of the
Proposed Max Amalgamation. Additionally, Max has not released
IPC from the prohibition in the Max Amalgamation Agreement that
prevents IPC from even discussing the Validus Amalgamation Offer
with Validus.
In order to consummate the Acquisition without the cooperation
of IPCs board of directors, Validus is pursuing a
three-part plan. First, Validus is soliciting proxies from IPC
shareholders to vote against the Proposed Max Amalgamation so
that IPC is able to terminate the Max Amalgamation Agreement and
enter into the Validus Amalgamation Agreement. Second, Validus
has commenced an exchange offer for all of the issued and
outstanding IPC Shares (the Exchange Offer) on the
same economic terms as the Validus Amalgamation Offer. Third,
Validus is pursuing a scheme of arrangement (the
Scheme of Arrangement) under Part VII of The
Companies Act of 1981 of Bermuda, as amended (the
Companies Act), pursuant to which Validus would
acquire all of the issued and outstanding IPC Shares on the same
economic terms as in the Validus Amalgamation Offer.
Validus is soliciting proxies from holders of Validus Shares at
the Validus special meeting in order to be able to issue the
Validus Shares to IPC shareholders in connection with the
Acquisition. The Share Issuance will become
effective only if it is approved by Validus shareholders and the
IPC Shares are exchanged for Validus Shares and cash, pursuant
to the Acquisition. The affirmative vote of a majority of the
votes cast at the Validus special meeting at which a quorum is
present in accordance with Validus bye-laws is required to
approve each matter to be acted on at the Validus special
meeting, including the Adjournment Proposal.
The Validus Amalgamation Offer, the Exchange Offer and the
Scheme of Arrangement are alternative methods for Validus to
acquire all of the issued and outstanding IPC Shares on the same
economic terms. Ultimately, only one of these transaction
structures can be pursued to completion. Validus intends to seek
to acquire all IPC Shares by whichever method Validus determines
is most effective and efficient.
Based on Validus and IPCs respective capitalizations
as of March 31, 2009 and the exchange ratio of 1.1234,
Validus estimates that former IPC shareholders would own, in the
aggregate, approximately 41.3% of the issued and outstanding
Validus common shares on a fully-diluted basis following closing
of the Acquisition.
Shareholders of record as of the close of business on
May 15, 2009 will be entitled to vote at the Validus
special meeting. As of May 15, 2009, there were 59,290,013
outstanding Validus Shares entitled to vote at the Validus
special meeting, and 19,771,422 Validus non-voting common
shares. Each Validus Share entitles the holder of record thereof
to one vote at the Validus special meeting; however, if, and for
so long as, the Validus Shares of a shareholder, including any
votes conferred by controlled shares (as defined
below), would otherwise represent more than 9.09% of the
aggregate voting power of all Validus Shares entitled to vote on
a matter, the votes conferred by such Validus Shares will be
reduced by whatever amount is necessary such that, after giving
effect to any such reduction (and any other reductions in voting
power required by Validus bye-laws), the votes conferred
by such Validus Shares represent 9.09% of the aggregate voting
power of all Validus Shares entitled to vote on such matter.
Controlled shares include, among other things, all
shares that a person is deemed to own directly, indirectly or
constructively (within the meaning of Section 958 of the
Internal Revenue Code of 1986 or Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended).
Validus knows of no specific matter to be brought before the
Validus special meeting that is not referred to in the notice of
the Validus special meeting. If any such matter comes before the
Validus special meeting, including any shareholder proposal
properly made, the proxy holders will vote proxies in accordance
with their judgment.
Validus Shares are quoted on the New York Stock Exchange (the
NYSE) under the symbol VR. The closing
price of a Validus common share on the NYSE on May 22,
2009, the last practicable date prior to the filing of this
proxy statement, was $22.01. IPC Shares, which are currently
quoted on the NASDAQ Global Select Market (NASDAQ)
under the symbol IPCR and the Bermuda Stock Exchange
under the symbol IPCR BH, would be delisted upon
completion of the Acquisition. The closing price of an IPC Share
on NASDAQ on May 22, 2009, the last practicable date prior
to the filing of this proxy statement, was $25.07. All
references to dollars and $ in this
proxy statement refer to U.S. dollars.
Validus board of directors has adopted the Validus
Amalgamation Agreement and authorized and approved the Share
Issuance and deems it fair, advisable and in the best interests
of Validus and its shareholders to consummate the Share
Issuance, the Acquisition and the other transactions
contemplated thereby. Validus board of directors
recommends that Validus shareholders vote FOR the
proposals submitted to Validus shareholders on the attached
Validus proxy card. All of the Validus officers, directors and
those shareholders who are qualified sponsors (as
defined in this proxy statement), in each case who own Validus
Shares, have indicated that they intend to vote the Validus
Shares beneficially owned by them in favor of the Validus Share
Issuance Proposal and the Adjournment Proposal. As of
April 30, 2009, these persons and entities beneficially
owned 42.4% of the voting interests relating to the Validus
Shares.
This proxy statement provides Validus shareholders with detailed
information about the Validus special meeting and the
Acquisition. You can also obtain information from publicly
available documents filed by Validus and IPC with the SEC.
Validus encourages you to read this entire document
carefully, including the section entitled Risk
Factors beginning on page 39.
Your vote is very important. Whether or not you plan to attend
the Validus special meeting, please take time to vote by
completing and mailing your enclosed proxy card or by following
the voting instructions provided to you if you own your shares
through a bank, broker or other nominee. If you do not receive
such instructions, you may request them from that firm.
Neither the Securities and Exchange Commission nor any state
securities regulatory agency has approved or disapproved the
Share Issuance, passed upon the merits or fairness of the Share
Issuance or passed upon the adequacy or accuracy of the
disclosure in this proxy statement. Any representation to the
contrary is a criminal offense.
This
proxy statement is dated May 26, 2009
and is first being mailed to Validus shareholders on or about
May 27, 2009
Important Notice Regarding the Availability of Proxy
Materials for the Validus Special Meeting to be Held on
June 25, 2009
The proxy statement and the related proxy materials are
available free of charge on Validus website at
www.validusre.bm.
SOURCES
OF ADDITIONAL INFORMATION
This proxy statement includes information, including important
business and financial information, also set forth in documents
filed by Validus and IPC with the SEC, and those documents
include information about Validus and IPC that is not included
in or delivered with this proxy statement. You can obtain any of
the documents filed by Validus or IPC, as the case may be, with
the SEC from the SEC or, without charge, from the SECs
website at
http://www.sec.gov.
Validus shareholders also may obtain documents filed by Validus
with the SEC or documents incorporated by reference in this
proxy statement free of cost, by directing a written or oral
request to Validus at:
Validus
Holdings, Ltd.
19 Par-La-Ville Road
Hamilton HM11
Bermuda
Attention: Jon Levenson
(441) 278-9000
If you would like to request documents, in order to ensure
timely delivery, you must do so at least ten business days
before the date of the meeting. This means you must request this
information no later than June 11, 2009. Validus will
mail properly requested documents to requesting shareholders by
first class mail, or another equally prompt means, within one
business day after receipt of such request.
The information concerning IPC, its business, management and
operations presented or incorporated by reference in this proxy
statement has been taken from, or is based upon, publicly
available information on file with the SEC and other publicly
available information. Although Validus has no knowledge that
would indicate that statements and information relating to IPC
contained or incorporated by reference in this proxy statement,
in reliance upon publicly available information, are inaccurate
or incomplete, to date it has not had access to the full books
and records of IPC, was not involved in the preparation of such
information and statements and is not in a position to verify
any such information or statements.
The consolidated financial statements of IPC appearing in its
annual report on
Form 10-K
for the year ended December 31, 2008 (including schedules
appearing therein), and IPC managements assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2008 included therein, have been audited by an
independent registered public accounting firm, as set forth in
their reports thereon, included therein, and included
and/or
incorporated herein by reference. Validus has not obtained the
authorization of IPCs independent auditors to incorporate
by reference the audit reports relating to this information.
Pursuant to
Rule 12b-21
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), Validus requested that IPC provide
Validus with information required for complete disclosure
regarding the businesses, operations, financial condition and
management of IPC. Validus will amend or supplement this proxy
statement to provide any and all information Validus receives
from IPC, if Validus receives the information before the Validus
special meeting and Validus considers it to be material,
reliable and appropriate.
See Where You Can Find More Information on page 108.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
7
|
|
|
|
|
15
|
|
|
|
|
18
|
|
|
|
|
20
|
|
|
|
|
35
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
42
|
|
|
|
|
44
|
|
|
|
|
65
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
75
|
|
|
|
|
76
|
|
|
|
|
76
|
|
|
|
|
76
|
|
|
|
|
76
|
|
|
|
|
77
|
|
|
|
|
79
|
|
|
|
|
79
|
|
|
|
|
79
|
|
|
|
|
79
|
|
|
|
|
80
|
|
|
|
|
81
|
|
|
|
|
82
|
|
|
|
|
84
|
|
|
|
|
84
|
|
|
|
|
84
|
|
|
|
|
85
|
|
|
|
|
85
|
|
|
|
|
87
|
|
|
|
|
87
|
|
|
|
|
87
|
|
|
|
|
87
|
|
|
|
|
88
|
|
|
|
|
88
|
|
|
|
|
88
|
|
|
|
|
89
|
|
|
|
|
90
|
|
|
|
|
91
|
|
|
|
|
91
|
|
|
|
|
92
|
|
-i-
|
|
|
|
|
|
|
Page
|
|
|
|
|
93
|
|
|
|
|
93
|
|
|
|
|
93
|
|
|
|
|
95
|
|
|
|
|
98
|
|
|
|
|
98
|
|
|
|
|
98
|
|
|
|
|
99
|
|
|
|
|
103
|
|
|
|
|
103
|
|
|
|
|
103
|
|
|
|
|
105
|
|
|
|
|
106
|
|
|
|
|
107
|
|
|
|
|
108
|
|
ANNEX A-1: AGREEMENT AND PLAN OF AMALGAMATION
|
|
|
A-1-1
|
|
ANNEX A-2: AMENDMENT TO AGREEMENT AND PLAN OF
AMALGAMATION
|
|
|
A-2-1
|
|
ANNEX B: OPINION OF VALIDUS FINANCIAL
ADVISOR
|
|
|
B-1
|
|
ANNEX C: SUMMARY OF EXCHANGE OFFER
|
|
|
C-1
|
|
ANNEX D: SUMMARY OF SCHEME OF ARRANGEMENT
|
|
|
D-1
|
|
ANNEX E: FORM OF THE SCHEME OF ARRANGEMENT
|
|
|
E-1
|
|
-ii-
QUESTIONS
AND ANSWERS ABOUT THE ACQUISITION AND THE MEETING
The following questions and answers highlight selected
information from this proxy statement and may not contain all
the information that is important to you. Validus encourages you
to read this entire document carefully.
|
|
|
Q: |
|
When and where is the Validus special meeting? |
|
|
|
A: |
|
The Validus special meeting will take place at 10:00 a.m.,
Atlantic Time, on June 25, 2009, at 19 Par-La-Ville
Road, Hamilton HM11, Bermuda. |
|
|
|
Q: |
|
What is the purpose of the Validus special meeting? |
|
A: |
|
The purpose of the meeting is to seek Validus shareholder
approval of: |
|
|
|
the Share Issuance in connection with the
Acquisition of all of the outstanding IPC Shares pursuant to the
Amalgamation Agreement, the Exchange Offer, the Scheme of
Arrangement or otherwise; and
|
|
|
|
to transact such further business, if any, as may be
lawfully brought before the meeting, including to approve the
adjournment of the meeting for the solicitation of additional
proxies in favor of the above proposal.
|
|
|
|
Even if shareholders approve the Share Issuance, the Share
Issuance will take effect only if and when the IPC Shares are
exchanged for Validus Shares and cash pursuant to the
Amalgamation Agreement, the Exchange Offer, the Scheme of
Arrangement or otherwise. |
|
Q: |
|
Why is shareholder approval of the Share Issuance
required? |
|
|
|
A: |
|
Based upon publicly available information about the number of
IPC Shares outstanding as of May 8, 2009 and the proposed
exchange ratio, Validus expects it would need to issue
63,474,234 Validus Shares in exchange for all outstanding
IPC Shares. This number of Validus Shares will be greater than
20% of the total number of Validus Shares outstanding prior to
such issuance. The listing requirements of the NYSE require that
Validus shareholders approve any issuance of Validus Shares or
securities convertible into or exercisable for Validus Shares if
(a) the Validus Shares or other securities being issued
will have voting power equal to or in excess of 20% of the
voting power outstanding before such issuance or (b) the
number of Validus Shares to be issued is or will be equal to or
in excess of 20% of the number of Validus Shares or other
securities before such issuance. |
|
|
|
|
|
If the Share Issuance Proposal is approved by Validus
shareholders, Validus will be permitted to issue Validus Shares
in exchange for IPC Shares, pursuant to the Validus Amalgamation
Agreement, the Exchange Offer, the Scheme of Arrangement or
otherwise. Shareholders are not being asked to vote on the
Acquisition and no vote of Validus shareholders is required on
such matter. |
|
Q: |
|
Why is Validus proposing the Acquisition? |
|
A: |
|
Based on a number of factors described below under The
Acquisition Reasons Why Validus Board of
Directors Recommends Approval of the Share Issuance,
Validus board of directors believes that the Acquisition
represents a compelling combination and excellent strategic fit
that will enable Validus to capitalize on opportunities in the
global reinsurance market. Successful completion of the
Acquisition would allow Validus shareholders to benefit from the
superior growth potential of a combined company that would be a
leading carrier in Bermudas short-tail reinsurance and
insurance markets, with a strong balance sheet and quality
diversification in profitable business lines. |
|
Q: |
|
When do you expect the Acquisition to be completed? |
|
|
|
A: |
|
If IPCs board of directors was to enter into the Validus
Amalgamation Agreement promptly following the termination of the
Max Amalgamation Agreement, Validus believes the amalgamation
could be completed in mid-to-late July, 2009 based on the
assumption that IPC terminates the Max Amalgamation Agreement
promptly following its June 12, 2009 annual general
meeting, allowing approximately one month to hold a special
general meeting of IPCs shareholders to obtain the
required shareholder approval and to satisfy the other
conditions in the Validus Amalgamation Agreement. |
|
|
|
|
|
Validus believes that it would be able to complete the Exchange
Offer in June 2009, promptly following termination of the Max
Amalgamation Agreement (and subject to the satisfaction or
waiver of the other conditions to the Exchange Offer), based on
the following. The expiration time of the exchange offer will be
June 26, 2009, unless extended. As a result, if the
conditions of the Exchange Offer are satisfied or waived at the
expiration time of the Exchange Offer, Validus would be able to
acquire all of the IPC Shares that are validly tendered pursuant
to the Exchange Offer. |
-1-
|
|
|
|
|
Validus believes that, under the Scheme of Arrangement, it would
be able to close the Acquisition of IPC as early as mid-July
based on the assumptions that: (1) the Supreme Court of
Bermuda will be able to accommodate the preferred hearings
schedule and meeting dates and other procedural matters;
(2) IPC shareholders holding at least one-tenth of the
issued shares of IPC have requisitioned a special general
meeting to be held in late June or early July to approve and
have IPC be bound by the Scheme of Arrangement; and (3) the
IPC directors, following the rejection of the Proposed Max
Amalgamation, or IPC shareholders, convene the requisitioned
special general meeting, allowing it to be held by mid-July. |
|
Q: |
|
What would IPC shareholders receive in the Acquisition? |
|
|
|
A: |
|
Under the terms of the Validus Amalgamation Agreement, each
outstanding IPC Share (including any shares held by IPC
shareholders that do not vote in favor of the amalgamation, but
excluding any dissenting shares as to which appraisal rights
have been exercised pursuant to Bermuda law and excluding any
shares held by Validus, IPC or any of their respective
subsidiaries) would be cancelled and converted into the right to
receive (i) 1.1234 Validus Shares and (ii) $3.00
in cash (less any applicable withholding taxes and without
interest), upon closing of the amalgamation. Under the terms of
the Exchange Offer, each outstanding IPC Share that is validly
tendered and not properly withdrawn before the expiration time
of the Exchange Offer would be exchanged for (i) 1.1234
Validus Shares and (ii) $3.00 in cash (less any applicable
withholding taxes and without interest) upon closing of the
Exchange Offer. Under the terms of the Scheme of Arrangement,
each outstanding IPC Share (excluding any IPC Shares owned by
Validus, IPC or any of their respective subsidiaries), would be
transferred to Validus in exchange for
(i) 1.1234 Validus Shares and (ii) $3.00 in cash
(less any applicable withholding taxes and without interest)
upon effectiveness of the Scheme of Arrangement. |
|
|
|
|
|
IPC shareholders would not receive any fractional Validus Shares
in the Acquisition. Instead, IPC shareholders would be paid cash
in lieu of the fractional share interest to which such
shareholders would otherwise be entitled. |
|
Q: |
|
What percentage of Validus Shares will the former holders of
IPC Shares own after the Acquisition? |
|
A: |
|
Based on Validus and IPCs respective capitalizations
as of March 31, 2009 and the exchange ratio of 1.1234,
Validus estimates that former IPC shareholders would own, in the
aggregate, approximately 41.3% of the issued and outstanding
common shares of Validus on a fully-diluted basis following
closing of the Acquisition. |
|
Q: |
|
Would the Validus Amalgamation Agreement signed by IPC be the
exact form attached hereto as
Annex A-1,
as amended by Annex
A-2? |
|
A: |
|
Validus delivered the amalgamation agreement to IPC on
March 31, 2009 intending it to be executed in the exact
form provided. Since then, in response to IPCs rejection
of the Initial Validus Offer, Validus is proceeding with efforts
to move forward with the transaction without IPCs
cooperation, including by soliciting your votes to approve the
issuance of Validus Shares in connection with the Acquisition.
These efforts and Validus delivery of the Validus
Amalgamation Offer have necessitated certain updates to the form
of Validus Amalgamation Agreement which are included in the
amendment attached as
Annex A-2.
Validus cannot predict what other changes may become necessary
due to changed circumstances or as a result of negotiations with
IPC should that occur. If any changes are made to the Validus
Amalgamation Agreement that Validus believes are material to
Validus shareholders, Validus will supplement this proxy
statement and, if necessary, resolicit proxies from its
shareholders. |
|
Q: |
|
Are Validus shareholders able to exercise appraisal
rights? |
|
A: |
|
Validus shareholders will not be entitled to exercise appraisal
rights with respect to any matter to be voted upon at the
Validus special meeting. |
|
Q: |
|
Will I have preemptive rights in connection with the Share
Issuance? |
|
A: |
|
No. Validus shareholders will not be entitled to any
preemptive rights in connection with the Share Issuance. |
-2-
|
|
|
Q: |
|
What will be the composition of the board of directors of
Validus following the effectiveness of the Acquisition? |
|
A: |
|
Upon the effectiveness of the Acquisition, Validus board
of directors would consist of the directors serving on the board
of directors of Validus before the Acquisition; however, Validus
has publicly expressed to the IPC directors that if they desire
to participate in the leadership of Validus after the
Acquisition, Validus would consider that. |
|
Q: |
|
How will Validus be managed after the Acquisition? |
|
A: |
|
Upon closing of the Acquisition, the officers of Validus will be
the officers serving Validus before the Acquisition. |
|
Q: |
|
What shareholder vote is required to approve the Share
Issuance and the Adjournment Proposal at the Validus special
meeting and how many votes must be present to hold the
meeting? |
|
A: |
|
The affirmative vote of a majority of the votes cast at the
Validus special meeting, at which a quorum is present in
accordance with Validus bye-laws, is required to approve
each of the Share Issuance Proposal and the Adjournment
Proposal. The Share Issuance will become effective only if it is
duly approved by Validus shareholders and all of the other
conditions to the Acquisition are satisfied or waived and the
Acquisition closes. The affirmative vote of a majority of the
votes cast at the Validus special meeting is required to approve
each other matter to be acted on, including any Adjournment
Proposal. All of the Validus officers, directors and those
shareholders who are qualified sponsors (as defined
in this proxy statement), in each case who own Validus Shares,
have indicated that they intend to vote the Validus Shares
beneficially owned by them in favor of the Validus Share
Issuance Proposal and the Adjournment Proposal. As of
April 30, 2009, these persons and entities beneficially
owned 42.4% of the voting interests relating to the Validus
Shares. |
|
|
|
Abstentions and broker non-votes will be counted
toward the presence of a quorum at, but will not be considered
votes cast on any proposal brought before, the Validus special
meeting. Because the vote required to approve the proposals is
the affirmative vote of a majority of the votes cast, assuming a
quorum is present, a broker non-vote with respect to any
proposal to be voted on at the Validus special meeting will not
have the effect of a vote for or against the relevant proposal,
but will reduce the number of votes cast and therefore increase
the relative influence of those shareholders voting. For the
Validus special meeting, a quorum consists of two or more
shareholders present in person and representing in person or by
proxy in excess of 50% of the total issued Validus Shares
throughout the meeting. |
|
Q: |
|
Does Validus board of directors recommend approval of
the proposals? |
|
A: |
|
Yes. Validus board of directors, taking into consideration
the reasons discussed under The Acquisition
Reasons Why Validus Board of Directors Recommends Approval
of the Share Issuance, adopted the Validus Amalgamation
Agreement and authorized and approved the Share Issuance.
Validus board of directors deems it fair, advisable and in
the best interests of Validus to enter into the Validus
Amalgamation Agreement and to acquire all of the outstanding IPC
Shares and to consummate the Share Issuance. Validus
board of directors recommends that Validus shareholders vote
FOR the matters submitted on the Validus proxy
card. |
|
Q: |
|
Have any Validus shareholders agreed to support the
proposals? |
|
A: |
|
All of the Validus officers, directors and those shareholders
which Validus refers to as qualified sponsors (as
defined in this proxy statement), in each case who own Validus
Shares, have indicated that they intend to vote the Validus
Shares beneficially owned by them in favor of the Share Issuance
Proposal and the Adjournment Proposal. As of April 30,
2009, these persons and entities beneficially owned 42.4% of the
voting interests relating to the Validus Shares. |
|
Q: |
|
Will any other matters be voted on at the Validus special
meeting? |
|
A: |
|
Validus knows of no specific matter to be brought before the
Validus special meeting that is not referred to in the notice of
the Validus special meeting. If any such matter comes before the
Validus special meeting, the proxy holders will vote proxies in
accordance with their judgment. |
-3-
|
|
|
Q: |
|
What is the record date for the Validus special meeting? |
|
A: |
|
Only shareholders of record, as shown by the transfer books of
Validus at the close of business on May 15, 2009 (the
Validus record date) are entitled to receive notice
of and to vote at the Validus special meeting or any adjournment
thereof. |
|
Q: |
|
How many votes do I have and how many votes can be cast by
all Validus shareholders? |
|
|
|
A: |
|
Shareholders of record as of the close of business on
May 15, 2009 will be entitled to vote at the Validus
special meeting. As of May 15, 2009, there were 59,290,013
outstanding Validus Shares entitled to vote at the Validus
special meeting, and 19,771,422 non-voting common shares. |
|
|
|
Q: |
|
What do I need to do now? |
|
A: |
|
Validus urges you to read carefully this proxy statement,
including its annexes, schedules and the documents incorporated
by reference herein. You also may want to review the documents
referenced under Where You Can Find More Information on
page 107 and consult with your accounting, legal and tax
advisors. Once you have considered all relevant information,
Validus encourages you to fill in and return the attached proxy
card (if you are a shareholder of record) or voting instruction
form you receive from your bank, broker or other nominee (if you
hold your Validus Shares in street name). |
|
Q: |
|
How can I vote my shares in person at the Validus special
meeting? |
|
A: |
|
If your Validus Shares are registered directly in your name as
of the record date with the transfer agent, Bank of
New York Mellon, you are considered the shareholder
of record with respect to those shares, and the proxy
materials and proxy card are being sent directly to you. As the
shareholder of record, you have the right to vote in person at
the meeting. If you choose to do so, you can bring the enclosed
proxy card. Most shareholders of Validus hold their shares
through a bank, broker or other nominee (that is, in
street name) rather than directly in their own name.
If you hold your shares in street name, you are a
beneficial holder, and the proxy materials are being
forwarded to you by your bank, broker or other nominee together
with a voting instruction form. Because a beneficial holder is
not the shareholder of record, you may not vote these shares in
person at the meeting unless you have previously either arranged
for the Validus Shares beneficially owned by you to be
transferred of record into your name by the record date for the
Validus special meeting or secured a valid proxy or power of
attorney from the bank, broker or other nominee that holds your
shares as of the record date for the Validus special meeting
(and who has received a valid proxy or power of attorney from
the shareholder of record pursuant to a legal proxy
with a power of subdelegation from the shareholder of record as
of the record date). Even if you plan to attend the Validus
special meeting, we recommend that you vote your shares in
advance as described below so that your vote will be counted if
you later decide not to attend the Validus special meeting. |
|
Q: |
|
How can I vote my shares without attending the Validus
special meeting? |
|
A: |
|
If you are the shareholder of record, you may direct your vote
without attending the Validus special meeting by completing and
mailing your proxy card in the enclosed pre-paid envelope. In
addition, if you are the shareholder of record, you may grant a
proxy to vote your shares at the Validus special meeting by
telephone by calling
866-367-5524
and following the simple recorded instructions, twenty-four
hours a day, seven days a week, at any time prior to
11:59 p.m., Eastern Time, on the day prior to the Validus
special meeting. Alternatively, as a shareholder of record, you
may vote via the Internet at any time prior to 11:59 p.m.,
Eastern Time, on the day prior to the Validus special meeting by
going to
http://proxy.georgeson.com,
entering the company number and control number on your proxy
card and following the instructions to submit an electronic
proxy. If you vote by telephone or the Internet, you will be
required to provide the control number contained on your proxy
card. If you hold your Validus Shares in street name you should
complete and return the voting instruction form you receive from
your bank, broker or other nominee in accordance with the
instructions you receive from your bank, broker or other
nominee. Your voting instruction form may contain instructions
from your bank, broker or other nominee that allow you to vote
your shares using the Internet or by telephone. Please consult
with your bank, broker or other nominee if you have any
questions regarding the voting of shares held in street name. |
-4-
|
|
|
Q: |
|
What do I need for admission to the Validus special
meeting? |
|
A: |
|
You are entitled to attend the Validus special meeting only if
you are (i) a shareholder of record or (ii) a
beneficial owner or other person holding a valid proxy from the
bank, broker or other nominee that holds your shares (and who
has received a legal proxy, with a power of
subdelegation, from the shareholder of record as of the record
date). If you are the shareholder of record, your name will be
verified against the list of shareholders of record prior to
your admittance to the Validus special meeting. You should be
prepared to present photo identification for admission. If you
hold your shares in street name and would like to be admitted to
the meeting, you will need to provide a valid proxy or power of
attorney from the bank, broker or other nominee that holds your
shares (and who has received a legal proxy, with a
power of subdelegation, from the shareholder of record as of the
record date) and proof of beneficial ownership on the record
date, such as a brokerage account statement showing that you
owned Validus Shares as of the record date, a copy of the voting
instruction form provided by your bank, broker or other nominee,
or other similar evidence of ownership as of the record date, as
well as your photo identification. If you do not comply with the
procedures outlined above, you may not be admitted to the
Validus special meeting. |
|
Q: |
|
If my shares are held in a brokerage account or in
street name, will my broker vote my shares for
me? |
|
A: |
|
If you own your shares through a bank, broker or other nominee,
you will receive instructions from that institution on how to
instruct them to vote your shares, including by completing a
voting instruction form, or providing instructions by Internet
or telephone. If you do not receive such instructions, you may
contact that institution to request them. In accordance with
NYSE rules, banks, brokers and other nominees who hold Validus
Shares in street-name for customers may not exercise their
voting discretion with respect to the Share Issuance.
Accordingly, if you do not provide your bank, broker or other
nominee with instructions on how to vote your street name
shares, your bank, broker or other nominee will not be permitted
to vote them at the Validus special meeting, possibly resulting
in a broker non-vote. |
|
|
|
A broker non-vote with respect to the Validus
special meeting will not be considered as a vote cast with
respect to any matter presented at the Validus special meeting,
but will be counted for purposes of establishing a quorum,
provided that your bank, broker or nominee is in
attendance in person or by proxy. Because the vote required to
approve the proposals is the affirmative vote of a majority of
the votes cast, assuming a quorum is present, a broker non-vote
with respect to any proposal to be voted on at the Validus
special meeting will not have the effect of a vote for or
against the relevant proposal, but will reduce the number of
votes cast and therefore increase the relative influence of
those shareholders voting. |
|
|
|
Because your bank, broker or other nominee will not have
discretionary authority to vote your shares, you must provide
your bank, broker or other nominee with instructions on how to
vote your shares or arrange to attend the Validus special
meeting and vote your shares in person if you want your shares
to be voted and to avoid a broker non-vote. |
|
Q: |
|
What effect do abstentions and broker non-votes have on the
proposals? |
|
A: |
|
Abstentions and broker non-votes will be counted
toward the presence of a quorum at, but will not be considered
votes cast on any proposal brought before the Validus special
meeting. Because the vote required to approve the proposals is
the affirmative vote of a majority of the votes cast, assuming a
quorum is present, a broker non-vote with respect to any
proposal to be voted on at the Validus special meeting will not
have the effect of a vote for or against the relevant proposal,
but will reduce the number of votes cast and therefore increase
the relative influence of those shareholders voting. See also
The Validus Special Meeting Record Date and
Shares Entitled to Vote. |
|
Q: |
|
How will my shares be voted if I sign and return a proxy card
or voting instruction form without specifying how to vote my
shares? |
|
A: |
|
If you sign and return a proxy card or voting instruction form
without giving specific voting instructions, your shares will be
voted FOR the Share Issuance Proposal and
FOR the Adjournment Proposal and as the persons
named as proxies may determine in their discretion with respect
to any other matters properly presented for a vote before the
Validus special meeting. |
-5-
|
|
|
Q: |
|
What do I do if I want to change my vote or revoke my
proxy? |
|
A: |
|
You may change your vote or revoke your proxy at any time before
your proxy is voted at the Validus special meeting. If you are a
shareholder of record, you may change your vote or revoke your
proxy by: (1) delivering to Validus (Attention: General
Counsel) at 19 Par-La-Ville Road, Hamilton, HM11, Bermuda,
a written notice of revocation of your proxy;
(2) delivering to Validus an authorized proxy bearing a
later date (including a proxy by telephone or over the
Internet); or (3) attending the Validus special meeting and
voting in person as described above under the question entitled
How can I vote my shares at the Validus special meeting?
Attendance at the Validus special meeting in and of itself,
without voting in person at the Validus special meeting, will
not cause your previously granted proxy to be revoked. For
shares you hold in street name, you should follow the
instructions of your bank, broker or other nominee or, if you
have obtained a valid proxy or power of attorney from the bank,
broker or other nominee that holds your shares (and who has
received a legal proxy, with a power of
subdelegation, from the shareholder of record as of the record
date) giving you the right to vote your shares at the Validus
special meeting, by attending the Validus special meeting and
voting in person. |
|
Q: |
|
Who can I contact with any additional questions? |
|
|
|
If you have additional questions about the Acquisition, if you
would like additional copies of this proxy statement, or if you
need assistance voting your Validus Shares, you should contact
Georgeson Inc. (Georgeson) at: |
|
|
|
Georgeson Inc.
199 Water Street,
26th Floor
New York, New York 10038
Banks and Brokerage Firms Please Call:
(212) 440-9800
All Others Please Call Toll Free:
(888) 274-5146
E-mail
inquiries: validus@georgeson.com |
|
Q: |
|
Where can I find more information about the companies? |
|
|
|
A: |
|
You can find more information about Validus and IPC in the
documents described under Where You Can Find More Information
on page 108. |
-6-
SUMMARY
This summary highlights the material information in this
proxy statement. To fully understand Validus proposals,
and for a more complete description of the terms of the
Acquisition, you should read carefully this entire document,
including the annexes and documents incorporated by reference
herein, and the other documents referred to herein. For
information on how to obtain the documents that are on file with
the SEC, see Where You Can Find More Information on
page 108.
Validus
(page 93)
Validus is a Bermuda exempted company, with its principal
executive offices located at 19 Par-La-Ville Road, Hamilton
HM11, Bermuda. The telephone number of Validus is
(441) 278-9000.
Validus is a provider of reinsurance and insurance, conducting
its operations worldwide through two wholly-owned subsidiaries,
Validus Reinsurance, Ltd. (Validus Re) and Talbot
Holdings Ltd. (Talbot). Validus Re is a Bermuda
based reinsurer focused on short-tail lines of reinsurance.
Talbot is the Bermuda parent of the specialty insurance group
primarily operating within the Lloyds insurance market
through Syndicate 1183. Validus Shares are traded on the NYSE
under the symbol VR and, as of May 22, 2009,
the last practicable date prior to the filing of this proxy
statement, Validus had a market capitalization of approximately
$1.68 billion. Validus has approximately 280 employees.
As of the date this proxy statement was first mailed to Validus
shareholders, Validus was the registered holder of 100 IPC
Shares, or less than 1% of the outstanding IPC Shares and
Validus was entitled to vote as to all of the IPC Shares it owns.
IPC
(page 93)
The following description of IPC is taken from the Registration
Statement on
Form S-4
filed by IPC with the SEC in connection with the Proposed Max
Amalgamation (as amended from time to time, the IPC/Max
S-4).
See Sources of Additional Information above.
IPC, a Bermuda exempted company, provides property catastrophe
reinsurance and, to a limited extent,
property-per-risk
excess, aviation (including satellite) and other short-tail
reinsurance on a worldwide basis. During 2008, approximately 93%
of its gross premiums written, excluding reinstatement premiums,
covered property catastrophe reinsurance risks. Property
catastrophe reinsurance covers against unpredictable events such
as hurricanes, windstorms, hailstorms, earthquakes, volcanic
eruptions, fires, industrial explosions, freezes, riots, floods
and other man-made or natural disasters. The substantial
majority of the reinsurance written by IPCRe, IPCs
Bermuda-based property catastrophe reinsurance subsidiary, has
been, and continues to be, written on an excess of loss basis
for primary insurers rather than reinsurers, and is subject to
aggregate limits on exposure to losses. During 2008, IPC had
approximately 258 clients from whom it received either
annual/deposit or adjustment premiums, including many of the
leading insurance companies around the world. In 2008,
approximately 36% of those clients were based in the United
States, and approximately 53% of gross premiums written,
excluding reinstatement premiums, related primarily to
U.S. risks. IPCs
non-U.S. clients
and its
non-U.S. covered
risks are located principally in Europe, Japan, Australia and
New Zealand. During 2008, no single ceding insurer accounted for
more than 3.7% of its gross premiums written, excluding
reinstatement premiums. IPC did not disclose gross premiums
written by class of business in its Quarterly Report on
Form 10-Q
for the three months ended March 31, 2009. Therefore,
comparable disclosure of property catastrophe premiums cannot be
presented. At March 31, 2009, IPC had total
shareholders equity of $1.849 billion and total
assets of $2.453 billion.
IPCs Shares are quoted on NASDAQ under the ticker symbol
IPCR and the Bermuda Stock Exchange under the symbol
IPCR BH. IPCs principal executive offices are
located at American International Building, 29 Richmond Road,
Pembroke HM 08, Bermuda and its telephone number is
(441) 298-5100.
-7-
The
Validus Special Meeting (page 95)
The Validus special meeting will be held on June 25, 2009,
at 10:00 a.m., Atlantic time, at the registered office of
Validus, located at 19 Par-La-Ville Road, Hamilton HM11,
Bermuda. Validus shareholders will be asked at the Validus
special meeting:
|
|
|
|
|
to approve the issuance of Validus Shares in connection with the
Acquisition of all of the outstanding IPC Shares, pursuant to
the Validus Amalgamation Agreement, the Scheme of Arrangement,
the Exchange Offer or otherwise; and
|
|
|
|
to transact such further business, if any, as may be lawfully
brought before the meeting, including to approve the adjournment
of the meeting for the solicitation of additional proxies in
favor of the above proposal.
|
You can vote at the Validus special meeting only if you are a
shareholder of record, as shown by the transfer books of
Validus, at the close of business on May 15, 2009, which is
the record date for the Validus special meeting.
The
Acquisition (page 42)
General
Description (page 42)
In order to consummate the Acquisition, Validus is
simultaneously pursuing the following alternative transaction
structures, pursuant to which IPC shareholders will receive (i)
1.1234 Validus Shares and (ii) $3.00 in cash (less any
applicable withholding taxes and without interest) for each
outstanding IPC Share: (1) the Validus Amalgamation Offer;
(2) the Exchange Offer; and (3) the Scheme of
Arrangement.
The Validus Amalgamation Offer, the Exchange Offer and the
Scheme of Arrangement are alternative methods for Validus to
acquire all of the issued and outstanding IPC Shares on the same
economic terms. Ultimately, only one of these transaction
structures can be pursued to completion. Validus intends to seek
to acquire all IPC Shares by whichever method Validus determines
is most effective and efficient.
If the Validus Amalgamation Agreement is signed by IPC, and all
conditions to the amalgamation have been satisfied or waived,
IPC will amalgamate with Validus Ltd., a direct, wholly owned
subsidiary of Validus, with the amalgamated company continuing
as the surviving company and succeeding to and assuming all of
the rights, properties, liabilities and obligations of IPC and
Validus Ltd. if the amalgamation is consummated. Upon the
closing of the amalgamation, the separate corporate existence of
each of IPC and Validus Ltd. will cease and they will continue
as an amalgamated company and subsidiary of Validus. The
amalgamated company will be named Validus Ltd. IPC
shareholders (including the shareholders that do not vote in
favor of the amalgamation excluding dissenting shareholders who
exercise appraisal rights pursuant to Bermuda law and excluding
Validus, IPC and any of their respective subsidiaries) would
have the right to receive (i) 1.1234 Validus Shares and
(ii) $3.00 in cash (less any applicable withholding taxes
and without interest), for each IPC share they hold. In
addition, IPC shareholders will receive cash in lieu of any
fractional Validus Share to which they may be entitled.
If the Exchange Offer is consummated, each outstanding IPC Share
which is validly tendered and not withdrawn before the
expiration time of the Exchange Offer will be exchanged for (i)
1.1234 Validus Shares and (ii) $3.00 in cash (less any
applicable withholding taxes and without interest). In addition,
IPC shareholders will receive cash in lieu of any fractional
Validus Share to which they may be entitled. The Exchange Offer
is subject to the condition, among others, that a minimum of 90%
of the then outstanding IPC Shares on a fully-diluted basis be
tendered (excluding any IPC Shares owned by Validus, its
subsidiaries or IPC). If this condition is satisfied and the
Exchange Offer is completed, Validus intends, after completion
of the Exchange Offer, to acquire the IPC Shares of those
shareholders who choose not to tender their IPC Shares pursuant
to the Exchange Offer, in accordance with the Companies Act.
If the Scheme of Arrangement becomes effective, Validus will
effect the Acquisition of IPC by the transfer of all outstanding
IPC Shares (excluding any IPC Shares owned by Validus, IPC or
any of their respective subsidiaries) to Validus in exchange for
(i) 1.1234 Validus Shares and (ii) $3.00 in cash (less any
applicable withholding taxes and without interest), for each IPC
share. In addition, IPC shareholders will receive cash in lieu
of any fractional Validus Share to which they may be entitled.
IPC would thereby become a wholly-owned subsidiary of Validus.
-8-
Based on Validus and IPCs capitalizations as of
December 31, 2008 and the exchange ratio of 1.1234, Validus
estimates that former IPC shareholders would own, in the
aggregate, approximately 41.3% of the issued and outstanding
common shares of Validus on a fully-diluted basis following
closing of the Acquisition.
Completing
the Acquisition
On March 31, 2009, Validus publicly announced that it had
delivered to IPC the Initial Validus Offer. IPC announced on
April 7, 2009 that its board of directors had determined
that the Initial Validus Offer did not constitute a superior
proposal to the Proposed Max Amalgamation and reaffirmed its
support of the Proposed Max Amalgamation. On May 18, 2009,
Validus publicly announced that it had delivered to IPC an
increased offer to acquire each outstanding IPC Share for
(i) 1.1234 Validus Shares and (ii) $3.00 in cash (less
any applicable withholding taxes and without interest). In
addition, IPC shareholders will receive cash in lieu of any
fractional Validus Share to which they may be entitled. Validus
has also delivered the Validus Amalgamation Agreement signed by
Validus so that, upon a termination of the Max Amalgamation
Agreement, IPC would have the certainty of Validus
transaction and would be able to sign the Validus Amalgamation
Agreement. IPC announced on May 21, 2009 that its board of
directors had determined that the Validus Amalgamation Offer did
not constitute a superior proposal to the Proposed Max
Amalgamation and reaffirmed its support of the Proposed Max
Amalgamation. Additionally, Max has not released IPC from the
prohibition in the Max Amalgamation Agreement that prevents IPC
from even discussing the Validus Amalgamation Offer with Validus.
In order to consummate the Acquisition without the cooperation
of IPCs board of directors, Validus is pursuing a
three-part plan.
First, Validus is soliciting proxies from IPC shareholders to
vote against the Proposed Max Amalgamation. If the Proposed Max
Amalgamation is voted down by IPC shareholders, IPCs board
of directors will be able to terminate the Max Amalgamation
Agreement and enter into the Validus Amalgamation Agreement. If
IPCs board of directors were to enter into the Validus
Amalgamation Agreement promptly following the termination of the
Max Amalgamation Agreement, Validus believes the amalgamation
could be completed in
mid-to-late
July 2009 based on the assumption that IPC terminates the Max
Amalgamation Agreement promptly following its June 12, 2009
annual general meeting, allowing approximately one month to hold
a special general meeting of IPCs shareholders to obtain
the required shareholder approval and to satisfy the other
conditions in the Validus Amalgamation Agreement.
Second, Validus has commenced the Exchange Offer on the same
economic terms as the Validus Amalgamation Offer. The Exchange
Offer is subject to certain conditions described in the Offer to
Exchange. Under Bermuda law, if Validus acquires at least 90% of
the IPC Shares which it is seeking to acquire in the Exchange
Offer, Validus will have the right to acquire the remaining IPC
Shares on the same terms in a second-step acquisition pursuant
to the Companies Act (the second-step acquisition).
Validus believes that it would be able to complete the Exchange
Offer in June 2009, promptly following termination of the Max
Amalgamation Agreement (and subject to satisfaction or waiver of
the other conditions to the Exchange Offer) based on the
following. The expiration time of the Exchange Offer will be
June 26, 2009, unless extended. As a result, if the
conditions to the Exchange Offer are satisfied or waived at the
expiration time of the Exchange Offer, Validus would be able to
acquire all of the IPC Shares that are validly tendered pursuant
to the Exchange Offer.
Third, Validus is pursuing the Scheme of Arrangement on the same
economic terms as the Validus Amalgamation Offer. In order to
implement the Scheme of Arrangement, the IPC shareholders must
approve the Scheme of Arrangement at a meeting ordered by the
Supreme Court of Bermuda (the court-ordered IPC
meeting), IPC must separately approve the Scheme of
Arrangement and the Scheme of Arrangement must be sanctioned by
the Supreme Court of Bermuda. The Validus Scheme of Arrangement
must be approved by a majority in number of the holders of IPC
Shares voting at the court-ordered IPC meeting, whether in
person or by proxy, representing 75% or more in value of the IPC
Shares voting at the court-ordered IPC meeting, whether in
person or by proxy. If the IPC shareholders approve the Scheme
of Arrangement at the court-ordered IPC meeting, the separate
approval of IPC to the Scheme of Arrangement can be provided by
either (i) the IPC board of directors voluntarily complying
with the will of the IPC shareholders as expressed at the
court-ordered IPC meeting, or (ii) the shareholders of IPC
approving
-9-
resolutions at a special general meeting of IPC (the IPC
special general meeting), including resolutions for IPC to
approve and to be bound by the Scheme of Arrangement and to
terminate the Max Amalgamation Agreement. Following IPC
shareholder approval at both the court-ordered IPC meeting and
the IPC special general meeting, the satisfaction or, where
relevant, waiver of the other conditions to the effectiveness of
the Scheme of Arrangement and the granting of a court order from
the Supreme Court of Bermuda sanctioning the Scheme of
Arrangement, a copy of the court order sanctioning the Scheme of
Arrangement will be delivered to the Bermuda Registrar of
Companies, at which time the Scheme of Arrangement will be
effective. Validus believes that, under the Scheme of
Arrangement, it would be able to close the Acquisition as early
as mid-July based on the assumptions that: (1) the Supreme
Court of Bermuda will be able to accommodate the preferred
hearings schedule and meeting dates and other procedural
matters; (2) IPC shareholders holding at least one-tenth of
the issued IPC Shares have requisitioned the special general
meeting to be held in late June or early July; and (3) the
IPC directors, following the rejection of the Max Amalgamation
Agreement, or IPC shareholders, convene the requisitioned
special general meeting, allowing it to be held in mid-July.
Recommendations
of the Validus Board of Directors
Validus board of directors has adopted the Validus
Amalgamation Agreement and authorized and approved the Share
Issuance, and deems it fair, advisable and in the best interests
of Validus to consummate the Share Issuance, the Acquisition and
the other transactions contemplated thereby. Validus board
of directors recommends that Validus shareholders vote
FOR the proposals submitted to Validus shareholders
on the attached Validus proxy card.
Reasons
Why Validus Board of Directors Recommends Approval of the
Share Issuance (page 65)
Validus board of directors recommends approval of the
Share Issuance in order to issue shares that are necessary to
effect the Acquisition. Validus board of directors
believes that the Acquisition represents a compelling
combination and excellent strategic fit that will enable Validus
to capitalize on opportunities in the global reinsurance market.
Successful completion of the Acquisition would allow Validus
shareholders to benefit from the superior growth potential of a
combined company that would be a leading carrier in
Bermudas short-tail reinsurance and insurance markets,
with a strong balance sheet and quality diversification in
profitable business lines.
In reaching these conclusions and in determining that the Share
Issuance is fair, advisable and in the best interests of
Validus, and in recommending the approval of the Share Issuance,
Validus board of directors consulted with Validus
management as well as legal and financial advisors and
considered a number of factors. Those factors included, but were
not limited to, those set forth under The
Acquisition Reasons Why Validus Board of
Directors Recommends Approval of the Share Issuance below.
Opinion
of Validus Financial Advisor (page 68)
Validus board of directors received an oral opinion,
subsequently confirmed in writing, from Greenhill & Co.,
LLC (Greenhill) that, based upon and subject to the
various limitations and assumptions described in the written
opinion, as of May 17, 2009, the consideration pursuant to
the proposed Acquisition was fair, from a financial point of
view, to Validus.
The full text of the written opinion of Greenhill, dated
May 17, 2009, which sets forth, among other things, the
assumptions made, procedures followed, matters considered and
limits on the opinion and the review undertaken in connection
with rendering the opinion, is attached as Annex B to this
proxy statement and is incorporated herein by reference. Validus
shareholders are urged to read the opinion in its entirety, but
should note that it is not a recommendation as to how Validus
shareholders should vote with respect to the issuance of Validus
Shares pursuant to the Acquisition or any other matter.
Dividends
and Distributions (page 76)
Each of Validus and IPC regularly pays a quarterly cash
dividend, i.e., $0.20 per common share in
Validus case and $0.22 per common share in IPCs
case. Validus expects to continue to pay its regular quarterly
dividends consistent with past practice. Under the terms of the
Validus Amalgamation Agreement, before the amalgamation closes,
Validus and IPC would both be permitted to declare and pay
ordinary course quarterly dividends on their common shares with
record and payment dates consistent with past practice;
provided that any such dividend is at a rate no greater
than the rate it paid
-10-
during the fiscal quarter immediately preceding the date of the
Validus Amalgamation Agreement, i.e., $0.20 per common
share in Validus case and $0.22 per common share in
IPCs case. In addition, the Validus Amalgamation Agreement
provides that IPC may declare and pay a one-time dividend to the
holders of IPC Shares in an aggregate amount not to exceed any
reduction in the Max Termination Fee (as defined herein). The
terms of the Exchange Offer and the Scheme of Arrangement will
similarly permit such a payment.
Pursuant to the Validus Amalgamation Agreement, Validus and IPC
would agree to coordinate the declaration of, and setting of
record dates and payment dates for, dividends on Validus common
shares and IPC common shares so that the IPC shareholders do not
receive dividends on both the IPC common shares and the Validus
Shares received in the amalgamation in respect of any calendar
quarter or fail to receive a dividend in respect of any calendar
quarter.
Anticipated
Accounting Treatment (page 76)
The Acquisition will be accounted for under the purchase method
of accounting in accordance with Statement of Financial
Accounting Standards (FAS) No. 141(R),
Business Combinations
(FAS 141(R)), under which the total
consideration paid in the Acquisition will be allocated among
acquired tangible and intangible assets and assumed liabilities
based on the fair values of the tangible and intangible assets
acquired and liabilities assumed. In the event there is an
excess of the total consideration paid in the Acquisition over
the fair values, the excess will be accounted for as goodwill.
Intangible assets with definite lives will be amortized over
their estimated useful lives. Goodwill resulting from the
Acquisition will not be amortized but instead will be tested for
impairment at least annually (more frequently if certain
indicators are present). In the event that management of Validus
determines that the value of goodwill has become impaired, an
accounting charge will be taken in the fiscal quarter in which
such determination is made. In the event there is an excess of
the fair values of the acquired assets and liabilities assumed
over the total consideration paid in the Acquisition, the excess
will be accounted for as a gain to be recognized through the
income statement at the consummation of the Acquisition in
accordance with FAS 141(R). Validus anticipates the
Acquisition will result in an excess of the fair values of the
acquired assets and liabilities assumed over the total
consideration paid in the Acquisition.
The
Amalgamation Agreement (page 79)
The original Validus amalgamation agreement is attached as
Annex A-1 and the amendment thereto is attached as Annex
A-2 to this proxy statement. This description of the Validus
Amalgamation Agreement assumes that it is signed by IPC in the
form delivered by Validus to IPC. You should read the Validus
Amalgamation Agreement in its entirety because it, and not this
proxy statement, is the legal document that would govern the
amalgamation if it were signed by IPC.
In response to IPCs rejection of the Initial Validus
Offer, Validus is proceeding with efforts to move forward with
the transaction without IPCs cooperation. These efforts
and Validus delivery of an increased offer have
necessitated certain updates to the form of Validus Amalgamation
Agreement which are included in the amendment attached as Annex
A-2. Validus cannot predict what other changes may become
necessary due to changed circumstances or as a result of
negotiations with IPC should that occur.
Amalgamation
Consideration (page 79)
Under the Validus Amalgamation Agreement, each outstanding IPC
Share (including any shares held by IPC shareholders that do not
vote in favor of the amalgamation, but excluding any dissenting
shares as to which appraisal rights have been exercised pursuant
to Bermuda law, and excluding any shares held by Validus, IPC or
any of their respective subsidiaries) will be cancelled and
converted into the right to receive (i) 1.1234 Validus
Shares and (ii) $3.00 in cash (less any applicable
withholding taxes and without interest).
Validus will not issue any fractional Validus Shares in
connection with the amalgamation. Instead, any IPC shareholder
who would otherwise have been entitled to a fraction of a
Validus Share in connection with the amalgamation will be paid
an amount in cash determined by multiplying such fraction by the
average Validus price (such average Validus common share price
is determined by valuing Validus common shares based on the
volume weighted average price per Validus common share on the
NYSE for the five consecutive trading days immediately preceding
the second trading day prior to the closing of the amalgamation).
-11-
Restrictions
on Change in Recommendation by the Board of Directors of IPC or
Validus (page 85)
Pursuant to the Validus Amalgamation Agreement, the boards of
directors of IPC or Validus may not withdraw or modify, in any
manner adverse to the other party, its recommendations in
connection with the amalgamation except if such board has
concluded in good faith, after consultation with its outside
counsel and financial advisors, that such action is reasonably
likely to be required in order for the directors to comply with
their fiduciary duties under applicable law, and such party has
not materially breached its obligations with respect to changing
its recommendation. Before a party can change its recommendation
with respect to the amalgamation, it must provide advance
written notice of such change to the other party and give the
other party five business days to agree to alter the terms and
conditions of the Validus Amalgamation Agreement in a manner
that removes the need for the applicable board of directors to
change its recommendation in order to prevent a breach of its
fiduciary duties. Even if IPC or Validus has had a change in
recommendation, each will still be required to submit such
matters to the respective shareholders meeting. See The
Amalgamation Agreement Restrictions on Change in
Recommendation by the Boards of Directors of IPC or Validus
below.
Restrictions
on Solicitation of Acquisition Proposals by IPC
(page 85)
The Validus Amalgamation Agreement precludes IPC and its
subsidiaries and advisors from, directly or indirectly,
initiating, soliciting, encouraging or facilitating (including
by providing information) any effort or attempt to make or
implement any proposal or offer with respect to an amalgamation,
reorganization, consolidation, business combination or similar
transaction involving it or any of its subsidiaries or any
purchase or sale involving 10% or more of its consolidated
assets (including, without limitation, shares of its
subsidiaries), or 10% or more of its total voting power or the
voting power of any of its subsidiaries. IPC may withdraw or
modify its recommendation as described under The Amalgamation
Agreement Restrictions on Change in Recommendation
by the Boards of Directors of IPC or Validus below. See
The Amalgamation Agreement Restrictions on
Solicitation of Acquisition Proposals by IPC below.
Conditions
to the Acquisition (page 88)
Validus and IPCs respective obligations to complete
the amalgamation are subject to the fulfillment or waiver (by
both Validus and IPC) of certain conditions, including:
|
|
|
|
|
receipt of the required Validus shareholder approval of the
Share Issuance and the required IPC vote to adopt the Validus
Amalgamation Agreement and approve the amalgamation;
|
|
|
|
approval for listing on the NYSE of the Validus Shares to be
issued or reserved for issuance in connection with the
amalgamation, subject to official notice of issuance;
|
|
|
|
certain regulatory filings, approvals or exemptions will have
been made, will have occurred or will have been obtained;
|
|
|
|
a registration statement registering the shares to be issued in
the amalgamation will have become effective under the Securities
Act of 1933, as amended, and will not be the subject of any stop
order or proceedings seeking a stop order;
|
|
|
|
no injunction or other legal restraints or prohibitions
preventing the consummation of the amalgamation will be in
effect;
|
|
|
|
subject to the materiality standards provided in the Validus
Amalgamation Agreement, the representations and warranties of
each other party in the Validus Amalgamation Agreement will be
true and correct, and each party will have performed its
obligations under the Validus Amalgamation Agreement (and each
party will have received a certificate from the other party to
such effect);
|
|
|
|
no governmental entity will have imposed any term, condition,
obligation or restriction that would reasonably be expected to
have a material adverse effect on Validus and its subsidiaries
(including the amalgamated entity) after the effective time of
the amalgamation; and
|
-12-
|
|
|
|
|
each of IPC and Validus will have received a tax opinion with
respect to certain U.S. federal income tax consequences of
the amalgamation.
|
Validus obligation to complete the amalgamation is also
subject to the fulfillment or waiver (by Validus) of the
following condition:
|
|
|
|
|
all amendments or waivers under (x) IPCs credit
facilities and (y) Validus credit facilities, in each
case, as determined by Validus to be necessary to consummate the
amalgamation and the other transactions contemplated thereby,
shall be in full force and effect.
|
At any time prior to the effective time of the amalgamation, the
parties may, to the extent legally permissible, waive compliance
with any of the conditions contained in the Validus Amalgamation
Agreement, as described under The Amalgamation
Agreement Amendments and Waivers Under the
Amalgamation Agreement below.
The terms of the Exchange Offer and the Scheme of Arrangement
will include substantially the same conditions. See Annexes C
and D.
Termination
of the Amalgamation Agreement (page 89)
The Validus Amalgamation Agreement may be terminated, at any
time prior to the effective time of the amalgamation, by mutual
written consent of IPC and Validus, and, subject to certain
limitations described in the Validus Amalgamation Agreement, by
either IPC or Validus, if any of the following occurs:
|
|
|
|
|
a regulatory approval required by the Validus Amalgamation
Agreement to be obtained has been denied or any governmental
authority has taken any action permanently restraining or
prohibiting the amalgamation, and such denial or action has
become final and non-appealable (unless the failure to complete
the amalgamation by that date is due to a breach by the party
seeking to terminate the Validus Amalgamation Agreement);
|
|
|
|
the amalgamation has not been consummated on or before the later
of (x) November 30, 2009 or ( y) the date that is
five months after the date the Validus Amalgamation Agreement is
executed by all parties (unless the failure to complete the
amalgamation by that date is due to a breach by the party
seeking to terminate the Validus Amalgamation Agreement);
|
|
|
|
the other partys board of directors has (1) changed
its recommendation to its shareholders, (2) failed to
include such recommendation in this proxy statement, or
(3) with respect to IPC only, materially breached certain
of the non-solicitation obligations applicable to it under the
Validus Amalgamation Agreement;
|
|
|
|
the other party has breached a covenant, agreement,
representation or warranty that would preclude the satisfaction
of certain closing conditions and such breach is not remedied in
the 45 days following written notice to the breaching party
or is not capable of being so remedied;
|
|
|
|
the Validus shareholders have not approved any of the matters
for which their approval is solicited for the required Validus
vote or the IPC shareholders have not approved and adopted the
Validus Amalgamation Agreement and approved the amalgamation at
the IPC shareholders meeting;
|
|
|
|
the other partys good-faith estimate of such partys
book value as of the day prior to the later to occur of the IPC
and Validus shareholder meetings indicates that since
December 31, 2008, either (1) the other partys
book value has declined by more than 50%, or (2) the other
partys book value has declined by more than
20 percentage points greater than the decline in the
terminating partys book value during the same period (with
any increase in a partys book value since
December 31, 2008, deemed to be no change for purposes of
measuring the 20 percentage point differential).
|
In addition, Validus may terminate the Validus Amalgamation
Agreement if the total number of dissenting IPC Shares for which
appraisal rights have been properly exercised in accordance with
Bermuda law exceeds 15% of the issued and outstanding IPC Shares
on the business day immediately following the last day on which
IPC shareholders can require appraisal of their common shares.
See The Amalgamation Agreement Termination of the
Amalgamation Agreement.
-13-
Effects
of Termination, Remedies (page 90)
If either of the parties terminates the Validus Amalgamation
Agreement, the non-terminating party will be required to pay the
other a termination fee of $16 million in certain
circumstances, as described under The Amalgamation
Agreement Termination of the Amalgamation
Agreement Effects of Termination; Remedies below.
The
Exchange Offer
The terms of the Exchange Offer are set forth in the Offer to
Exchange. A summary of the terms of the Exchange Offer is
attached as Annex C to this proxy statement.
The
Scheme of Arrangement
A summary of the Scheme of Arrangement is attached as
Annex D to this proxy statement. The form of Scheme of
Arrangement is attached as Annex E to this proxy statement.
-14-
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF VALIDUS
Set forth below is certain selected historical consolidated
financial data relating to Validus. The financial data has been
derived from Validus quarterly report on Form 10-Q
for the three months ended March 31, 2009, which is
incorporated by reference into this proxy statement (the
Validus 10-Q) and Validus annual report
on
Form 10-K
for the year ended December 31, 2008, which is incorporated
by reference into this proxy statement (the Validus
10-K).
You should not take historical results as necessarily indicative
of the results that may be expected for any future period.
This financial data should be read in conjunction with the
financial statements and the related notes and other financial
information contained in the Validus 10-Q and the Validus
10-K, which
is incorporated by reference into this proxy statement. More
comprehensive financial information, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations, is contained in the
Validus 10-Q
and the Validus
10-K, and
the following summary is qualified in its entirety by reference
to the Validus
10-Q and the
Validus 10-K and all of the financial information and notes
contained therein. See Where You Can Find More Information
on page 108.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Period Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
609,892
|
|
|
$
|
521,594
|
|
|
$
|
1,362,484
|
|
|
$
|
988,637
|
|
|
$
|
540,789
|
|
|
$
|
|
|
Reinsurance premiums ceded
|
|
|
(72,512
|
)
|
|
|
(84,900
|
)
|
|
|
(124,160
|
)
|
|
|
(70,210
|
)
|
|
|
(63,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
|
537,380
|
|
|
|
436,694
|
|
|
|
1,238,324
|
|
|
|
918,427
|
|
|
|
477,093
|
|
|
|
|
|
Change in unearned premiums
|
|
|
(218,621
|
)
|
|
|
(144,830
|
)
|
|
|
18,194
|
|
|
|
(60,348
|
)
|
|
|
(170,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
318,759
|
|
|
|
291,864
|
|
|
|
1,256,518
|
|
|
|
858,079
|
|
|
|
306,514
|
|
|
|
|
|
Net investment income
|
|
|
26,772
|
|
|
|
36,043
|
|
|
|
139,528
|
|
|
|
112,324
|
|
|
|
58,021
|
|
|
|
2,032
|
|
Realized gain on repurchase of debentures
|
|
|
|
|
|
|
|
|
|
|
8,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on investments
|
|
|
(23,421
|
)
|
|
|
7,744
|
|
|
|
(1,591
|
)
|
|
|
1,608
|
|
|
|
(1,102
|
)
|
|
|
39
|
|
Net unrealized gains on investments(2)
|
|
|
22,153
|
|
|
|
(14,977
|
)
|
|
|
(79,707
|
)
|
|
|
12,364
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
757
|
|
|
|
935
|
|
|
|
5,264
|
|
|
|
3,301
|
|
|
|
|
|
|
|
|
|
Foreign exchange gains (losses)
|
|
|
(4,200
|
)
|
|
|
8,179
|
|
|
|
(49,397
|
)
|
|
|
6,696
|
|
|
|
2,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
340,820
|
|
|
|
329,788
|
|
|
|
1,279,367
|
|
|
|
994,372
|
|
|
|
365,590
|
|
|
|
2,071
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses
|
|
|
131,834
|
|
|
|
140,024
|
|
|
|
772,154
|
|
|
|
283,993
|
|
|
|
91,323
|
|
|
|
|
|
Policy acquisition costs
|
|
|
61,449
|
|
|
|
56,701
|
|
|
|
234,951
|
|
|
|
134,277
|
|
|
|
36,072
|
|
|
|
|
|
General and administrative expenses(1)
|
|
|
38,079
|
|
|
|
37,107
|
|
|
|
123,948
|
|
|
|
100,765
|
|
|
|
38,354
|
|
|
|
2,367
|
|
Share compensation expenses
|
|
|
7,354
|
|
|
|
6,535
|
|
|
|
27,097
|
|
|
|
16,189
|
|
|
|
7,878
|
|
|
|
290
|
|
Finance expenses
|
|
|
7,723
|
|
|
|
21,517
|
|
|
|
57,318
|
|
|
|
51,754
|
|
|
|
8,789
|
|
|
|
|
|
Fair value of warrants issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,893
|
|
|
|
77
|
|
|
|
49,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
246,439
|
|
|
|
261,884
|
|
|
|
1,215,468
|
|
|
|
589,871
|
|
|
|
182,493
|
|
|
|
51,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before taxes
|
|
|
94,381
|
|
|
|
67,904
|
|
|
|
63,899
|
|
|
|
404,501
|
|
|
|
183,097
|
|
|
|
(49,708
|
)
|
Taxes
|
|
|
526
|
|
|
|
(1,429
|
)
|
|
|
(10,788
|
)
|
|
|
(1,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
94,907
|
|
|
|
66,475
|
|
|
|
53,111
|
|
|
|
402,996
|
|
|
|
183,097
|
|
|
|
(49,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains arising during the period(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(332
|
)
|
|
|
144
|
|
Foreign currency translation adjustments
|
|
|
(196
|
)
|
|
|
67
|
|
|
|
(7,809
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
Adjustment for reclassification of losses realized in income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,102
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
94,711
|
|
|
$
|
66,542
|
|
|
$
|
45,302
|
|
|
$
|
402,947
|
|
|
$
|
183,867
|
|
|
$
|
(49,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share
equivalents outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
75,744,577
|
|
|
|
74,209,371
|
|
|
|
74,677,903
|
|
|
|
65,068,093
|
|
|
|
58,477,130
|
|
|
|
58,423,174
|
|
Diluted
|
|
|
79,102,643
|
|
|
|
78,329,727
|
|
|
|
75,819,413
|
|
|
|
67,786,673
|
|
|
|
58,874,567
|
|
|
|
58,423,174
|
|
Basic earnings per share
|
|
$
|
1.23
|
|
|
$
|
0.87
|
|
|
$
|
0.62
|
|
|
$
|
6.19
|
|
|
$
|
3.13
|
|
|
$
|
(0.85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.20
|
|
|
$
|
0.85
|
|
|
$
|
0.61
|
|
|
$
|
5.95
|
|
|
$
|
3.11
|
|
|
$
|
(0.85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.80
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-15-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Period Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Selected financial ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses ratio(4)
|
|
|
41.4
|
%
|
|
|
48.0
|
%
|
|
|
61.5
|
%
|
|
|
33.1
|
%
|
|
|
29.8
|
%
|
|
|
|
|
Policy acquisition cost ratio(5)
|
|
|
19.3
|
%
|
|
|
19.4
|
%
|
|
|
18.7
|
%
|
|
|
15.6
|
%
|
|
|
11.8
|
%
|
|
|
|
|
General and administrative expense ratio(6)
|
|
|
14.3
|
%
|
|
|
15.0
|
%
|
|
|
12.0
|
%
|
|
|
13.3.
|
%
|
|
|
15.1
|
%
|
|
|
|
|
Expense ratio(7)
|
|
|
33.6
|
%
|
|
|
34.4
|
%
|
|
|
30.7
|
%
|
|
|
28.9
|
%
|
|
|
26.9
|
%
|
|
|
|
|
Combined ratio(8)
|
|
|
75.0
|
%
|
|
|
82.4
|
%
|
|
|
92.2
|
%
|
|
|
62.0
|
%
|
|
|
56.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized return on average equity(9)
|
|
|
19.2
|
%
|
|
|
13.5
|
%
|
|
|
2.7
|
%
|
|
|
26.9
|
%
|
|
|
17.0
|
%
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth summarized balance sheet data as
of March 31, 2009 and 2008, and as of December 31,
2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Summary Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
2,926,859
|
|
|
$
|
2,893,595
|
|
|
$
|
2,831,537
|
|
|
$
|
2,662,021
|
|
|
$
|
1,376,387
|
|
Cash and cash equivalents
|
|
|
535,798
|
|
|
|
347,347
|
|
|
|
449,848
|
|
|
|
444,698
|
|
|
|
63,643
|
|
Total assets
|
|
|
4,762,798
|
|
|
|
4,535,638
|
|
|
|
4,322,480
|
|
|
|
4,144,224
|
|
|
|
1,646,423
|
|
Reserve for losses and loss expenses
|
|
|
1,318,732
|
|
|
|
977,236
|
|
|
|
1,305,303
|
|
|
|
926,117
|
|
|
|
77,363
|
|
Unearned premiums
|
|
|
795,233
|
|
|
|
750,257
|
|
|
|
539,450
|
|
|
|
557,344
|
|
|
|
178,824
|
|
Junior subordinated deferrable debentures
|
|
|
304,300
|
|
|
|
350,000
|
|
|
|
304,300
|
|
|
|
350,000
|
|
|
|
150,000
|
|
Total liabilities
|
|
|
2,739,812
|
|
|
|
2,544,980
|
|
|
|
2,383,746
|
|
|
|
2,209,424
|
|
|
|
453,900
|
|
Total shareholders equity
|
|
|
2,022,986
|
|
|
|
1,990,658
|
|
|
|
1,938,734
|
|
|
|
1,934,800
|
|
|
|
1,192,523
|
|
Book value per common share(10)
|
|
|
26.68
|
|
|
|
26.82
|
|
|
|
25.64
|
|
|
|
26.08
|
|
|
|
20.39
|
|
Diluted book value per common share(11)
|
|
|
24.65
|
|
|
|
24.43
|
|
|
|
23.78
|
|
|
|
24.00
|
|
|
|
19.73
|
|
|
|
|
(1) |
|
General and administrative expenses for the years ended
December 31, 2007 and 2006 include $4,000,000 and
$1,000,000 respectively, related to our advisory agreement with
Aquiline Capital Partners LLC, which, together with its related
companies, we refer to as Aquiline. Our advisory
agreement with Aquiline terminated upon completion of our
initial public offering, in connection with which Validus
recorded general and administrative expense of $3,000,000 in the
year ended December 31, 2007. |
|
(2) |
|
Validus adopted FAS 157 and FAS 159 as of
January 1, 2007 and elected the fair value option on all
securities previously accounted for as available-for-sale.
Unrealized gains and losses on available-for-sale investments at
December 31, 2006 of $875,000, previously included in
accumulated other comprehensive income, were treated as a
cumulative-effect adjustment as of January 1, 2007. The
cumulative-effect adjustment transferred the balance of
unrealized gains and losses from accumulated other comprehensive
income to retained earnings and had no impact on the results of
operations for the annual or interim periods beginning
January 1, 2007. Validus investments were accounted
for as trading for the annual or interim periods beginning
January 1, 2007 and as such all unrealized gains and losses
are included in net income. |
|
(3) |
|
FAS 123(R) requires that any unrecognized stock-based
compensation expense that will be recorded in future periods be
included as proceeds for purposes of treasury stock repurchases,
which is applied against the unvested restricted shares balance.
On March 1, 2007 we effected a 1.75 for 1 reverse stock
split of our outstanding common shares. The stock split does not
affect our financial statements other than to the extent it
decreases the number of outstanding shares and correspondingly
increases per share information for all periods presented. The
share consolidation has been reflected retroactively in these
financial statements. |
-16-
|
|
|
(4) |
|
The losses and loss expense ratio is calculated by dividing
losses and loss expenses by net premiums earned. |
|
(5) |
|
The policy acquisition cost ratio is calculated by dividing
policy acquisition costs by net premiums earned. |
|
(6) |
|
The general and administrative expense ratio is calculated by
dividing the sum of general and administrative expenses and
share compensation expenses by net premiums earned. The general
and administrative expense ratio for the year ended
December 31, 2007 is calculated by dividing the total of
general and administrative expenses plus share compensation
expenses less the $3,000,000 termination fee payable to Aquiline
by net premiums earned. |
|
(7) |
|
The expense ratio is calculated by combining the policy
acquisition cost ratio and the general and administrative
expense ratio. |
|
(8) |
|
The combined ratio is calculated by combining the losses and
loss expense ratio, the policy acquisition cost ratio and the
general and administrative expense ratio. |
|
(9) |
|
Annualized return on average equity is calculated by dividing
the net income for the period by the average shareholders
equity during the period. Annual average shareholders
equity is the average of the beginning, ending and intervening
quarter-end shareholders equity balances. |
|
(10) |
|
Book value per common share is defined as total
shareholders equity divided by the number of common shares
outstanding as at the end of the period, giving no effect to
dilutive securities. |
|
(11) |
|
Diluted book value per common share is calculated based on total
shareholders equity plus the assumed proceeds from the
exercise of outstanding options and warrants, divided by the sum
of common shares, unvested restricted shares, options and
warrants outstanding (assuming their exercise). Diluted book
value per common share is a Non-GAAP financial measure as
described under Item 7, Managements Discussion
and Analysis of Financial condition and Results of
Operations Financial Measures, in the Validus
10-K. |
-17-
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF IPC
The following disclosure is taken from IPCs quarterly
report on
Form 10-Q
for the three months ended March 31, 2009 (the IPC
10-Q) and IPCs annual report on
Form 10-K
for the year ended December 31, 2008 (the IPC
10-K), except in respect of diluted book value per common
share (as discussed in footnote 5 below). See Sources of
Additional Information above.
Set forth below is certain selected historical consolidated
financial data relating to IPC. The financial data has been
derived from the IPC 10-Q, which is incorporated by reference
into this proxy statement, and the IPC 10-K, which is
incorporated by reference into this proxy statement. You should
not take historical results as necessarily indicative of the
results that may be expected for any future period.
This financial data should be read in conjunction with the
financial statements and the related notes and other financial
information contained in the IPC 10-Q and the IPC 10-K. More
comprehensive financial information, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations, is contained in other
documents filed by IPC with the SEC, and the following summary
is qualified in its entirety by reference to such other
documents and all of the financial information and notes
contained in those documents. See Where You Can Find More
Information on page 108.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Statement of Income (Loss) Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
234,610
|
|
|
$
|
197,875
|
|
|
$
|
403,395
|
|
|
$
|
404,096
|
|
|
$
|
429,851
|
|
|
$
|
472,387
|
|
|
$
|
378,409
|
|
Net premiums earned
|
|
|
98,708
|
|
|
|
89,697
|
|
|
|
387,367
|
|
|
|
391,385
|
|
|
|
397,132
|
|
|
|
452,522
|
|
|
|
354,882
|
|
Net investment income
|
|
|
21,866
|
|
|
|
23,874
|
|
|
|
94,105
|
|
|
|
121,842
|
|
|
|
109,659
|
|
|
|
71,757
|
|
|
|
51,220
|
|
Net (losses) gains on investments
|
|
|
(35,572
|
)
|
|
|
(6,020
|
)
|
|
|
(168,208
|
)
|
|
|
67,555
|
|
|
|
12,085
|
|
|
|
(10,556
|
)
|
|
|
5,946
|
|
Other income
|
|
|
7
|
|
|
|
26
|
|
|
|
65
|
|
|
|
1,086
|
|
|
|
3,557
|
|
|
|
5,234
|
|
|
|
4,296
|
|
Net loss and loss adjustment expenses incurred
|
|
|
39,109
|
|
|
|
5,324
|
|
|
|
155,632
|
|
|
|
124,923
|
|
|
|
58,505
|
|
|
|
1,072,662
|
|
|
|
215,608
|
|
Net acquisition costs
|
|
|
9,838
|
|
|
|
8,674
|
|
|
|
36,429
|
|
|
|
39,856
|
|
|
|
37,542
|
|
|
|
39,249
|
|
|
|
37,682
|
|
General and administrative expenses
|
|
|
24,281
|
|
|
|
7,079
|
|
|
|
26,314
|
|
|
|
30,510
|
|
|
|
34,436
|
|
|
|
27,466
|
|
|
|
23,151
|
|
Interest expense
|
|
|
383
|
|
|
|
|
|
|
|
2,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign exchange loss (gain)
|
|
|
3,146
|
|
|
|
(303
|
)
|
|
|
1,848
|
|
|
|
1,167
|
|
|
|
(2,635
|
)
|
|
|
2,979
|
|
|
|
1,290
|
|
Net income (loss)
|
|
$
|
8,252
|
|
|
$
|
86,803
|
|
|
$
|
90,447
|
|
|
$
|
385,412
|
|
|
$
|
394,585
|
|
|
$
|
(623,399
|
)
|
|
$
|
138,613
|
|
Preferred dividend
|
|
|
|
|
|
|
4,234
|
|
|
|
14,939
|
|
|
|
17,128
|
|
|
|
17,176
|
|
|
|
2,664
|
|
|
|
|
|
Net income (loss), available to common shareholders
|
|
$
|
8,252
|
|
|
$
|
82,569
|
|
|
$
|
75,508
|
|
|
$
|
368,284
|
|
|
$
|
377,409
|
|
|
$
|
(626,063
|
)
|
|
$
|
138,613
|
|
Net income (loss) per common share(1)
|
|
$
|
0.15
|
|
|
$
|
1.31
|
|
|
$
|
1.45
|
|
|
$
|
5.53
|
|
|
$
|
5.54
|
|
|
$
|
(12.30
|
)
|
|
$
|
2.87
|
|
Weighted average shares outstanding(1)
|
|
|
55,916,256
|
|
|
|
66,182,883
|
|
|
|
59,301,939
|
|
|
|
69,728,229
|
|
|
|
71,212,287
|
|
|
|
50,901,296
|
|
|
|
48,376,865
|
|
Cash dividend per common share
|
|
$
|
0.22
|
|
|
$
|
0.22
|
|
|
$
|
0.88
|
|
|
$
|
0.80
|
|
|
$
|
0.64
|
|
|
$
|
0.88
|
|
|
$
|
0.88
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio(2)
|
|
|
39.6
|
%
|
|
|
5.8
|
%
|
|
|
40.2
|
%
|
|
|
31.9
|
%
|
|
|
14.7
|
%
|
|
|
237.0
|
%
|
|
|
60.8
|
%
|
Expense ratio(2)
|
|
|
34.6
|
%
|
|
|
17.1
|
%
|
|
|
16.2
|
%
|
|
|
18.0
|
%
|
|
|
18.1
|
%
|
|
|
14.8
|
%
|
|
|
17.1
|
%
|
Combined ratio(2)
|
|
|
74.2
|
%
|
|
|
22.9
|
%
|
|
|
56.4
|
%
|
|
|
49.9
|
%
|
|
|
32.8
|
%
|
|
|
251.8
|
%
|
|
|
77.9
|
%
|
Return on average equity(3)
|
|
|
1.8
|
%
|
|
|
15.5
|
%
|
|
|
4.2
|
%
|
|
|
20.1
|
%
|
|
|
24.0
|
%
|
|
|
(38.0
|
)%
|
|
|
8.6
|
%
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and investments
|
|
$
|
2,189,966
|
|
|
$
|
2,475,860
|
|
|
$
|
2,235,187
|
|
|
$
|
2,473,244
|
|
|
$
|
2,485,525
|
|
|
$
|
2,560,146
|
|
|
$
|
1,901,094
|
|
Reinsurance premiums receivable
|
|
|
199,241
|
|
|
|
161,474
|
|
|
|
108,033
|
|
|
|
91,393
|
|
|
|
113,811
|
|
|
|
180,798
|
|
|
|
85,086
|
|
Total assets
|
|
|
2,453,085
|
|
|
|
2,712,037
|
|
|
|
2,388,688
|
|
|
|
2,627,691
|
|
|
|
2,645,429
|
|
|
|
2,778,281
|
|
|
|
2,028,290
|
|
Reserve for losses and loss adjustment expenses
|
|
|
354,467
|
|
|
|
355,276
|
|
|
|
355,893
|
|
|
|
395,245
|
|
|
|
548,627
|
|
|
|
1,072,056
|
|
|
|
274,463
|
|
Unearned premiums
|
|
|
219,641
|
|
|
|
181,889
|
|
|
|
85,473
|
|
|
|
75,980
|
|
|
|
80,043
|
|
|
|
66,311
|
|
|
|
68,465
|
|
Total liabilities
|
|
|
603,611
|
|
|
|
563,904
|
|
|
|
537,741
|
|
|
|
501,946
|
|
|
|
654,474
|
|
|
|
1,161,881
|
|
|
|
359,851
|
|
Total shareholders equity
|
|
$
|
1,849,474
|
|
|
$
|
2,148,133
|
|
|
$
|
1,850,947
|
|
|
$
|
2,125,745
|
|
|
$
|
1,990,955
|
|
|
$
|
1,616,400
|
|
|
$
|
1,668,439
|
|
Diluted book value per common share(4)
|
|
$
|
NA
|
|
|
$
|
NA
|
|
|
$
|
32.85
|
(5)
|
|
$
|
32.42
|
|
|
$
|
27.94
|
|
|
$
|
22.26
|
|
|
$
|
34.44
|
|
-18-
NA Not available
|
|
|
(1) |
|
Net income per common share is calculated upon the weighted
average number of common shares outstanding during the relevant
year. The weighted average number of shares includes common
shares and the dilutive effect of employee stock options and
stock grants, using the treasury stock method and convertible
preferred shares. The net loss per common share for the year
ended December 31, 2005 is calculated on the weighted
average number of shares outstanding during the year, excluding
the anti-dilutive effect of employee stock options, stock grants
and convertible preferred shares. The net income per common
share for the year ended December 31, 2008 is calculated on
the weighted average number of shares outstanding during the
year, excluding the anti-dilutive effect of stock-based
compensation and convertible preferred shares. |
|
(2) |
|
The loss and loss adjustment expense ratio is calculated by
dividing the net losses and loss expenses incurred by the net
premiums earned. The expense ratio is calculated by dividing the
sum of acquisition costs and general and administrative expenses
by net premiums earned. The combined ratio is the sum of the
loss and loss expense ratio and the expense ratio. |
|
(3) |
|
Return on average equity is calculated as the annual net income
(loss), available to common shareholders divided by the average
of the common shareholders equity, which is total
shareholders equity, excluding convertible preferred
shares, on the first and last day of the respective year. |
|
(4) |
|
Diluted book value per common share is calculated as
shareholders equity divided by the number of common shares
outstanding on the balance sheet date, after considering the
dilutive effects of stock-based compensation, calculated using
the treasury stock method. At December 31, 2008 the average
weighted number of shares outstanding, including the dilutive
effect of employee stock-based compensation and convertible
preferred shares (which were converted on November 15,
2008) using the treasury stock method was 59,301,939. |
|
(5) |
|
IPC reported diluted book value per common share as $33.07 in
IPCs annual report on
Form 10-K
for the year ended December 31, 2008 and amended it to
$32.85 in an amendment to the IPC/Max
S-4 filed
with the SEC on April 13, 2009. |
-19-
UNAUDITED
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma
financial information is intended to provide you with
information about how the acquisition of IPC might have affected
the historical financial statements of Validus if it had been
consummated at an earlier time. The unaudited condensed
consolidated pro forma information has been prepared using
IPCs publicly available financial statements and
disclosures, without the benefit of inspection of IPCs
books and records. Therefore, certain pro forma adjustments,
such as recording fair value of assets and liabilities and
adjustments for consistency of accounting policy, are not
reflected in these unaudited condensed consolidated pro forma
financial statements. The following unaudited condensed
consolidated pro forma financial information does not
necessarily reflect the financial position or results of
operations that would have actually resulted had the acquisition
occurred as of the dates indicated, nor should they be taken as
necessarily indicative of the future financial position or
results of operations of Validus.
The unaudited condensed consolidated pro forma financial
information should be read in conjunction with the Validus 10-Q,
the Validus
10-K, the
IPC 10-Q
and the IPC 10-K, each as filed with the SEC. The unaudited
condensed consolidated pro forma financial information gives
effect to the proposed acquisition as if it had occurred at
March 31, 2009 for the purposes of the unaudited
consolidated pro forma balance sheet and at January 1, 2008
for the purposes of the unaudited condensed consolidated pro
forma statements of operations for the year ended
December 31, 2008 and the three months ended March 31,
2009. For a summary of the proposed business combination
contemplated by the Acquisition, see the section of this proxy
statement entitled The Acquisition.
-20-
The following table presents unaudited condensed consolidated
pro forma balance sheet data at March 31, 2009 (expressed
in thousands of U.S. dollars, except share and per share
data) giving effect to the proposed acquisition of IPC Shares as
if it had occurred at March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Validus
|
|
|
Historical IPC
|
|
|
Purchase
|
|
|
|
|
Pro Forma
|
|
|
|
Holdings Ltd.
|
|
|
Holdings Ltd.
|
|
|
adjustments
|
|
|
Notes
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, at fair value
|
|
$
|
2,644,496
|
|
|
$
|
1,772,805
|
|
|
$
|
|
|
|
|
|
$
|
4,417,301
|
|
Short-term investments, at fair value
|
|
|
282,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282,363
|
|
Equity investments, at fair value
|
|
|
|
|
|
|
295,091
|
|
|
|
|
|
|
|
|
|
295,091
|
|
Cash and cash equivalents
|
|
|
535,798
|
|
|
|
122,070
|
|
|
|
(245,706
|
)
|
|
3(a) 3(b), 4
|
|
|
412,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and cash
|
|
|
3,462,657
|
|
|
|
2,189,966
|
|
|
|
(245,706
|
)
|
|
|
|
|
5,406,917
|
|
Premiums receivable
|
|
|
600,943
|
|
|
|
199,241
|
|
|
|
(160
|
)
|
|
3(e)
|
|
|
800,024
|
|
Deferred acquisition costs
|
|
|
143,510
|
|
|
|
23,302
|
|
|
|
|
|
|
|
|
|
166,812
|
|
Prepaid reinsurance premiums
|
|
|
59,510
|
|
|
|
3,585
|
|
|
|
(199
|
)
|
|
3(e)
|
|
|
62,896
|
|
Securities lending collateral
|
|
|
99,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,727
|
|
Loss reserves recoverable
|
|
|
204,197
|
|
|
|
4,274
|
|
|
|
|
|
|
|
|
|
208,471
|
|
Paid losses recoverable
|
|
|
4,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,438
|
|
Net receivable for investments sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income
|
|
|
20,511
|
|
|
|
27,907
|
|
|
|
|
|
|
|
|
|
48,418
|
|
Current taxes recoverable
|
|
|
1,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,244
|
|
Intangible assets
|
|
|
126,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,177
|
|
Goodwill
|
|
|
20,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,393
|
|
Other assets
|
|
|
19,491
|
|
|
|
4,810
|
|
|
|
|
|
|
|
|
|
24,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,762,798
|
|
|
$
|
2,453,085
|
|
|
$
|
(246,065
|
)
|
|
|
|
$
|
6,969,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned premiums
|
|
$
|
795,233
|
|
|
$
|
219,641
|
|
|
$
|
(199
|
)
|
|
3(e)
|
|
$
|
1,014,675
|
|
Reserve for losses and loss expense
|
|
|
1,318,732
|
|
|
|
354,467
|
|
|
|
|
|
|
|
|
|
1,673,199
|
|
Reinsurance balances payable
|
|
|
66,180
|
|
|
|
4,483
|
|
|
|
(160
|
)
|
|
3(e)
|
|
|
70,503
|
|
Deferred taxation
|
|
|
20,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,914
|
|
Securities lending payable
|
|
|
105,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,369
|
|
Net payable for investments purchased
|
|
|
57,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,434
|
|
Accounts payable and accrued expenses
|
|
|
71,650
|
|
|
|
25,020
|
|
|
|
|
|
|
|
|
|
96,670
|
|
Debentures payable
|
|
|
304,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,739,812
|
|
|
|
603,611
|
|
|
|
(359
|
)
|
|
|
|
|
3,343,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
13,271
|
|
|
|
561
|
|
|
|
10,547
|
|
|
3(a) 3(c) 3(d)
|
|
|
24,379
|
|
Additional paid-in capital
|
|
|
1,419,602
|
|
|
|
1,091,491
|
|
|
|
430,938
|
|
|
3(a) 3(c) 3(d)
|
|
|
2,942,031
|
|
Accumulated other comprehensive loss
|
|
|
(8,054
|
)
|
|
|
(876
|
)
|
|
|
876
|
|
|
3(d)
|
|
|
(8,054
|
)
|
Retained earnings
|
|
|
598,167
|
|
|
|
758,298
|
|
|
|
(688,067
|
)
|
|
3(b) 3(d) 3(f)
|
|
|
668,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,022,986
|
|
|
|
1,849,474
|
|
|
|
(245,706
|
)
|
|
|
|
|
3,626,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
4,762,798
|
|
|
$
|
2,453,085
|
|
|
$
|
(246,065
|
)
|
|
|
|
$
|
6,969,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
75,828,922
|
|
|
|
55,948,821
|
|
|
|
62,852,906
|
|
|
|
|
|
138,681,828
|
|
Common shares and common share equivalents outstanding
|
|
|
90,317,793
|
|
|
|
56,501,900
|
|
|
|
63,474,234
|
|
|
|
|
|
153,792,027
|
|
Book value per share
|
|
$
|
26.68
|
|
|
$
|
33.06
|
|
|
|
|
|
|
8
|
|
$
|
26.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted book value per share
|
|
$
|
24.65
|
|
|
$
|
32.73
|
|
|
|
|
|
|
8
|
|
$
|
24.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted tangible book value per share
|
|
$
|
23.03
|
|
|
$
|
32.73
|
|
|
|
|
|
|
|
|
$
|
23.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-21-
The following table sets forth unaudited condensed consolidated
pro forma results of operations for the year ended December 31,
2008 (expressed in thousands of U.S. dollars, except share
and per share data) giving effect to the proposed acquisition as
if it had occurred at January 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Validus
|
|
|
Historical IPC
|
|
|
Purchase
|
|
|
|
|
Pro Forma
|
|
|
|
Holdings, Ltd.
|
|
|
Holdings, Ltd.
|
|
|
adjustments
|
|
|
Notes
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
1,362,484
|
|
|
$
|
403,395
|
|
|
$
|
(251
|
)
|
|
3(e), 5
|
|
$
|
1,765,628
|
|
Reinsurance premiums ceded
|
|
|
(124,160
|
)
|
|
|
(6,122
|
)
|
|
|
251
|
|
|
3(e)
|
|
|
(130,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
|
1,238,324
|
|
|
|
397,273
|
|
|
|
|
|
|
|
|
|
1,635,597
|
|
Change in unearned premiums
|
|
|
18,194
|
|
|
|
(9,906
|
)
|
|
|
|
|
|
|
|
|
8,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
1,256,518
|
|
|
|
387,367
|
|
|
|
|
|
|
|
|
|
1,643,885
|
|
Net investment income
|
|
|
139,528
|
|
|
|
94,105
|
|
|
|
(9,731
|
)
|
|
3(b)
|
|
|
223,902
|
|
Realized gain on repurchase of debentures
|
|
|
8,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,752
|
|
Net realized (losses) gains on investments
|
|
|
(1,591
|
)
|
|
|
(168,208
|
)
|
|
|
|
|
|
|
|
|
(169,799
|
)
|
Net unrealized (losses) gains on investments
|
|
|
(79,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,707
|
)
|
Other income
|
|
|
5,264
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
5,329
|
|
Foreign exchange losses
|
|
|
(49,397
|
)
|
|
|
(1,848
|
)
|
|
|
|
|
|
|
|
|
(51,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,279,367
|
|
|
|
311,481
|
|
|
|
(9,731
|
)
|
|
|
|
|
1,581,117
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expense
|
|
|
772,154
|
|
|
|
155,632
|
|
|
|
|
|
|
6
|
|
|
927,786
|
|
Policy acquisition costs
|
|
|
234,951
|
|
|
|
36,429
|
|
|
|
|
|
|
|
|
|
271,380
|
|
General and administrative expenses
|
|
|
123,948
|
|
|
|
20,689
|
|
|
|
|
|
|
|
|
|
144,637
|
|
Share compensation expense
|
|
|
27,097
|
|
|
|
5,625
|
|
|
|
|
|
|
|
|
|
32,722
|
|
Finance expenses
|
|
|
57,318
|
|
|
|
2,659
|
|
|
|
|
|
|
|
|
|
59,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(1,215,468
|
)
|
|
|
(221,034
|
)
|
|
|
|
|
|
|
|
|
(1,436,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
63,899
|
|
|
|
90,447
|
|
|
|
(9,731
|
)
|
|
|
|
|
144,615
|
|
Income tax expense
|
|
|
(10,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
53,111
|
|
|
$
|
90,447
|
|
|
$
|
(9,731
|
)
|
|
|
|
$
|
133,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividend and warrant dividend
|
|
|
6,947
|
|
|
|
14,939
|
|
|
|
(14,939
|
)
|
|
3(g)
|
|
|
6,947
|
|
Net income available to common shareholders
|
|
$
|
46,164
|
|
|
$
|
75,508
|
|
|
$
|
5,208
|
|
|
|
|
$
|
126,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share
equivalents outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
74,677,903
|
|
|
|
52,124,034
|
|
|
|
62,852,906
|
|
|
|
|
|
137,530,809
|
|
Diluted
|
|
|
75,819,413
|
|
|
|
59,301,939
|
|
|
|
63,474,234
|
|
|
|
|
|
139,293,647
|
|
Basic earnings per share
|
|
$
|
0.62
|
|
|
$
|
1.45
|
|
|
|
|
|
|
7
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.61
|
|
|
$
|
1.45
|
|
|
|
|
|
|
7
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-22-
The following table sets forth unaudited condensed consolidated
pro forma results of operations for the three months ended
March 31, 2009 (expressed in thousands of
U.S. dollars, except share and per share data) giving
effect to the proposed acquisition of IPC Shares as if it had
occurred at January 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Validus
|
|
|
Historical IPC
|
|
|
Purchase
|
|
|
|
|
Pro Forma
|
|
|
|
Holdings Ltd.
|
|
|
Holdings Ltd.
|
|
|
adjustments
|
|
|
Notes
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
|
$
|
609,892
|
|
|
$
|
234,610
|
|
|
$
|
(265
|
)
|
|
3(e), 5
|
|
$
|
844,237
|
|
Reinsurance premiums ceded
|
|
|
(72,512
|
)
|
|
|
(3,154
|
)
|
|
|
265
|
|
|
3(e)
|
|
|
(75,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
|
537,380
|
|
|
|
231,456
|
|
|
|
|
|
|
|
|
|
768,836
|
|
Change in unearned premiums
|
|
|
(218,621
|
)
|
|
|
(132,748
|
)
|
|
|
|
|
|
|
|
|
(351,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
318,759
|
|
|
|
98,708
|
|
|
|
|
|
|
|
|
|
417,467
|
|
Net investment income
|
|
|
26,772
|
|
|
|
21,866
|
|
|
|
(1,953
|
)
|
|
3(b)
|
|
|
46,685
|
|
Realized gain on repurchase of debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized (losses) gains on investments
|
|
|
(23,421
|
)
|
|
|
(35,572
|
)
|
|
|
|
|
|
|
|
|
(58,993
|
)
|
Net unrealized (losses) gains on investments
|
|
|
22,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,153
|
|
Other income
|
|
|
757
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
764
|
|
Foreign exchange gains (losses)
|
|
|
(4,200
|
)
|
|
|
(3,146
|
)
|
|
|
|
|
|
|
|
|
(7,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
340,820
|
|
|
|
81,863
|
|
|
|
(1,953
|
)
|
|
|
|
|
420,730
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expense
|
|
|
131,834
|
|
|
|
39,109
|
|
|
|
|
|
|
6
|
|
|
170,943
|
|
Policy acquisition costs
|
|
|
61,449
|
|
|
|
9,838
|
|
|
|
|
|
|
|
|
|
71,287
|
|
General and administrative expenses
|
|
|
38,079
|
|
|
|
21,792
|
|
|
|
(13,800
|
)
|
|
3(b)
|
|
|
46,071
|
|
Share compensation expense
|
|
|
7,354
|
|
|
|
2,489
|
|
|
|
|
|
|
|
|
|
9,843
|
|
Finance expenses
|
|
|
7,723
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
8,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(246,439
|
)
|
|
|
(73,611
|
)
|
|
|
13,800
|
|
|
|
|
|
(306,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
94,381
|
|
|
|
8,252
|
|
|
|
11,847
|
|
|
|
|
|
114,480
|
|
Income tax credit
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income after taxes
|
|
$
|
94,907
|
|
|
$
|
8,252
|
|
|
$
|
11,847
|
|
|
|
|
$
|
115,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividend and warrant dividend
|
|
|
1,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
93,171
|
|
|
$
|
8,252
|
|
|
$
|
11,847
|
|
|
|
|
$
|
113,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share
equivalents outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
75,744,577
|
|
|
|
55,903,740
|
|
|
|
62,852,906
|
|
|
|
|
|
138,597,483
|
|
Diluted
|
|
|
79,102,643
|
|
|
|
55,916,256
|
|
|
|
63,474,234
|
|
|
|
|
|
142,576,877
|
|
Basic earnings per share
|
|
$
|
1.23
|
|
|
$
|
0.15
|
|
|
|
|
|
|
7
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.20
|
|
|
$
|
0.15
|
|
|
|
|
|
|
7
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-23-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
The unaudited condensed consolidated pro forma financial
information gives effect to the Acquisition as if it had
occurred at March 31, 2009 for the purposes of the
unaudited condensed consolidated pro forma balance sheet and at
January 1, 2008 for the purposes of the unaudited condensed
consolidated pro forma statements of operations for the year
ended December 31, 2008 and three months ended
March 31, 2009. The unaudited condensed consolidated pro
forma financial information has been prepared by Validus
management and is based on Validus historical consolidated
financial statements and IPCs historical consolidated
financial statements. Certain amounts from IPCs historical
consolidated financial statements have been reclassified to
conform to the Validus presentation. The unaudited condensed
consolidated pro forma financial statements have been prepared
using IPCs publicly available financial statements and
disclosures, without the benefit of inspection of IPCs
books and records or discussion with the IPC management team.
Therefore, certain pro forma adjustments, such as recording fair
value of assets and liabilities and adjustments for consistency
of accounting policy, are not reflected in these unaudited
condensed consolidated pro forma financial statements.
Additional reclassifications of IPC data to conform to the
Validus presentation may also be required.
This unaudited condensed consolidated pro forma financial
information is prepared in conformity with US GAAP. The
unaudited condensed consolidated pro forma balance sheet as of
March 31, 2009 and the unaudited condensed consolidated pro
forma statements of operations for the year ended
December 31, 2008 and the three months ended March 31,
2009 have been prepared using the following information:
(a) Audited historical consolidated financial statements of
Validus as of December 31, 2008 and for the year ended
December 31, 2008;
(b) Audited historical consolidated financial statements of
IPC as of December 31, 2008 and for the year ended
December 31, 2008;
(c) Unaudited historical consolidated financial statements
of Validus as of March 31, 2009 and for the three months
ended March 31, 2009;
(d) Unaudited historical consolidated financial statements
of IPC as of March 31, 2009 and for the three months ended
March 31, 2009;
(e) Such other known supplementary information as
considered necessary to reflect the Acquisition in the unaudited
condensed consolidated pro forma financial information.
The pro forma adjustments reflecting the Acquisition of IPC
under the purchase method of accounting are based on certain
estimates and assumptions. The unaudited condensed consolidated
pro forma adjustments may be revised as additional information
becomes available. The actual adjustments upon consummation of
the Acquisition and the allocation of the final purchase price
of IPC will depend on a number of factors, including additional
financial information available at such time, changes in values
and changes in IPCs operating results between the date of
preparation of this unaudited condensed consolidated pro forma
financial information and the effective date of the Acquisition.
Therefore, it is likely that the actual adjustments will differ
from the pro forma adjustments and it is possible the
differences may be material. Validus management believes
that its assumptions provide a reasonable basis for presenting
all of the significant effects of the transactions contemplated
based on information available to Validus at the time and that
the pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the unaudited condensed
consolidated pro forma financial information.
The unaudited condensed consolidated pro forma financial
information does not include any financial benefits, revenue
enhancements or operating expense efficiencies arising from the
Acquisition. In addition, the unaudited condensed consolidated
pro forma financial information does not include any additional
expenses that may result from the acquisition of IPC Shares.
Estimated costs of the transaction as well as the benefit of the
negative goodwill have
-24-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
been reflected in the unaudited condensed consolidated pro forma
balance sheets, but have not been included on the pro forma
income statement due to their non-recurring nature.
The unaudited condensed consolidated pro forma financial
information is not intended to reflect the results of operations
or the financial position that would have resulted had the
Acquisition been effected on the dates indicated and if the
companies had been managed as one entity. The unaudited
condensed consolidated pro forma financial information should be
read in conjunction with the Validus 10-Q, the Validus 10-K, the
IPC 10-Q and the IPC 10-K, as filed with the SEC.
|
|
2.
|
Recent
Accounting Pronouncements
|
In December 2007, the FASB issued Statement No. 141(R),
Business Combinations (FAS 141(R))
and No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51
(FAS 160) which are effective for business
combinations for which the Acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008. On April 1, 2009 the FASB
finalized and issued FSP FAS 141(R)-1 which amended and
clarified FAS 141 (R) and is effective for business
combinations whose Acquisition date is on or after
January 1, 2009.
FSP FAS 141(R)-1 has amended FAS 141(R)s
guidance on the initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets acquired
and liabilities assumed in a business combination that arise
from contingencies.
Significant changes arising from FAS 141 (R) and FSP
FAS 141(R)-1 which will impact any future acquisitions
include the determination of the purchase price and treatment of
transaction expenses, restructuring charges and negative
goodwill as follows:
|
|
|
|
|
Purchase Price Under FAS 141(R), the purchase
price is determined as of the acquisition date, which is the
date that the acquirer obtains control. Previously, the date the
business combination was announced was used as the effective
date in determining the purchase price;
|
|
|
|
Transactions Expenses Under FAS 141(R), all
costs associated with purchase transactions must be expensed as
incurred. Previously, all such costs could be capitalized and
included as part of transaction purchase price, adding to the
amount of goodwill recognized;
|
|
|
|
Restructuring Costs Under FAS 141(R), expected
restructuring costs are not recorded at the closing date, but
rather after the transaction. The only costs to be included as a
liability at the closing date are those for which an acquirer is
obligated at the time of the closing. Previously, restructuring
costs that were planned to occur after the closing of the
transaction were recognized and recorded at the closing date as
a liability;
|
|
|
|
Negative Goodwill/Bargain Purchases Under
FAS 141(R), where total fair value of net assets acquired
exceeds consideration paid (creating negative
goodwill), the acquirer will record a gain as a result of
the bargain purchase, to be recognized through the income
statement at the close of the transaction. Previously, negative
goodwill was recognized as a pro rata reduction of the assets
assumed to allow the net assets acquired to equal the
consideration paid; and
|
|
|
|
Noncontrolling Interests Under FAS 141(R), in a
partial or step acquisition where control is obtained, 100% of
goodwill and identifiable net assets are recognized at fair
value and the noncontrolling (sometimes called minority
interest) interest is also recorded at fair value. Previously,
in a partial acquisition only the controlling interests
share of goodwill was recognized, the controlling
interests share of identifiable net assets was recognized
at fair value and the noncontrolling interests share of
identifiable net assets was recognized at carrying value. Under
FAS 160, a noncontrolling interest is now recognized in the
equity section, presented separately from the controlling
interests equity. Previously, noncontrolling interest in
general was recorded in the mezzanine section.
|
-25-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
On April 30, 2009, Validus announced a three-part plan to
acquire IPC. The three-part plan involves (1) soliciting
IPC shareholders to vote against the Proposed Max Amalgamation,
(2) commencing an Exchange Offer for all IPC Shares and
(3) petitioning the Supreme Court of Bermuda to approve a
Scheme of Arrangement under Bermuda law. If the Acquisition is
consummated, former IPC shareholders will no longer have any
ownership interest in IPC and will be shareholders of Validus.
Validus intends, promptly following the Scheme of Arrangement or
Exchange Offer and the second-step acquisition, to amalgamate
IPC with a newly-formed, wholly-owned subsidiary of Validus in
accordance with Section 107 of the Companies Act.
On May 18, 2009, Validus announced that it delivered an
improved offer to the Board of Directors of IPC for the
amalgamation of Validus and IPC. Under the improved offer, IPC
shareholders will receive $3.00 in cash and 1.1234 Validus
Shares for each IPC Share. The improved offer provides IPC
shareholders with a total consideration of $30.14 per IPC share
based on Validus closing price on Friday, May 15,
2009.
In connection with the Acquisition, transaction costs currently
estimated at $40,000 will be incurred and expensed. Of this
amount, $20,000 relates to Validus expenses as set forth in
The Acquisition Sources of Funds, Fees and
Expenses and $20,000 is our estimate of IPCs
expenses based on the IPC/Max
S-4. In
addition, upon termination of the Max Amalgamation Agreement,
the Max Termination Fee will be incurred and expensed. The data
in the following sentence is taken from Managements
Discussion and Analysis of Financial Condition and Results of
Operations contained in the
IPC 10-Q,
where such disclosure was not made in thousands of
U.S. dollars, and the data has been reproduced here
as it was originally presented. Approximately $13.8 million
of expenses, including legal and financial advisory services,
were associated with IPCs strategic initiatives designed
to increase shareholder value and which resulted in the Max
Amalgamation Agreement. Therefore, Validus is estimating that
approximately $13,800 of the estimated $40,000 total transaction
costs have been incurred and expensed by IPC in the three months
ended March 31, 2009.
As discussed above, these pro forma purchase adjustments are
based on certain estimates and assumptions made as of the date
of the unaudited condensed consolidated pro forma financial
information. The actual adjustments will depend on a number of
factors, including changes in the estimated fair value of net
balance sheet assets and operating results of IPC between
March 31, 2009 and the effective date of the Acquisition.
Validus expects to make such adjustments at the effective date
of the Acquisition. These adjustments are likely to be different
from the adjustments made to prepare the unaudited condensed
consolidated pro forma financial information and such
differences may be material.
-26-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
The share prices for both Validus and IPC used in determining
the preliminary estimated purchase price are based on the
closing share prices on May 15, 2009 (the most practicable
date preceding the filing of this proxy statement). The
preliminary total purchase price is calculated as follows:
|
|
|
|
|
Calculation of Total Purchase Price
|
|
|
|
|
IPC Shares outstanding as of May 8, 2009
|
|
|
55,948,821
|
|
IPC Shares issued pursuant to option exercises
|
|
|
3,804
|
|
IPC Shares issued following vesting of restricted shares, RSUs
and PSUs
|
|
|
549,275
|
|
|
|
|
|
|
Total IPC Shares and share equivalents prior to transaction
|
|
|
56,501,900
|
|
Exchange ratio
|
|
|
1.1234
|
|
|
|
|
|
|
Total Validus Shares to be issued
|
|
|
63,474,234
|
|
Validus closing share price on May 15, 2009
|
|
$
|
24.16
|
|
|
|
|
|
|
Total value of Validus Shares to be issued
|
|
$
|
1,533,537
|
|
|
|
|
|
|
Total cash consideration paid at $3.00 per IPC share
|
|
$
|
169,506
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
1,703,043
|
|
The allocation of the purchase price is as follows:
|
|
|
|
|
Allocation of Purchase Price
|
|
|
|
|
IPC shareholders equity(b)
|
|
$
|
1,849,474
|
|
Total purchase price(a)
|
|
$
|
1,703,043
|
|
|
|
|
|
|
Negative goodwill (a b)
|
|
$
|
146,431
|
|
|
|
|
|
|
|
|
|
(a) |
|
In connection with the Acquisition, 63,474,234 shares are
expected to be issued for all of IPCs common shares,
common shares issued pursuant to option exercises, and common
shares issued following vesting of restricted shares, restricted
share units and preferred share units resulting in additional
share capital of $11,108 and Additional Paid-In Capital of
$1,522,429. In addition, cash consideration of $3.00 per IPC
share, or $169,506 in total, is expected to be paid to IPC
shareholders. |
|
(b) |
|
It is expected that total transaction costs currently estimated
at $40,000 and the Max termination fee of $50,000 will be
incurred and expensed by the consolidated entity. Based on an
expected investment return of 3.75% per annum, investment
income of $9,731 would have been foregone during the year end
December 31, 2008 had these payments of $259,506 been made. |
|
|
|
The data in the following sentence is taken from
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in the
IPC 10-Q,
where such disclosure was not made in thousands of
U.S. dollars, and the data has been reproduced here
as it was originally presented. Approximately $13.8 million
of expenses, including legal and financial advisory services,
were associated with IPCs strategic initiatives, designed
to increase shareholder value, and which resulted in the Max
Amalgamation Agreement. Therefore, Validus is estimating that
approximately $13,800 of the estimated $40,000 total transaction
costs have been incurred and expensed by IPC in the three months
ended March 31, 2009. These expenses have been eliminated
from the unaudited condensed consolidated pro forma results of
operations for the three months ended March 31, 2009. In
addition, an adjustment of $76,200 was recorded to cash and to
retained earnings as at March 31, 2009 to reflect the
remaining transaction costs and Max termination fee. Based on an
expected investment return of 3.18% per annum, investment
income of $1,953 would have been foregone during the three
months ended March 31, 2009 had these remaining payments of
$245,706 been made. |
-27-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
|
|
|
(c) |
|
Employees of IPC hold 427,000 options to purchase IPC
Shares. These options would vest upon a change in control, and
would be exercisable. The exercise price range of these options
is from $13 to $49, with a weighted average of $34.68. It is
expected that 3,804 net shares would be issued upon
exercise of these options. |
|
(d) |
|
Elimination of IPCs Ordinary Shares of $561, Additional
Paid in Capital of $1,091,491, Accumulated Other Comprehensive
Loss of $876 and Retained Earnings of $758,298. |
|
(e) |
|
A related party balance of $265 for the three months ended
March 31, 2009 and $251 for the year ended
December 31, 2008 representing reinsurance ceded to IPC by
Validus was eliminated from gross premiums written and
reinsurance ceded. Corresponding prepaid reinsurance premiums
and unearned premiums of $199 and premiums receivable and
reinsurance balances payable of $160 have been eliminated from
the pro forma balance sheet. |
|
(f) |
|
The unaudited condensed consolidated pro forma financial
statements have been prepared using IPCs publicly
available financial statements and disclosures, without the
benefit of inspection of IPCs books and records.
Therefore, the carrying value of assets and liabilities in
IPCs financial statements are considered to be a proxy for
fair value of those assets and liabilities, with the difference
between the net assets and the total purchase price considered
to be negative goodwill. In addition, certain pro forma
adjustments, such as recording fair value of assets and
liabilities and adjustments for consistency of accounting
policy, are not reflected in these unaudited pro forma
consolidated financial statements. In December 2007, the
Financial Accounting Standards Board (FASB) issued
Statement No. 141(R), Business Combinations
(FAS 141(R)) This Statement defines a bargain
purchase as a business combination in which the total
Acquisition-date fair value of the identifiable net assets
acquired exceeds the fair value of the consideration transferred
plus any noncontrolling interest in the acquiree, and it
requires the acquirer to recognize that excess in earnings as a
gain attributable to the acquirer. Negative goodwill of $146,431
has been recorded as a credit to retained earnings as upon
completion of the Acquisition negative goodwill will be treated
as a gain in the consolidated statement of operations. |
|
(g) |
|
On November 15, 2008, IPCs 9,000,000 Series A
Mandatory Convertible preferred shares automatically converted
pursuant to their terms into 9,129,600 common shares. Therefore,
dividends of $14,939 on these preferred shares of IPC have been
eliminated from the unaudited pro forma results of operations
for the year ended December 31, 2008. |
|
|
4.
|
Adjustments
to cash and cash equivalents
|
The Acquisition will result in the payment of cash and cash
equivalents by IPC of $56,200 and by Validus of $189,506.
The unaudited condensed consolidated pro forma statements of
operations reflect the impact of these reductions in cash and
cash equivalents. Actual transaction costs may vary from such
estimates which are based on the best information available at
the time the unaudited condensed consolidated pro forma
financial information was prepared.
-28-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
For purposes of presentation in the unaudited condensed
consolidated pro forma financial information, the sources and
uses of funds of the acquisition are as follows:
|
|
|
|
|
Sources of funds
|
IPC cash and cash equivalents
|
|
$
|
56,200
|
|
Validus cash and cash equivalents
|
|
|
189,506
|
|
|
|
|
|
|
Total
|
|
$
|
245,706
|
|
|
|
|
|
|
|
Uses of funds
|
Cash consideration for IPC shares
|
|
$
|
169,506
|
|
IPC transaction costs
|
|
|
6,200
|
|
Validus transaction costs
|
|
|
20,000
|
|
Max termination fee
|
|
|
50,000
|
|
|
|
|
|
|
Total
|
|
$
|
245,706
|
|
|
|
|
|
|
|
|
5.
|
Gross
Premiums Written
|
IPC did not disclose gross premiums written by class of business
in the IPC 10-Q. Therefore, a table of gross premiums written by
Validus, IPC and pro forma combined cannot be presented.
-29-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
The following table sets forth the gross premiums written for
the year ended December 31, 2008 by Validus, IPC and pro
forma combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus Re
|
|
Validus
|
|
|
IPC(a)
|
|
|
Purchase Adjustments
|
|
|
Combined
|
|
|
Property Cat XOL(b)
|
|
$
|
328,216
|
|
|
$
|
333,749
|
|
|
$
|
|
|
|
$
|
661,965
|
|
Property Per Risk XOL
|
|
|
54,056
|
|
|
|
10,666
|
|
|
|
|
|
|
|
64,722
|
|
Property Proportional(c)
|
|
|
110,695
|
|
|
|
|
|
|
|
|
|
|
|
110,695
|
|
Marine
|
|
|
117,744
|
|
|
|
|
|
|
|
|
|
|
|
117,744
|
|
Aerospace
|
|
|
39,323
|
|
|
|
18,125
|
|
|
|
(151
|
)
|
|
|
57,297
|
|
Life and A&H
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
1,009
|
|
Financial Institutions
|
|
|
4,125
|
|
|
|
|
|
|
|
|
|
|
|
4,125
|
|
Other
|
|
|
|
|
|
|
8,318
|
|
|
|
(100
|
)
|
|
|
8,218
|
|
Terrorism
|
|
|
25,502
|
|
|
|
|
|
|
|
|
|
|
|
25,502
|
|
Workers Comp
|
|
|
7,101
|
|
|
|
|
|
|
|
|
|
|
|
7,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Validus Re Segment
|
|
|
687,771
|
|
|
|
370,858
|
|
|
|
(251
|
)
|
|
|
1,058,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Talbot
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
152,143
|
|
|
|
|
|
|
|
|
|
|
|
152,143
|
|
Marine
|
|
|
287,694
|
|
|
|
|
|
|
|
|
|
|
|
287,694
|
|
Aviation & Other
|
|
|
40,028
|
|
|
|
|
|
|
|
|
|
|
|
40,028
|
|
Accident & Health
|
|
|
18,314
|
|
|
|
|
|
|
|
|
|
|
|
18,314
|
|
Financial Institutions
|
|
|
42,263
|
|
|
|
|
|
|
|
|
|
|
|
42,263
|
|
War
|
|
|
128,693
|
|
|
|
|
|
|
|
|
|
|
|
128,693
|
|
Contingency
|
|
|
22,924
|
|
|
|
|
|
|
|
|
|
|
|
22,924
|
|
Bloodstock
|
|
|
16,937
|
|
|
|
|
|
|
|
|
|
|
|
16,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Talbot Segment
|
|
|
708,996
|
|
|
|
|
|
|
|
|
|
|
|
708,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
(21,724
|
)
|
|
|
|
|
|
|
|
|
|
|
(21,724
|
)
|
Marine
|
|
|
(8,543
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,543
|
)
|
Specialty
|
|
|
(4,016
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intersegment Revenue Eliminated
|
|
|
(34,283
|
)
|
|
|
|
|
|
|
|
|
|
|
(34,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for reinstatement premium
|
|
|
|
|
|
|
32,537
|
|
|
|
|
|
|
|
32,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,362,484
|
|
|
$
|
403,395
|
|
|
$
|
(251
|
)
|
|
$
|
1,765,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
For IPC, this includes annual (deposit) and adjustment premiums.
Excludes reinstatement premiums of $32,537 which are not
classified by class of business by IPC. |
|
(b) |
|
For Validus, Cat XOL is comprised of Catastrophe XOL, Aggregate
XOL, RPP, Per Event XOL, Second Event and Third Event covers.
For IPC, this includes Catastrophe XOL and Retrocessional. |
|
(c) |
|
Proportional is comprised of Quota Share and Surplus Share. |
-30-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
Selected ratios of Validus, IPC and pro forma combined are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2008
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
Validus
|
|
|
IPC
|
|
|
combined
|
|
|
Validus
|
|
|
IPC
|
|
|
combined
|
|
|
Losses and loss expenses ratios
|
|
|
61.5
|
%
|
|
|
40.2
|
%
|
|
|
56.4
|
%
|
|
|
41.4
|
%
|
|
|
39.6
|
%
|
|
|
40.9
|
%
|
Policy acquisition costs ratios
|
|
|
18.7
|
|
|
|
9.4
|
|
|
|
16.5
|
|
|
|
19.3
|
|
|
|
10.0
|
|
|
|
17.1
|
|
General and administrative cost ratios
|
|
|
12.0
|
|
|
|
6.8
|
|
|
|
10.8
|
|
|
|
14.3
|
|
|
|
24.6
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
92.2
|
%
|
|
|
56.4
|
%
|
|
|
83.7
|
%
|
|
|
75.0
|
%
|
|
|
74.2
|
%
|
|
|
71.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Factors affecting the losses and loss expense ratio for the year
ended December 31, 2008 |
|
|
|
Validus losses and loss expense ratio, which is defined as
losses and loss expenses divided by net premiums earned, for the
year ended December 31, 2008 was 61.5%. During the year
ended December 31, 2008, the frequency and severity of
worldwide losses that materially affected Validus losses
and loss expense ratio increased. During the year ended
December 31, 2008, Validus incurred $260,567 and $22,141 of
loss expense attributable to Hurricanes Ike and Gustav, which
represent 20.7 and 1.8 percentage points of the losses and
loss expense ratio, respectively. Other notable loss events
added $45,895 of 2008 loss expense or 3.7 percentage points
of the losses and loss expense ratio bringing the total effect
of aforementioned events on the 2008 losses and loss expense
ratio to 26.2 percentage points. Favorable loss development
on prior years totaled $69,702. Favorable loss reserve
development benefited Validus losses and loss expense
ratio for the year ended December 31, 2008 by
5.5 percentage points. |
|
|
|
The data in the following paragraph is taken from
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in
IPCs Annual Report on
Form 10-K
for the year ended December 31, 2008. Such disclosure was
not made in thousands of U.S. dollars, and the
data has been reproduced here as it was originally presented. |
|
|
|
IPCs losses and loss expense ratio, which is defined as
losses and loss expenses divided by net premiums earned, for the
year ended December 31, 2008 was 40.2%. IPC incurred net
losses and loss adjustment expenses of $155.6 million for
the year ended December 31, 2008. Total net losses for the
year ended December 31, 2008 relating to the current year
were $206.6 million, while reductions to estimates of
ultimate net loss for prior year events were $50.9 million.
During 2008, IPCs incurred losses included:
$23.0 million from the Alon Refinery explosion in Texas, a
storm that affected Queensland, Australia, and Windstorm Emma
that affected parts of Europe, which all occurred in the first
quarter of 2008; $10.5 million from the flooding in Iowa in
June and tornadoes that affected the mid-west United States in
May 2008; together with $160.0 million from Hurricane Ike
and $7.6 million from Hurricane Gustav, which both occurred
in September 2008. The impact on IPCs 2008 losses and loss
expense ratio from these events was 51.9 percentage points.
The losses from these events were partly offset by reductions to
IPCs estimates of ultimate loss for a number of prior year
events, including $11.0 million for Hurricane Katrina,
$18.6 million for the storm and flooding that affected New
South Wales, Australia in 2007 and $22.8 million for the
floods that affected parts of the U.K. in June and July 2007.
The cumulative $52.4 million of favorable loss reserve
development benefited the IPCs losses and loss expense
ratio for the year ended December 31, 2008 by
13.5 percentage points. |
-31-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
|
|
|
(b) |
|
Factors affecting the losses and loss expense ratio for the
three months ended March 31, 2009 |
|
|
|
Validus losses and loss expense ratio, which is defined as
losses and loss expenses divided by net premiums earned, for the
three months ended March 31, 2009, was 41.4%. During the
three months ended March 31, 2009, Validus incurred $6,889
and $6,625 of loss expense attributable to Windstorm Klaus and
Australian wildfires, respectively, which represent 2.2 and
2.1 percentage points of the losses and loss expense ratio,
respectively. Favorable loss development on prior years totaled
$8,079. Favorable loss reserve development benefited
Validus losses and loss expense ratio for the months ended
March 31, 2009 by 2.5 percentage points. |
|
|
|
The data in the following paragraph is taken from
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in the IPC
10-Q. Such disclosure was not made in thousands of
U.S. dollars, and the data has been reproduced here
as it was originally presented. |
|
|
|
IPCs losses and loss expense ratio, which is defined as
losses and loss expenses divided by net premiums earned, for the
three months ended March 31, 2009, was 39.6%. In the
quarter ended March 31, 2009, IPC incurred net losses and
loss adjustment expenses of $39.1 million, compared to
$5.3 million in the first quarter of 2008. Net losses
incurred in the first quarter of 2009 included
$15.0 million from Winter Storm Klaus that affected
southern France and $13.3 million from the bushfires in
south eastern Australia, as well as net adverse development to
their estimates of ultimate losses for several prior year
events. The impact on IPCs losses and loss expense ratio
from these events was 28.7 percentage points. |
-32-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
|
|
7.
|
Earnings
per Common Share
|
(a) Pro forma earnings per common share for the year ended
December 31, 2008 and the three months ended March 31,
2009 have been calculated based on the estimated weighted
average number of common shares outstanding on a pro forma
basis, as described in 7(b) below. The historical weighted
average number of common shares outstanding of Validus was
74,677,903 and 75,819,413 basic and diluted, respectively, for
the year ended December 31, 2008 and 75,744,577 and
79,102,643 basic and diluted, respectively, for the three months
ended March 31, 2009.
(b) The pro forma weighted average number of common shares
outstanding for the year ended December 31, 2008 and three
months ended March 31, 2009, after giving effect to the
exchange of shares as if the Exchange Offer had been issued and
outstanding for the whole year, is 137,530,809 and 139,293,647,
basic and diluted, and 138,597,483 and 142,576,877, basic and
diluted, respectively.
(c) In the basic earnings per share calculation, dividends
and distributions declared on warrants are deducted from net
income. In calculating diluted earnings per share, we consider
the application of the treasury stock method and the two-class
method and which ever is more dilutive is included into the
calculation of diluted earnings per share.
The following table sets forth the computation of basic and
diluted earnings per share for the three months ended
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Validus
|
|
|
Pro Forma
|
|
|
|
Holdings
|
|
|
Consolidated
|
|
|
Net income
|
|
$
|
94,907
|
|
|
$
|
115,006
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic ordinary shares
outstanding
|
|
|
75,744,577
|
|
|
|
138,597,483
|
|
Share Equivalents
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
2,307,094
|
|
|
|
2,307,094
|
|
Restricted Shares
|
|
|
683,468
|
|
|
|
1,300,523
|
|
Options
|
|
|
367,504
|
|
|
|
371,777
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
79,102,643
|
|
|
|
142,576,877
|
|
Basic earnings per share
|
|
$
|
1.23
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.20
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the computation of basic and
diluted earnings per share for the year ended December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Validus
|
|
|
Pro Forma
|
|
|
|
Holdings
|
|
|
Consolidated
|
|
|
Net income
|
|
$
|
46,164
|
|
|
$
|
126,880
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic ordinary shares
outstanding
|
|
|
74,677,903
|
|
|
|
137,530,809
|
|
Share equivalents
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
Restricted Shares
|
|
|
1,004,809
|
|
|
|
1,621,864
|
|
Options
|
|
|
136,701
|
|
|
|
140,974
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
75,819,413
|
|
|
|
139,293,647
|
|
Basic earnings per share
|
|
$
|
0.62
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.61
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
-33-
Validus
Holdings, Ltd.
Notes To
Unaudited Condensed Consolidated Pro Forma Financial Statements
(unaudited) (Continued)
(Expressed
in thousands of U.S. dollars, except share and per share
data)
Validus calculates diluted book value per share using the
as-if-converted method, where all proceeds received
upon exercise of warrants and stock options would be retained by
Validus and the resulting common shares from exercise remain
outstanding. In its public records, IPC calculates diluted book
value per share using the treasury stock method,
where proceeds received upon exercise of warrants and stock
options would be used by IPC to repurchase shares from the
market, with the net common shares from exercise remaining
outstanding. Accordingly, for the purposes of the Pro Forma
Condensed Consolidated Financial Statements and notes thereto,
IPCs diluted book value per share has been recalculated
based on the as-if-converted method to be consistent
with Validus calculation.
The following table sets forth the computation of book value and
diluted book value per share adjusted for the Acquisition as of
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Validus
|
|
|
Pro Forma
|
|
|
|
Holdings
|
|
|
Consolidated
|
|
Book value per common share calculation
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
$
|
2,022,986
|
|
|
$
|
3,626,754
|
|
Shares
|
|
|
75,828,922
|
|
|
|
138,681,828
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
26.68
|
|
|
$
|
26.15
|
|
|
|
|
|
|
|
|
|
|
Diluted book value per common share calculation
|
|
|
|
|
|
|
|
|
Total Shareholders equity
|
|
$
|
2,022,986
|
|
|
$
|
3,626,754
|
|
Proceeds of assumed exercise of outstanding warrants
|
|
$
|
152,316
|
|
|
$
|
152,316
|
|
Proceeds of assumed exercise of outstanding stock options
|
|
$
|
50,969
|
|
|
$
|
50,969
|
|
Unvested restricted shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,226,271
|
|
|
$
|
3,830,039
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
75,828,922
|
|
|
|
138,681,828
|
|
Warrants
|
|
|
8,680,149
|
|
|
|
8,680,149
|
|
Options
|
|
|
2,795,868
|
|
|
|
2,800,141
|
|
Unvested restricted shares
|
|
|
3,012,854
|
|
|
|
3,629,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,317,793
|
|
|
|
153,792,027
|
|
|
|
|
|
|
|
|
|
|
Diluted book value per common share
|
|
$
|
24.65
|
|
|
$
|
24.90
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the computation of debt to total
capitalization and debt (excluding debentures payable) to total
capitalization at March 31, 2009, adjusted for the
Acquisition:
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
Validus
|
|
|
Pro Forma
|
|
|
|
Holdings
|
|
|
Consolidated
|
|
Total debt
|
|
|
|
|
|
|
|
|
Borrowings drawn under credit facility
|
|
$
|
|
|
|
$
|
|
|
Debentures payable
|
|
|
304,300
|
|
|
|
304,300
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
304,300
|
|
|
$
|
304,300
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
$
|
2,022,986
|
|
|
$
|
3,626,754
|
|
Borrowings drawn under credit facility
|
|
|
|
|
|
|
|
|
Debentures payable
|
|
|
304,300
|
|
|
|
304,300
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
2,327,286
|
|
|
$
|
3,931,054
|
|
|
|
|
|
|
|
|
|
|
Total debt to total capitalization
|
|
|
13.1
|
%
|
|
|
7.7
|
%
|
Debt (excluding debentures payable) to total capitalization
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
-34-
COMPARATIVE
PER SHARE DATA
The IPC historical per share data is taken from the IPC/Max
S-4. See
Sources of Additional Information above. The pro forma
combined data is taken from the Unaudited Condensed
Consolidated Pro Forma Financial Information above.
The historical earnings per share, dividends, and book value of
Validus and IPC shown in the table below are derived from their
respective audited consolidated financial statements as of and
for the year ended December 31, 2008 and as of and for the
three months ended March 31, 2009. The unaudited pro forma
comparative basic and diluted earnings per share data give
effect to the Acquisition using the purchase method of
accounting as if the Acquisition had been completed on
January 1, 2008. The unaudited pro forma book value and
diluted book value per share information was computed as if the
Acquisition had been completed on December 31, 2008 and
March 31, 2009.
The historical earnings per share, dividends, and book value of
Validus and IPC shown in the table below are derived from their
respective audited consolidated financial statements as of and
for the year ended December 31, 2008 and as of and for the
three months ended March 31, 2009. The unaudited pro forma
comparative basic and diluted earnings per share data give
effect to the Acquisition using the purchase method of
accounting as if the Acquisition had been completed on
January 1, 2008. The unaudited pro forma book value and
diluted book value per share information was computed as if the
Acquisition had been completed on December 31, 2008 and
March 31, 2009. You should read this information in
conjunction with the historical financial information of Validus
and of IPC included or incorporated elsewhere in this proxy
statement, including Validus and IPCs financial
statements and related notes. The unaudited pro forma data is
not necessarily indicative of actual results had the Acquisition
occurred during the periods indicated. The unaudited pro forma
data is not necessarily indicative of future operations of
Validus.
This pro forma information is subject to risks and
uncertainties, including those discussed in Risk Factors
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data at or for the
|
|
|
year ended December 31, 2008
|
|
|
|
|
|
|
Validus
|
|
|
|
|
|
|
Historical
|
|
Historical
|
|
Pro Forma
|
|
Equivalent Per
|
|
IPC Max
|
|
|
Validus
|
|
IPC
|
|
combined
|
|
IPC Share(1)
|
|
Pro Forma(3)
|
|
Basic earnings per common share
|
|
$
|
0.62
|
|
|
$
|
1.45
|
|
|
$
|
0.92
|
|
|
$
|
1.03
|
|
|
$
|
(0.63
|
)
|
Diluted earnings per common share
|
|
$
|
0.61
|
|
|
$
|
1.45
|
|
|
$
|
0.91
|
|
|
$
|
1.02
|
|
|
$
|
(0.63
|
)
|
Cash dividends declared per common share
|
|
$
|
0.80
|
|
|
$
|
0.88
|
|
|
$
|
0.80
|
|
|
$
|
0.90
|
|
|
$
|
0.73
|
|
Book value per common
share
|
|
$
|
25.64
|
|
|
$
|
33.00
|
|
|
$
|
25.49
|
|
|
$
|
31.64
|
(2)
|
|
$
|
32.30
|
|
Diluted book value per common share
|
|
$
|
23.78
|
|
|
$
|
32.85
|
(4)
|
|
$
|
24.31
|
|
|
$
|
30.31
|
(2)
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data at or for the
|
|
|
three months ended March 31, 2009
|
|
|
|
|
|
|
Validus
|
|
|
|
|
Historical
|
|
Historical
|
|
Pro Forma
|
|
Equivalent Per
|
|
|
Validus
|
|
IPC
|
|
combined
|
|
IPC Share(1)
|
|
Basic earnings per common share
|
|
$
|
1.23
|
|
|
$
|
0.15
|
|
|
$
|
0.82
|
|
|
$
|
0.92
|
|
Diluted earnings per common share
|
|
$
|
1.20
|
|
|
$
|
0.15
|
|
|
$
|
0.81
|
|
|
$
|
0.91
|
|
Cash dividends declared per common share
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
Book value per common share (at period end)
|
|
$
|
26.68
|
|
|
$
|
33.06
|
|
|
$
|
26.15
|
|
|
$
|
32.38
|
(3)
|
Diluted book value per common share
|
|
$
|
24.65
|
|
|
$
|
32.73
|
|
|
$
|
24.90
|
|
|
$
|
30.97
|
(3)
|
|
|
|
(1) |
|
Equivalent per share amounts are calculated by multiplying
Validus pro forma per share amounts by the Acquisition exchange
ratio of 1.1234. |
-35-
|
|
|
(2) |
|
For purposes of calculating equivalent per IPC share values for
book value per common share and diluted book value per common
share, the $3.00 per common share cash consideration is added to
the equivalent per share amounts. |
|
|
|
(3) |
|
Source: IPC/Max Joint Proxy Statement/Prospectus dated
May 7, 2009 at p.22. |
|
|
|
(4) |
|
IPC reported diluted book value per common share as $33.07 in
the
IPC 10-K
and amended it to $32.85 in an amendment to the
IPC/Max S-4
filed with the SEC on April 13, 2009. |
-36-
COMPARATIVE
MARKET PRICE AND DIVIDEND INFORMATION
Validus and IPCs Shares are quoted on the NYSE and
NASDAQ, respectively, under the ticker symbol VR and
IPCR, respectively. The following table sets forth
the high and low closing prices per share of Validus Shares and
IPC Shares for the periods indicated (commencing, in the case of
Validus, from Validus initial public offering on
July 25, 2007) as reported on the consolidated tape of
the NYSE or NASDAQ Global Select Market, as applicable, as well
as cash dividends per common share, as reported in the Validus
10-K and
IPCs annual report on
Form 10-K
for the year ended December 31, 2008, respectively, with
respect to the years 2007 and 2008, and thereafter as reported
in publicly available sources. The IPC dividend information was
taken from the IPC/Max
S-4. See
Sources of Additional Information above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus
|
|
IPC
|
|
|
High
|
|
Low
|
|
Dividend
|
|
High
|
|
Low
|
|
Dividend
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.30
|
|
|
$
|
21.25
|
|
|
$
|
0.20
|
|
|
$
|
30.25
|
|
|
$
|
20.89
|
|
|
$
|
0.22
|
|
Second Quarter (through May 22, 2009)
|
|
$
|
24.52
|
|
|
$
|
22.01
|
|
|
|
N/A
|
|
|
$
|
27.65
|
|
|
$
|
24.55
|
|
|
|
N/A
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.22
|
|
|
$
|
23.00
|
|
|
$
|
0.20
|
|
|
$
|
28.25
|
|
|
$
|
24.82
|
|
|
$
|
0.22
|
|
Second Quarter
|
|
$
|
23.72
|
|
|
$
|
20.11
|
|
|
$
|
0.20
|
|
|
$
|
30.38
|
|
|
$
|
26.55
|
|
|
$
|
0.22
|
|
Third Quarter
|
|
$
|
24.70
|
|
|
$
|
20.00
|
|
|
$
|
0.20
|
|
|
$
|
33.00
|
|
|
$
|
26.58
|
|
|
$
|
0.22
|
|
Fourth Quarter
|
|
$
|
26.16
|
|
|
$
|
14.84
|
|
|
$
|
0.20
|
|
|
$
|
29.90
|
|
|
$
|
19.52
|
|
|
$
|
0.22
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
31.53
|
|
|
$
|
27.82
|
|
|
$
|
0.20
|
|
Second Quarter
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
32.53
|
|
|
$
|
28.57
|
|
|
$
|
0.20
|
|
Third Quarter
|
|
$
|
25.28
|
|
|
$
|
21.11
|
|
|
|
N/A
|
|
|
$
|
33.01
|
|
|
$
|
24.01
|
|
|
$
|
0.20
|
|
Fourth Quarter
|
|
$
|
26.59
|
|
|
$
|
24.73
|
|
|
|
N/A
|
|
|
$
|
30.13
|
|
|
$
|
26.87
|
|
|
$
|
0.20
|
|
The following table sets out the trading information for Validus
Shares and IPC Shares on March 30, 2009, the last full
trading day before Validus public announcement of delivery
of the Initial Validus Offer to the board of directors of IPC,
and May 22, 2009, the last practicable trading day for which
information was available before first mailing of this proxy
statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent
|
|
|
|
|
|
|
Validus
|
|
|
Validus Common
|
|
IPC Common
|
|
Per-Share
|
|
|
Share Close
|
|
Share Close
|
|
Amount
|
|
March 30, 2009
|
|
$
|
24.91
|
|
|
$
|
25.41
|
|
|
$
|
30.98
|
|
May 22, 2009
|
|
$
|
22.01
|
|
|
$
|
25.07
|
|
|
$
|
27.73
|
|
Equivalent per-share amounts are calculated by multiplying
Validus per-share amounts by the Acquisition exchange ratio of
1.1234 and adding $3.00 in cash per IPC Share.
As of April 30, 2009, directors and executive officers of
Validus (exclusive of those shareholders who Validus deems to be
qualified sponsors (as defined in this proxy
statement)) held and were entitled to vote approximately 1.76%
of the outstanding Validus Shares. As of March 26, 2009,
directors and executive officers of IPC held and were entitled
to vote approximately 1.4% of the outstanding IPC Shares.
-37-
FORWARD-LOOKING
STATEMENTS
This proxy statement may include forward-looking statements,
both with respect to Validus and its industry, that reflect
Validus current views with respect to future events and
financial performance. Statements that include the words
expect, intend, plan,
believe, project,
anticipate, will, may and
similar statements of a future or forward-looking nature
identify forward-looking statements. All forward-looking
statements address matters that involve risks and uncertainties,
many of which are beyond our control. Accordingly, there are or
will be important factors that could cause actual results to
differ materially from those indicated in such statements and,
therefore, you should not place undue reliance on any such
statements. Validus believes that these factors include, but are
not limited to, the following: 1) uncertainty as to whether
Validus will be able to enter into and to consummate the
proposed Acquisition; 2) uncertainty as to the long-term
value of Validus Shares; 3) unpredictability and severity
of catastrophic events; 4) rating agency actions;
5) adequacy of Validus or IPCs risk management
and loss limitation methods; 6) cyclicality of demand and
pricing in the insurance and reinsurance markets;
7) Validus limited operating history;
8) Validus ability to implement its business strategy
during soft as well as hard markets;
9) adequacy of Validus or IPCs loss reserves;
10) continued availability of capital and financing;
11) retention of key personnel; 12) competition;
13) potential loss of business from one or more major
insurance or reinsurance brokers; 14) Validus or
IPCs ability to implement, successfully and on a timely
basis, complex infrastructure, distribution capabilities,
systems, procedures and internal controls, and to develop
accurate actuarial data to support the business and regulatory
and reporting requirements; 15) general economic and market
conditions (including inflation, volatility in the credit and
capital markets, interest rates and foreign currency exchange
rates); 16) the integration of Talbot or other businesses
we may acquire or new business ventures Validus may start;
17) the effect on Validus or IPCs investment
portfolios of changing financial market conditions including
inflation, interest rates, liquidity and other factors;
18) acts of terrorism or outbreak of war;
19) availability of reinsurance and retrocessional
coverage; 20) failure to realize the anticipated benefits
of the proposed acquisition, including as a result of failure or
delay in integrating the businesses of Validus and IPC; and
21) the outcome of litigation arising from Validus
offer for IPC, as well as managements response to any of
the aforementioned factors.
The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with
the other cautionary statements that are included herein and
elsewhere, including the Risk Factors included in Validus
most recent reports on
Form 10-K
and
Form 10-Q
and the risk factors included in IPCs most recent reports
on
Form 10-K
and
Form 10-Q
and other documents of Validus and IPC on file with the SEC. Any
forward-looking statements made in this proxy statement are
qualified by these cautionary statements, and there can be no
assurance that the actual results or developments anticipated by
Validus will be realized or, even if substantially realized,
that they will have the expected consequences to, or effects on,
Validus or its business or operations. Except as required by
law, Validus undertakes no obligation to update publicly or
revise any forward-looking statement, whether as a result of new
information, future developments or otherwise.
-38-
RISK
FACTORS
In addition to the other information included or incorporated
by reference in this proxy statement (including the matters
addressed under Forward-Looking Statements above), you
should carefully consider the following risk factors before
deciding whether to vote to approve the Share Issuance Proposal
and the Adjournment Proposal. Each proposal is described in this
proxy statement under Proposals to Be Submitted to Validus
Shareholders Vote; Voting Requirements and Recommendations
beginning on page 97. In addition to the risk factors
set forth below, you should read and consider other risk factors
specific to each of the Validus and IPC businesses that will
also affect Validus after the Acquisition, described in
Part I, Item 1A of each companys annual report
on
Form 10-K
for the year ended December 31, 2008, and the other
documents that have been filed with the SEC and all of which are
incorporated by reference into this proxy statement. If any of
the risks described below or in the reports incorporated by
reference into this proxy statement actually occurs, the
respective businesses, financial results, financial conditions,
operating results or share prices of Validus or IPC could be
materially adversely affected.
Risks
Related to the Acquisition
The
Acquisition remains subject to conditions that Validus cannot
control and failure to complete the Acquisition could negatively
impact Validus.
The Validus Amalgamation Agreement has not yet been signed by
IPC and contains a number of conditions precedent that must be
satisfied or waived prior to the consummation of the
amalgamation. The Exchange Offer and the Scheme of Arrangement
contain substantially the same conditions. In addition, the
Validus Amalgamation Agreement, the Exchange Offer and the
Scheme of Arrangement may be terminated under certain
circumstances. In addition to customary termination provisions
contained in agreements of this nature, Validus may terminate
the Validus Amalgamation Agreement if the total number of
dissenting IPC Shares for which appraisal rights have been
exercised pursuant to Bermuda law exceeds 15% of the issued and
outstanding IPC Shares on the business day immediately following
the last day on which IPC shareholders can require appraisal for
their common shares. See The Amalgamation
Agreement Termination of the Amalgamation Agreement
on page 88, Annex C and Annex D for a
complete description of the circumstances under which the
Validus Amalgamation Agreement, the Exchange Offer and the
Scheme of Arrangement can be terminated.
If the Acquisition is not completed, the ongoing business of
Validus may be adversely affected as follows:
|
|
|
|
|
the attention of management of Validus will have been diverted
to the Acquisition instead of being directed solely to
Validus own operations and pursuit of other opportunities
that could have been beneficial to Validus;
|
|
|
|
Validus will have to pay certain costs relating to the
Acquisition, including certain legal, accounting and financial
advisory fees; and
|
|
|
|
Validus may be required, in certain circumstances, if the
amalgamation agreement is signed by IPC, to pay a termination
fee of $16 million to IPC.
|
Validus
may waive one or more of the conditions to the Acquisition
without resoliciting or seeking additional shareholder approval
for the Share Issuance.
Each of the conditions to Validus obligations to complete
the Acquisition, may be waived, in whole or in part by Validus.
The board of directors of Validus will evaluate the materiality
of any such waiver to determine whether resolicitation of
proxies is necessary or, if shareholder approval of the Share
Issuance has been received, whether further shareholder approval
is necessary. In the event that any such waiver is not
determined to be significant enough to require resolicitation or
additional approval of shareholders, the Acquisition may be
consummated without seeking further shareholder approval of the
Share Issuance.
-39-
A
termination of the Max Amalgamation Agreement could under
certain circumstances result in the payment of the Max
termination fee.
While Validus believes the provision of the Max Amalgamation
Agreement providing for the possible payment of the
$50 million termination fee (the Max Termination
Fee) is invalid and is seeking a ruling of the Supreme
Court of Bermuda to that effect, if the proposals related to the
Max Amalgamation Agreement are not approved by IPC shareholders,
a court may determine that IPC is required, or IPC may otherwise
be bound, to pay all, or a portion, of the Max Termination Fee,
including in the circumstance where IPC subsequently agrees to
enter into a business combination with Validus or the
Acquisition is completed.
Risks
Related to Validus Following the Acquisition
Validus
may experience difficulties integrating IPCs businesses,
which could cause Validus to fail to realize the anticipated
benefits of the Acquisition.
If the Acquisition is consummated, achieving the anticipated
benefits of the Acquisition will depend in part upon whether the
two companies integrate their businesses in an effective and
efficient manner. The companies may not be able to accomplish
this integration process smoothly or successfully. The
integration of certain operations following the Acquisition will
take time and will require the dedication of significant
management resources, which may temporarily distract
managements attention from the routine business of Validus.
Additionally, because of the notice and procedural requirements
contemplated by Section 102 and Section 103 of the
Companies Act, there may be a period of time after shares have
been exchanged in the Exchange Offer during which Validus will
not own all of the outstanding IPC Shares, IPC Shares may
continue to be subject to limitations on voting set forth in the
IPC bye-laws, and Validus may not be able to immediately
exercise operational control over IPC, including the right to
appoint directors and executive officers of IPC and to manage
the
day-to-day
operations of IPC.
Any delay or inability of management to successfully integrate
the operations of the two companies could compromise
Validus potential to achieve the long-term strategic
benefits of the Acquisition and could have a material adverse
effect on the business, financial condition, operating results
and market value of Validus common shares after the Acquisition.
Validus
has only conducted a review of IPCs publicly available
information and has not had access to IPCs non-public
information. Therefore, Validus may be subject to unknown
liabilities of IPC which may have a material adverse effect on
Validus profitability, financial condition and results of
operations.
To date, Validus has only conducted a due diligence review of
IPCs publicly available information. The consummation of
the Acquisition may constitute a default, or an event that, with
or without notice or lapse of time or both, would constitute a
default, or result in the acceleration or other change of any
right or obligation (including, without limitation, any payment
obligation) under agreements of IPC that are not publicly
available. As a result, after the consummation of the
Acquisition, Validus may be subject to unknown liabilities of
IPC, which may have a material adverse effect on Validus
profitability, financial condition and results of operations.
In addition, the Acquisition may also permit a counter-party to
an agreement with IPC to terminate that agreement because
completion of the Acquisition would cause a default or violate
an anti-assignment, change of control or similar clause. If this
happens, Validus may have to seek to replace that agreement with
a new agreement. Validus cannot assure you that it will be able
to replace a terminated agreement on comparable terms or at all.
Depending on the importance of a terminated agreement to
IPCs business, failure to replace that agreement on
similar terms or at all may increase the costs to Validus of
operating IPCs business or prevent Validus from operating
part or all of IPCs business.
In respect of all information relating to IPC presented in,
incorporated by reference into or omitted from, this proxy
statement, Validus has relied upon publicly available
information, including information publicly filed by IPC with
the SEC. Although Validus has no knowledge that would indicate
that any statements contained herein regarding IPCs
condition, including its financial or operating condition (based
upon such publicly filed reports and documents) are inaccurate,
incomplete or untrue, Validus was not involved in the
preparation of such information and statements. For example,
Validus has made adjustments and assumptions in preparing the
pro forma financial
-40-
information presented in this proxy statement that have
necessarily involved Validus estimates with respect to
IPCs financial information. Any financial, operating or
other information regarding IPC that may be detrimental to
Validus following the Acquisition that has not been publicly
disclosed by IPC, or errors in Validus estimates due to
the lack of access to IPC, may have a material adverse effect on
Validus financial condition or the benefits Validus
expects to achieve through the consummation of the Acquisition.
The
Acquisition may result in ratings downgrades of one or more of
Validus insurance or reinsurance subsidiaries (including
the newly acquired IPC insurance and reinsurance operating
companies) which may adversely affect Validus business,
financial condition and operating results, as well as the market
price of its common shares.
Ratings with respect to claims paying ability and financial
strength are important factors in maintaining customer
confidence in Validus and its ability to market insurance and
reinsurance products and compete with other insurance and
reinsurance companies. Rating organizations regularly analyze
the financial performance and condition of insurers and
reinsurers and will likely reevaluate the ratings of Validus and
its reinsurance subsidiaries following consummation of the
Acquisition. While each of Standard & Poors and
A.M. Best have not taken any action with respect to
Validus ratings following the announcement of the Initial
Validus Offer or the Validus Amalgamation Offer, Moodys
has changed the outlook to negative with respect to the A3
insurance financial strength rating of Validus reinsurance
subsidiary, Validus Reinsurance, Ltd., and the Baa2 long-term
issuer rating of Validus. Additionally, although A.M. Best
has assigned the reinsurance subsidiaries of IPC (including
IPCRe Limited and IPCRe Europe Limited) the financial strength
rating of A (Excellent) and issuer credit ratings of
a and IPC the issuer credit rating of
bbb, A.M. Best has also indicated that each of
these IPC ratings is under review with negative implications in
connection with the Proposed Max Amalgamation. A.M. Best
and the other ratings agencies would most likely provide similar
scrutiny and analysis of the Acquisition. Following the
Acquisition, any ratings downgrades, or the potential for
ratings downgrades, of Validus or its subsidiaries (including
the newly acquired IPC operating companies) could adversely
affect Validus ability to market and distribute products
and services and successfully compete in the marketplace, which
could have a material adverse effect on its business, financial
condition and operating results, as well as the market price for
Validus common shares.
The
occurrence of severe catastrophic events after the Acquisition
may cause Validus net income to be more volatile than if
the Acquisition did not take place.
For the year ended December 31, 2008, Validus gross
premiums written (excluding reinstatement premiums) on property
catastrophe business were $328.2 million or 24.1% of total
gross premiums written. For the year ended December 31,
2008, 93% of IPCs gross premiums written covered property
catastrophe reinsurance risks. For the year ended
December 31, 2008, after giving effect to the Acquisition
as if it had been consummated on December 31, 2008, gross
premiums written on property catastrophe business would have
been $661.9 or 37.5% of total gross premiums of Validus on a pro
forma basis. Because Validus after the Acquisition will, among
other things, have larger aggregate exposures to natural and
man-made disasters than it does today, Validus aggregate
loss experience could have a significant influence on
Validus net income. See Unaudited Condensed
Consolidated Pro Forma Financial Information.
Risk
Related to IPCs Businesses
You should read and consider other risk factors specific to
IPCs businesses that will also affect Validus after the
Acquisition, described in Part I, Item 1A of the IPC
10-K and other documents that have been filed by IPC with the
SEC and which are incorporated by reference into this proxy
statement.
Risk
Related to Validus Businesses
You should read and consider other risk factors specific to
Validus businesses that will also affect Validus after the
Acquisition, described in Part I, Item 1A of the
Validus 10-K
and other documents that have been filed by Validus with the SEC
and which are incorporated by reference into this proxy
statement.
-41-
THE
ACQUISITION
General
Description
In order to consummate the Acquisition, Validus is
simultaneously pursuing the following alternative transaction
structures, pursuant to which IPC shareholders will receive
(i) 1.1234 Validus Shares and (ii) $3.00 in cash (less
any applicable withholding taxes and without interest) for each
outstanding IPC Share:
(1) the Validus Amalgamation Offer;
(2) the Exchange Offer; and
(3) the Scheme of Arrangement.
The Validus Amalgamation Offer, the Exchange Offer and the
Scheme of Arrangement are alternative methods for Validus to
acquire all of the issued and outstanding IPC Shares on the same
economic terms. Ultimately, only one of these transaction
structures can be pursued to completion. Validus intends to seek
to acquire all IPC Shares by whichever method Validus determines
is most effective and efficient.
On March 31, 2009, Validus publicly announced that it had
delivered the Initial Validus Offer. IPC announced on
April 7, 2009 that its board of directors had determined
that the Initial Validus Offer did not constitute a superior
proposal to the Proposed Max Amalgamation and reaffirmed its
support of the Proposed Max Amalgamation. On May 18, 2009,
Validus publicly announced that it had delivered to IPC an
increased offer to acquire each outstanding IPC Share for (i)
1.1234 Validus Shares and (ii) $3.00 in cash (less any
applicable withholding taxes and without interest). In addition,
IPC shareholders will receive cash in lieu of any fractional
Validus Share to which they may be entitled. Validus has also
delivered the Validus Amalgamation Agreement signed by Validus
so that, upon a termination of the Max Amalgamation Agreement,
IPC would have the certainty of Validus transaction and
would be able to sign the Validus Amalgamation Agreement. IPC
announced on May 21, 2009 that its board of directors had
determined that the Validus Amalgamation Offer did not
constitute a superior proposal to the Proposed Max Amalgamation
and reaffirmed its support of the Proposed Max Amalgamation.
Additionally, Max has not released IPC from the prohibition in
the Max Amalgamation Agreement that prevents IPC from even
discussing the Validus Amalgamation Offer with Validus.
In order to consummate the Acquisition without the cooperation
of IPCs board of directors, Validus is pursuing a
three-part plan.
First, Validus is soliciting proxies from IPC shareholders to
vote against the Proposed Max Amalgamation. If the Proposed Max
Amalgamation is voted down by IPC shareholders, IPCs board
of directors will be able to terminate the Max Amalgamation
Agreement and enter into the Validus Amalgamation Agreement. If
IPCs board of directors were to enter into the Validus
Amalgamation Agreement promptly following the termination of the
Max Amalgamation Agreement, Validus believes the amalgamation
could be completed in
mid-to-late
July 2009 based on the assumption that IPC terminates the Max
Amalgamation Agreement promptly following its June 12, 2009
annual general meeting, allowing approximately one month to hold
a special general meeting of IPCs shareholders to obtain
the required shareholder approval and to satisfy the other
conditions in the Validus Amalgamation Agreement.
Second, Validus has commenced the Exchange Offer on the same
economic terms as the Validus Amalgamation Offer. The Exchange
Offer is subject to certain conditions described in the Offer to
Exchange. Under Bermuda law, if Validus acquires at least 90% of
the IPC Shares which it is seeking to acquire in the Exchange
Offer, Validus will have the right to acquire the remaining IPC
Shares on the same terms in the second-step acquisition. Validus
believes that it would be able to complete the Exchange Offer in
June 2009, promptly following termination of the Max
Amalgamation Agreement (and subject to satisfaction or waiver of
the other conditions to the Exchange Offer) based on the
following. The expiration time of the Exchange Offer will be
June 26, 2009, unless extended. As a result, if the
conditions to the Exchange Offer are satisfied or waived at the
expiration time of the Exchange Offer, Validus would be able to
acquire all of the IPC Shares that are validly tendered pursuant
to the Exchange Offer.
-42-
Third, Validus is pursuing the Scheme of Arrangement on the same
economic terms as the Validus Amalgamation Offer. In order to
implement the Scheme of Arrangement, the IPC shareholders must
approve the Scheme of Arrangement at the court-ordered IPC
meeting, IPC must separately approve the Scheme of Arrangement
and the Scheme of Arrangement must be sanctioned by the Supreme
Court of Bermuda. The Validus Scheme of Arrangement must be
approved by a majority in number of the holders of IPC Shares
voting at the court-ordered IPC meeting, whether in person or by
proxy, representing 75% or more in value of the IPC Shares
voting at the court-ordered IPC meeting, whether in person or by
proxy. If the IPC shareholders approve the Scheme of Arrangement
at the court-ordered IPC meeting, the separate approval of IPC
to the Scheme of Arrangement can be provided by either
(i) the IPC board of directors voluntarily complying with
the will of the IPC shareholders as expressed at the
court-ordered IPC meeting, or (ii) the shareholders of IPC
approving resolutions at the IPC special general meeting,
including resolutions for IPC to approve and to be bound by the
Scheme of Arrangement and to terminate the Max Amalgamation
Agreement. Following IPC shareholder approval at both the
court-ordered IPC meeting and the IPC special general meeting,
the satisfaction or, where relevant, waiver of the other
conditions to the effectiveness of the Scheme of Arrangement and
the granting of a court order from the Supreme Court of Bermuda
sanctioning the Scheme of Arrangement, a copy of the court order
sanctioning the Scheme of Arrangement will be delivered to the
Bermuda Registrar of Companies, at which time the Scheme of
Arrangement will be effective. Validus believes that, under the
Scheme of Arrangement, it would be able to close the Acquisition
as early as mid-July based on the assumptions that: (1) the
Supreme Court of Bermuda will be able to accommodate the
preferred hearings schedule and meeting dates and other
procedural matters; (2) IPC shareholders holding at least
one-tenth of the issued IPC Shares have requisitioned the
special general meeting to be held in late June or early July;
and (3) the IPC directors, following the rejection of the
Max Amalgamation Agreement, or IPC shareholders, convene the
requisitioned special general meeting, allowing it to be held in
mid-July.
Based on Validus and IPCs capitalizations as of
March 31, 2009 and the exchange ratio of 1.1234, Validus
estimates that former IPC shareholders would own, in the
aggregate, approximately 41.3% of the issued and outstanding
common shares of Validus on a fully-diluted basis following
closing of the Acquisition.
-43-
Background
of the Acquisition
On March 2, 2009, IPC and Max announced that they had
entered into the Max Amalgamation Agreement. The IPC/Max
S-4 provides
a summary of the events leading to Max and IPC entering into the
Max Amalgamation Agreement.
In the morning of March 31, 2009, Edward J. Noonan, the
Chief Executive Officer and Chairman of the board of directors
of Validus, placed a telephone call to James P. Bryce, the Chief
Executive Officer and President of IPC. Mr. Noonan spoke
with Mr. Bryce and explained that Validus intended to make
an Offer to Exchange each outstanding IPC Share for 1.2037
Validus Shares, subject to the termination of the Max
Amalgamation Agreement.
Following this telephone call, in the morning of March 31,
2009, Validus delivered a proposal letter containing the Initial
Validus Offer to IPCs board of directors in care of
Mr. Bryce and issued a press release announcing the Initial
Validus Offer. The letter reads as follows:
March 31,
2009
The Board of Directors of IPC Holdings, Ltd.
c/o James
P. Bryce, President and Chief Executive Officer
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
|
|
|
|
Re:
|
Superior Amalgamation Proposal by Validus Holdings, Ltd.
(Validus) to
IPC Holdings, Ltd. (IPC)
|
Dear Sirs:
On behalf of Validus, I am writing to submit a binding
offer1
pursuant to which Validus and IPC would amalgamate in a
share-for-share exchange valuing IPC Shares at an 18.0% premium
to yesterdays closing market price. We believe that an
amalgamation of Validus and IPC would represent a compelling
combination and excellent strategic fit and create superior
value for our respective shareholders.
We unquestionably would have preferred to work cooperatively
with you to complete a negotiated transaction. However, it was
necessary to communicate our binding offer to you by letter
because of the provisions of the Agreement and Plan of
Amalgamation between IPC and Max Capital Group Ltd.
(Max), dated as of March 1, 2009, as amended on
March 5, 2009 (the Max Plan of Amalgamation).
We have reviewed the Max Plan of Amalgamation and see that it
contemplates your receipt of acquisition proposals. Given the
importance of our binding offer to our respective shareholders,
we have decided to make this letter public.
Our binding offer involves a share-for-share exchange valuing
IPC Shares at an 18.0% premium to yesterdays closing
market price. Consistent with that, we are prepared to
amalgamate with IPC at a fixed exchange ratio of 1.2037 Validus
shares per IPC share.
Our board of directors has unanimously approved the submission
of our binding offer and delivery of the enclosed signed
amalgamation agreement, so that, upon termination of the Max
Plan of Amalgamation, you will be able to sign the enclosed
agreement with the certainty of an agreed transaction. Our offer
is structured as a tax-free share-for-share transaction and does
not require any external financing. It is not conditioned on due
diligence. The only conditions to our offer are those contained
in the enclosed executed amalgamation agreement.
1 Throughout
this letter we refer to our binding offer because,
as of the date of this letter, we had indicated to IPC that our
offer could not be withdrawn prior to April 15, 2009. As of
the date of this proxy statement, we have revised our offer. The
terms of our offer do not prevent us from withdrawing it.
-44-
Our binding offer is clearly superior to the Max transaction for
your shareholders and is a Superior Proposal as defined in
section 5.5(f) of the Max Plan of Amalgamation for the
reasons set forth below.
Superior Current Value. Our proposed
transaction will provide superior current value for your
shareholders. Our fixed exchange ratio of 1.2037 represents a
value of $29.98 per IPC share, which is a premium of 18.0% to
the closing price of IPCs common shares on March 30,
20092.
Superior Trading
Characteristics. Validus common shares
have superior trading characteristics to those of Max as noted
in the table below.
|
|
|
|
|
|
|
Validus
|
|
Max
|
|
Share Price Change Since Validus IPO(1)
|
|
+13.2%
|
|
−36.5%
|
Mkt. Cap as of 3/30/09
|
|
$2.0 billion
|
|
$0.9 billion
|
Average Daily Trading Volume(2)
|
|
$11.3 million
|
|
$6.7 million
|
Price / Book(3)
|
|
1.05x
|
|
0.76x
|
Price / Tangible Book(3)
|
|
1.13x
|
|
0.77x
|
|
|
|
(1) |
|
Based on the closing prices on March 30, 2009 and
July 24, 2007. |
|
(2) |
|
Three months prior to March 2, 2009, date of announcement
of Max and IPC amalgamation. |
|
(3) |
|
Based on December 31, 2008 GAAP book value per diluted
share and diluted tangible GAAP book value per share using
closing prices on March 30, 2009. |
Less Balance Sheet
Risk.3 The
combined investment portfolio of IPC/Validus is more stable than
that of
IPC/Max.4
Pro forma for the proposed IPC/Max combination,
alternative investments represent 12% of investments
and 29% of shareholders equity. In contrast, Validus does
not invest in alternatives and pro forma for a
Validus/IPC combination, alternative investments
represent 3% of investments and 4% of shareholders equity,
providing greater safety for shareholders and clients.
Superior Long-term Prospects. A combined Validus and IPC
would be a superior company to IPC/Max with greater growth
prospects and synergies with:
|
|
|
|
1.
|
Superior size and scale, with pro forma December 31,
2008 shareholders equity of $3.7 billion and
total GAAP capitalization of $4.1 billion;
|
2
The Validus Amalgamation Offer, as increased on May 18,
2009, provides IPC shareholders with total consideration of
$30.14 per IPC Share based on Validus closing price on
May 15, 2009, a 13.2% premium to the closing price of IPC
Shares that day and a 21.9% premium based on the closing prices
of IPC Shares and Validus Shares on March 30, 2009, the
last trading day before the announcement of the Validus Initial
Offer.
3 The
occurrence of severe catastrophic events after an amalgamation
with IPC could cause Validus net income to be more
volatile than if the amalgamation did not take place. For the
year ended December 31, 2008, Validus gross premiums
written on property catastrophe business were
$328.2 million or 24.1% of total gross premiums written.
For the year ended December 31, 2008, 93% of IPCs
gross premiums written covered property catastrophe reinsurance
risks. For the year ended December 31, 2008, after giving
effect to the Validus amalgamation as if it had been consummated
on December 31, 2008, gross premiums written on property
catastrophe business would have been $661.9 million or
37.5% of total gross premiums of Validus on a pro forma basis.
Because Validus after the amalgamation will, among other things,
have larger aggregate exposures to natural and man-made
disasters than it does today, Validus aggregate loss
experience could have a significant influence on Validus
net income. IPC did not disclose gross premiums written by class
of business in the IPC 10-Q. Therefore, comparable disclosure of
property catastrophe premiums cannot be presented.
4 Despite
Maxs announced plan to reduce its exposure to alternative
investments to 10-12% of its portfolio, according to recent Max
disclosures, as a result of the Proposed Max Amalgamation,
IPCs investment in alternative investments would increase
from 7% of its total portfolio at December 31, 2008 to 12%
of its total portfolio on a pro forma basis after giving effect
to the Proposed Max Amalgamation, an increase of 5%.
-45-
|
|
|
|
2.
|
Superior financial flexibility, with debt/total capitalization
of only 1.8% and total leverage including hybrid securities of
only 9.1%;
|
|
|
3.
|
A global platform, with offices and underwriting facilities in
Bermuda, at Lloyds in London, Dublin, Singapore, New York
and Miami;
|
|
|
4.
|
Superior diversified business mix, with lines of business
concentrated in short-tail lines where pricing momentum is
strongest; and
|
|
|
5.
|
An experienced, proven and stable management team with
substantial expertise operating in IPCs core lines of
business.
|
Our superior growth prospects are evidenced by our historical
track record. Between December 31, 2005 and
December 31, 2008, Validus grew its book value per share
(including accumulated dividends) at a 13.2% compound annual
rate vs. Maxs 8.8% growth over the same period. In 2008,
we grew our book value per share (including accumulated
dividends) by 2.4% vs. Maxs 10.8% decline over the same
period.
Expedited Closing Process. We will be
able to close an amalgamation with IPC more quickly than Max
because we will not require the approval of U.S. insurance
regulators.5
Substantially the Same Contractual Terms and
Conditions. Our proposed amalgamation
agreement contains substantially the same terms and conditions
as those in the Max Plan of Amalgamation, and for your
convenience we have included a markup of our amalgamation
agreement against the Max Plan of Amalgamation.
Superior Outcome for Bermuda
Community. The combination of Validus and IPC
creates a larger, stronger entity than a combination of Max and
IPC which will benefit the Bermuda
community.6
Superior Outcome for IPC
Clients. Validus has a greater commitment to
the lines of business underwritten by IPC and has superior
technical expertise and capacity to provide IPC customers with
continuing reinsurance coverage. Max has consistently stated its
intention to reduce its commitment to IPCs business.
Therefore, a combination with Validus will be less disruptive to
IPCs client base.
Our binding offer is clearly a Superior Proposal, within the
meaning of the Max Plan of Amalgamation. We and our financial
advisors, Greenhill & Co., LLC, and our legal
advisors, Cahill Gordon & Reindel
llp, are prepared
to move forward immediately. We believe that our offer presents
a compelling opportunity for both our companies and our
respective shareholders, and look forward to your prompt
response. We respectfully request that the Board of IPC reach a
determination by 5:00 p.m., Bermuda time, on Wednesday,
April 15, 2009, that (i) our binding offer constitutes
a Superior Proposal, (ii) it is withdrawing its
recommendation for the transaction contemplated by the Max Plan
of Amalgamation and (iii) it is making a recommendation for
the transaction contemplated by this binding offer.
5 As
of the date of this letter, our belief that we could close an
amalgamation with IPC more quickly than Max was based on the
observation that the Validus amalgamation with IPC would not
require the approval of U.S. insurance regulators because
neither IPC nor Validus operates a
U.S.-regulated
insurance business that would require any such approval while
the Proposed Max Amalgamation requires such approvals.
6 We
believe that a larger, stronger entity will benefit the Bermuda
community because it offers greater stability.
-46-
We reserve the right to withdraw this offer if the Board of IPC
has not reached a determination (i) that our binding offer
constitutes a Superior Proposal, (ii) to withdraw its
recommendation for the transaction contemplated by the Max Plan
of Amalgamation and (iii) to make a recommendation for the
transaction contemplated by this binding offer by
5:00 p.m., Bermuda time, on Wednesday, April 15, 2009.
We further reserve the right to withdraw this binding offer if
you subsequently withdraw your recommendation in favor of our
offer or if you do not sign the enclosed amalgamation agreement
within two business days after the termination of the Max Plan
of Amalgamation.
We look forward to your prompt response.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
|
|
cc: |
Robert F. Greenhill
Greenhill & Co., LLC
|
John J. Schuster
Cahill Gordon & Reindel LLP
In the afternoon on March 31, 2009, IPC issued a press
release acknowledging receipt of the letter from Validus
outlining the Initial Validus Offer. The text of the press
release reads as follows:
IPC Holdings, Ltd. (NASDAQ: IPCR) (IPC) acknowledges
receipt of an unsolicited letter dated today, March 31,
2009, from Validus Holdings, Ltd. (NYSE: VR)
(Validus) outlining a proposed transaction.
On March 2, 2009, IPC entered into an Agreement and Plan of
Amalgamation (the Amalgamation Agreement) with its
wholly-owned subsidiary IPC Limited and Max Capital Group Ltd.
(Max) which provides that Max will amalgamate with
IPC Limited. IPC continues to be bound by the terms of the
Amalgamation Agreement and the parties have recently filed a
joint proxy statement/prospectus with the Securities &
Exchange Commission.
IPCs Board of Directors will review the terms of the
proposal submitted by Validus in a manner consistent with its
obligations under the Amalgamation Agreement and applicable
Bermuda law.
IPC will have no further comment on this matter until IPCs
Board of Directors makes a determination regarding Validus
offer.
Also in the afternoon on March 31, 2009, Max issued a press
release announcing that it had received from IPC a copy of the
letter from Validus outlining the Initial Validus Offer. The
text of the press release reads as follows:
Max Capital Group Ltd. (NASDAQ: MXGL; BSX: MXGL BH) today
announced that it has received a copy of Validus Holdings,
Ltd.s unsolicited, stock-for-stock, proposal for IPC
Holdings, Ltd.
As previously announced on March 2, 2009, Max and IPC
entered into an Agreement and Plan of Amalgamation pursuant to
which Max will amalgamate with IPC Limited. The Boards of both
companies have previously stated that the combination of Max
with IPC would create a strong company with a balanced,
diversified portfolio of risk across a mix of geographies and
business lines with the opportunity to generate more stable and
attractive returns on capital. Maxs pending merger with
IPC is expected to be completed late in the second quarter or
early in the third quarter of this year.
W. Marston (Marty) Becker, Chairman and Chief Executive
Officer of Max Capital, said: In todays
unprecedented business environment and cycle, we believe that
diversification, in terms of global presence and
-47-
both short and long-tail exposures, significantly reduces risk
and provides a more solid platform for building sustained
long-term value. The merger of IPC and Max was founded on a
shared vision of allowing the combined group of shareholders to
enjoy the benefits of a strong, diversified operating platform
with a proven track record. While we have not yet had the
opportunity to review Validus proposal carefully, we
believe that combining two short-tailed property catastrophe
oriented companies would appear to do little for true
shareholder diversification. By contrast, Maxs track
record of building a diversified platform without diluting
shareholder value should lead to better long-term growth
prospects and value creation following completion of the pending
IPC-Max merger.
In the morning on April 2, 2009, Max sent a letter to
IPCs Board of Directors purporting to outline the relative
advantages of the pending Proposed Max Amalgamation as well as
the business and financial issues raised by the Initial Validus
Offer and issued a press release announcing the letter. The text
of the letter reads as follows:
Dear Members of the Board:
We are writing regarding the many business and financial issues
raised by the public proposal by Validus Holdings Ltd.
(Validus) to acquire IPC Holdings, Ltd.
(IPC) in lieu of the pending IPC amalgamation with
Max Capital Group Ltd. (Max). The IPC/Max
amalgamation was founded on a shared vision of allowing our
combined group of shareholders to enjoy the benefits of a
strong, diversified operating platform with a proven track
record. The Validus proposal does not offer that.
Rather, in light of the Validus proposal, the IPC Board faces
two starkly contrasting choices:
A. You can agree to be taken over by Validus at a price
that is below IPCs book value. The result of this takeover
for your shareholders would be a minority equity stake in an
entity that offers substantially similar product lines to those
offered by IPC today, with little risk diversification, and
apparently no ability by the IPC Board to steward the longer
term prospects of the company.
OR
B. You can complete the planned merger of equals with Max
at a price that is below Maxs book value. We believe that
this transaction will create a more stable entity that will
provide significant product, geographic and risk diversification
and over which IPCs Board will continue to have
significant influence, which in turn will provide superior
shareholder value.
For the reasons set forth below, and in the accompanying
exhibits, we do not agree with Validus that its proposal
represents a Superior Proposal or is a proposal that
can reasonably be expected to lead to a Superior Proposal
pursuant to the IPC/Max Plan of Amalgamation dated March 1,
2009 (the IPC/Max Plan).
1. A combination with Max delivers 29% more tangible
book value per share to IPC. As we operate in an industry
where the primary valuation driver is a multiple of book value
(and tangible book value), we believe that a transaction that
maximizes the book value to shareholders provides the best
opportunity to generate shareholder value. The IPC combination
with Max is a truly superior proposal versus the takeover
proposal by Validus. The takeover proposal by Validus would
result in IPC receiving only $28.35 in diluted book value per
IPC share and $26.19 of diluted tangible book value per IPC
share from Validus. In contrast, our combination delivers $34.93
of diluted book value per IPC share (a 23.2% premium to Validus)
and $33.83 of diluted tangible book value per IPC share from Max
(a 29.2% premium to Validus). A combination with Max provides
greater underlying value to IPCs shareholders, which we
believe will result in greater upside for both IPC and Max
shareholders.
2. The IPC/Max Plan creates significant value for IPC
shareholders. As we indicated during our discussions, we
believe that the IPC/Max Plan provides an attractive financial
outcome for IPC. The IPC/Max Plan is expected to be accretive to
both earnings per share and return on equity. In addition, as
you consider the historical trading multiples of Max and IPC,
there is significant opportunity to create substantial value for
all shareholders of the combined company. We believe the Validus
proposal prioritizes an immediate premium in the
form of stock for IPC shareholders, while compromising a value
creation opportunity for IPC shareholders. Importantly, the
written proposal by Validus does not contemplate any
participation by the
-48-
IPC board of directors, whose participation remains an important
consideration for Max in the amalgamation and provides
continuity to shareholders and clients.
3. Max is a truly diversified underwriting platform.
The IPC/Max Plan offers IPCs shareholders superior
current and future value by combining IPC with a truly
diversified underwriting platform, with a strong and well
established track record. Max enjoys a diversified portfolio of
business across many dimensions by class, geography,
customers and distribution. We believe that Maxs
diversified underwriting platform, with its strong emphasis on
profitable longer-tail casualty business, will generate more
stable returns on capital through underwriting cycles, compared
to the volatility embedded in the Validus short-tail portfolio.
Validus, whose 2008 gross premiums written are 94%
concentrated in short- tail lines of business, claims that its
portfolio represents diversification. Validus
ability to deliver anything approaching true diversification
seems to be constrained by its limited underwriting platforms in
Bermuda and at Lloyds and lack of underwriting
capabilities in longer-tail casualty classes.
Combining two short-tailed property catastrophe companies as
proposed by Validus does little for shareholder diversification.
Validus stated intention to take advantage of currently
strong rates in the property market is a short-term strategy
that is capital intensive, creates greater volatility for
shareholders, and is one which IPC could have continued on a
stand-alone basis but elected not to do so. By contrast, Max
remains committed to an underwriting strategy that produces
attractive results across market cycles, by continuing to expand
its specialty insurance business in selected underwriting
classes and limiting volatility in its underwriting results.
4. Max has a proven, long-term, operating history.
Maxs underwriting has been tested through the tragic
events of 9/11, the active 2004 hurricane season and the
confluence of Hurricanes Katrina, Rita, and Wilma in 2005.
Validus operating history, by contrast, does not extend
beyond the past three years, during which time the industry as a
whole has experienced both strong property catastrophe pricing
and limited catastrophe activity. The first test of
Validus portfolio of business and risk management
capabilities since its formation three years ago came in 2008
with Hurricanes Ike and Gustav. In our view, the results speak
for themselves: the net loss reported by Validus for these
events represented 12.4% of its June 30,
2008 shareholders equity, the largest percentage loss
of its broad peer group which averaged 7.2% of
shareholders equity. The loss was almost double the net
loss incurred by IPC, which represented just 6.7% of IPCs
June 30, 2008 shareholders equity. The losses
recorded by Validus included a 42% increase in its initial loss
estimate for Hurricane Ike (from $165 million to
$235 million) during the fourth quarter of 2008. By
comparison, Maxs net incurred losses from Hurricanes Ike
and Gustav were limited to 3.4% of June 30,
2008 shareholders equity, the lowest among the
broader peer group, demonstrating the lower embedded volatility
of Maxs underwriting results versus Validus.
5. IPC and Max can complete an amalgamation more
quickly, and with greater certainty.
(a) IPC and Max can close our amalgamation
expeditiously. Max believes that the IPC/Max Plan
can close as soon as June 2009. By contrast, we believe that
Validus would not be in a position to close a transaction with
IPC until September 2009 at the earliest, notwithstanding its
public prediction of a second quarter close. As you are well
aware, the IPC/Max Plan requires that shareholders have the
opportunity to vote on our amalgamation before IPCs Board
can terminate our agreement and thereafter begin discussions
with a bidder such as Validus. We anticipate that we will be
able to hold our respective shareholder meetings in June, and
only after those shareholder votes would Validus be able to
pursue its proposal. Validus inability to close before
September 2009, the middle of hurricane season, adds meaningful
uncertainly to Validus proposal, as IPC shareholders and
the transaction itself would be put at risk by the significant
catastrophe exposures of Validus and Validus ability to
terminate the transaction based upon changes in
shareholders equity. Much has been made by Validus
regarding US regulatory approvals required to complete the
IPC/Max amalgamation. As you know, these approvals are well
underway and we do not foresee such requisite approvals
adversely impacting a possible June closing.
(b) IPC has conducted extensive diligence on
Max. IPC was given complete and open access to
Max to afford you and your outside advisors and consultants with
the ability to conduct extensive due diligence on Max. The
Validus proposal seeks to have IPC enter into a transaction for
which IPC has not conducted due
-49-
diligence. We also note that certain of Validus disclosure
schedules will not be provided to IPC until after IPC and
Maxs shareholders have the opportunity to vote upon our
amalgamation.
6. Maxs business is complementary to IPC.
Clients seek a diversified program of reinsurers. As you
were able to confirm in your due diligence, Max has very limited
overlap with the customers of IPC and neither party expects a
combination of IPC and Max to lead to any meaningful disruption
of either business. In addition, the continuity of the
underwriters at IPC will maximize the opportunity for IPC to
continue to write this business in the future, assuming market
conditions support it. By contrast, Validus acknowledges that it
writes business with many of the same clients as IPC, which we
would expect to result in a loss of business as clients seek to
diversify their reinsurance placements.
7. Maxs complementary and diversified platform is
appreciated by our ratings agencies. Max currently has a
financial strength rating of A- by A.M. Best, with its
outlook changed to positive in December 2008. As IPC and Max
have jointly presented to our ratings agencies, IPCs Board
has the comfort of knowing that the ratings agencies view our
combination, and its diversifying impact on IPCs business,
positively. In contrast, we believe that the agencies would not
look as favorably on combining two short-tailed
property-oriented platforms.
8. Max maintains less underwriting volatility through
greater diversification of its portfolio of risks. Max seeks
to limit its exposure to catastrophic events (probable maximum
loss based on a 1 in 250 year event) to a maximum of 20% of
its shareholders equity, often operating below this level.
As part of the IPC/Max Plan, we have discussed continuing to
have a significant presence in the property catastrophe market
while on a combined equity basis adhering to this same 20% risk
tolerance. In contrast, Validus maintains peak exposures where
the probable maximum loss based on a 1 in 250 year event
runs at a stated 33% of shareholders equity. Max believes
that combining this risk profile with IPC would expose IPC
shareholders to an even greater level of volatility than at
present and would not change the markets perception of IPC as
being a property catastrophe company. The volatility of
Validus results would also seem to be cause for concern,
particularly when the net losses from Hurricanes Ike and Gustav
(which approximated a 1 in 15 year event) was 12.4% of
shareholders equity, the highest among its broader peer
group. This compared to a net loss of 6.7% of shareholders
equity for IPC and 3.4% for Max.
9. Max has a proven, long-term history of successful
acquisitions without incurring goodwill. We believe
IPCs shareholders can take comfort in Maxs
demonstrated history of successfully entering new business lines
through acquisitions and
start-ups
without incurring meaningful goodwill. For example, when Max
entered the Lloyds market, we booked intangible assets of
$8 million upon closing our acquisition of Imagine Group
(UK) Limited, which stands in contrast to the $154 million
of intangible assets booked by Validus in their acquisition of
Talbot.
10. Max has a diversified shareholder base. We
believe having a shareholder base dominated by five private
equity owners controlling 64.9% of Validus total
beneficial ownership (as of March 13, 2009) will limit
the potential upside in the value of Validus over time as these
private shareholders seek to exit their investment. Max has a
diversified shareholder base with an 84% public float. In
addition, Max has a well diversified shareholder base of high
quality institutional shareholders.
11. IPC and Max have compatible cultures. IPC and
Max have compatible cultures that will help ease the integration
of the two companies. IPC and Max share a common focus on
underwriting, claims and actuarial disciplines, and on running
our respective businesses as meritocracies.
12. Maxs higher asset leverage provides greater
investment income over time. Max believes that investment
leverage (invested assets as a multiple of shareholders
equity) is a positive in driving earnings and stability of
returns on capital over time. Based on 2008 figures, Max had
total investment to equity of 4.2x versus 1.7x for Validus.
As Validus continues to pursue a short-tail strategy, Validus
will be limited in its ability to increase its asset leverage.
This deprives IPC of the meaningful investment income derived
from longer-tail casualty lines and continues to leave IPC
shareholders exposed to increased volatility from catastrophes.
Validus has commented on Maxs investment portfolio,
particularly its alternative investment portfolio. Maxs
year end allocation to alternative investments was 14% of total
invested assets, which is expected to reduce to 10% to 12% in
2009. In looking at results, Maxs total investment return,
including
-50-
realized and unrealized gains and losses, during the very
volatile period of 2007 / 2008 has outperformed
Validus in 6 of the last 8 quarters.
We believe that the facts regarding the proposal submitted by
Validus and the attempt by Validus to present a one-sided
proposal to IPC shareholders make it clear that Validus has not
presented a Superior Proposal, nor one that can be reasonably
expected to lead to a Superior Proposal. We believe Validus has
created an unnecessary and unproductive disruption for its own
opportunistic purposes, which should not distract either
IPCs or Maxs employees and customers from our
amalgamation, which we both believe to be in the best interests
of our shareholders.
Lastly, Max remains both steadfast in its commitment and excited
to complete its planned amalgamation with IPC. We continue to
believe that the amalgamation of IPC and Max represents the best
strategic and financial opportunity for our collective
shareholders.
Very truly yours,
W. Marston Becker
Chairman and Chief Executive Officer
Max Capital Group Ltd.
In the afternoon on April 2, 2009, Validus sent a letter to
IPCs board of directors addressing the claims made by Max
in its letter to IPCs board of directors in the morning on
April 2, 2009. The text of our letter reads as follows:
April 2,
2009
The Board of Directors of IPC Holdings, Ltd.
c/o James
P. Bryce, President and Chief Executive Officer
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
Dear Members of the Board:
We are writing to respond to the letter sent to you by
Mr. Becker of Max Capital Group Ltd. (Max)
dated April 2, 2009, regarding the purported benefits of
the proposed combination of IPC Holdings, Ltd. (IPC)
with Max (pursuant to an Amalgamation Agreement between Max and
IPC dated as of March 2, 2009 (the Amalgamation
Agreement)), as compared to the benefits presented by a
combination of IPC with Validus Holdings, Ltd.
(Validus) on the terms we proposed to you in our
letter dated March 31, 2009 (the Validus
Proposal).
First, we would like to reiterate our sincere belief that the
Validus Proposal is in every respect a Superior Proposal as
defined in the Amalgamation Agreement. In fact, as you have
undoubtedly seen, the markets have already endorsed our
proposal: the IPC share price has increased significantly since
the announcement of our proposal, in recognition of the fact
that our proposal delivers superior value to the IPC
shareholders an irrefutable fact. Our proposal
offers the IPC shareholders superior value (an 18% premium to
the value of the IPC stock on the date prior to our
announcement), a currency with superior trading characteristics
(Validus shares trade at a premium to book value, as opposed to
the Max shares, which trade at a discount to book value), less
balance sheet risk, and most importantly, superior long term
prospects.
Max suggests that the choice you are facing is between
(i) a combined company based on a shared vision in which
you, the IPC Board, can continue your stewardship, and
(ii) an entity which offers you few benefits over what you
have today, with no ability to continue your stewardship. We
view the choice quite differently:
-51-
you can choose to combine with a company which, on almost every
metric, is a worse choice for your shareholders, or ours, which
delivers, immediately and in the long term, superior value for
your shareholders. To the extent that you, the members of the
IPC Board, have an interest in continuing involvement in the
affairs of the combined company, we would be happy to discuss
continued Board representation with you.
Turning now to the assertions in the Max letter, we note that
Max has made a number of statements which distort the facts and
present an incomplete picture. We would like to respond to each
of these in turn.
1. A combination with Max delivers 29% more
tangible book value per share to IPC. Max
believes book value per share is a very important measure in our
industry, and we do not disagree. The relevant question for the
IPC Board, however, is not, as Max suggests, the relative
percentage of book value being delivered to IPC shareholders in
the two proposals, but the absolute value of the shares
themselves. On this measure, the Validus proposal is clearly
superior, as it offers IPC shareholders a significant premium
over the current value of their shares. Moreover, Max does not
explain in its letter why Maxs shares are trading at such
a deep discount to its book value. We can only guess that the
market assigns such a discount because of Maxs stewardship
of its business or because so much of Maxs investment
portfolio is tied up in risky alternative assets. Indeed, of
Maxs $1.2 billion of tangible common equity,
$754 million is in alternative assets, which in 2008
generated mark downs of $233 million, greater than the
entirety of Maxs underwriting income, and
$476 million is in non-agency asset/mortgage backed
securities. We believe it is a far better value proposition for
the IPC shareholders to receive Validus shares, a currency which
the market values at a premium to book.
2. The IPC/Max Plan creates significant value for
IPC shareholders. This statement is simply
incorrect. According to data calculated from the proxy statement
filed by IPC on March 27, 2009, IPCs book value per
share would decrease from $33.00 to $32.30, or 2.1% as a result
of the combination with Max (this obviously implies the deal is
accretive to Max at your expense). That can hardly be described
as the best opportunity to deliver shareholders
value. Moreover, while it is true that the Validus
proposal delivers an immediate premium for IPC shareholders, it
wrong of Max to suggest that such a premium will compromise
value creation for IPC shareholders in the longer term. We
believe that receiving a better currency, in a stronger, better
capitalized company, offers a more likely starting point for
long term value creation than retaining shares in IPC, whose
previously conservatively managed balance sheet will be
negatively impacted by assets of questionable value in the
IPC/Max combination.
3. Max is a truly diversified underwriting
platform. We think the relevant question
for IPC is not whether its merger partner has a diversified
platform, but rather the quality of that diversification. In
terms of the quality of diversification, Validus offers far
superior characteristics than Max, as evidenced by 2008 results
for Maxs diversified businesses. Maxs
2008 reported 91.9% property and casualty GAAP combined ratio
benefited from $107.0 million of prior-year reserve
releases. The true 2008 accident-year GAAP combined ratio was
103.4%.7Maxs
diversified businesses represent diversification
without profit. Maxs chief source of diversifying growth,
Max US Specialty, generated a 138.5% combined ratio in 2008.
Results such as those cannot create value for
shareholders.8
Max is not a leader in any category of business, and moreover,
it has
7 Upon
verification of the calculations used to prepare this letter we
have determined that Maxs true 2008 accident year GAAP
combined ratio is in fact 110.6% rather than 103.4% as set forth
in our letter reprinted above. The combined ratio, expressed as
a percentage, is a key measurement of profitability
traditionally used in the property-casualty insurance business.
The combined ratio, also referred to as the calendar year
combined ratio, is the sum of the losses and loss
adjustment expense ratio and the underwriting and other
operating expense ratio. The losses and loss adjustment expense
ratio is the percentage of net losses and loss adjustment
expenses incurred to net premiums earned. The underwriting and
other operating expense ratio is the percentage of underwriting
and other operating expenses to net premiums earned. When the
calendar year combined ratio is adjusted to exclude prior period
items, such as loss reserve development, it becomes the
accident year combined ratio.
8 As
described elsewhere in this proxy statement, a combined ratio of
greater than 100% indicates that premiums are less than
aggregate claims and expenses. Validus believes that
unprofitable operations do not create value for shareholders.
-52-
chosen to focus on volatile lines of business which yield low
margins.9
In contrast, Validus is a global leader in very profitable
business lines, including marine, energy and war and
terrorism.9
Furthermore, Maxs statement that Validus is constrained by
its limited underwriting platforms is demonstrably untrue.
Validus has the global licenses and other capabilities in place
to write long tail insurance if and when it believes doing so
would be profitable. In fact, today, Validus writes
non-catastrophe business in 143 countries around the
world.10
And, as demonstrated by Validus superior financial results and
lower combined ratio, Validus does so profitably.
4. Max has a proven, long-term, operating
history. Max may have a longer history than
Validus, but even a cursory look at the decline in Maxs
book value, its weak growth, volatile results and general
underperformance will quash any notion that the length of its
operating history trumps the superior abilities of the deeply
experienced Validus management team to generate best in class
performance.
By focusing on the net loss reported by Validus based on
hurricanes Ike and Gustav, Max is yet again ignoring the larger
benefit of Validus conservative risk management and
diversification. Validus assumed that the hurricane season in
2008 would generate a market loss of $18 to $21 billion,
and we set our reserve levels accordingly. IPC, by contrast,
assumed $14.5 billion of losses. Notwithstanding the
severity of the events of that hurricane season, Validus was
easily able to absorb the loss (yielding a combined ratio of
92.2%, with a corresponding combined ratio at Validus Re of
86.0%). As a result, Validus was profitable, notwithstanding the
losses associated with hurricanes Gustav and Ike. Its highly
touted diversification notwithstanding, Max sustained a loss for
the year in excess of $200 million, demonstrating beyond a
shadow of a doubt that its greater diversification
is not a guarantee of profitability.
We at Validus believe that our diversification is of a higher
quality, our underwriting decisions are made more carefully, our
risks are managed more prudently, and we exercise a more
conservative stewardship over our capital, all of which would
inure to the long term benefit of the IPC shareholders in our
proposed combination.
5. IPC and Max can complete an amalgamation more
quickly, with greater certainty. Max now
claims (contrary to the statements it made prior to the Validus
Proposal)11
that Max and IPC will be able to close their amalgamation in
June 2009. Max freely admits, however, that it does not control
the time table: the SEC must clear the proxy
statement/prospectus filed by IPC, it must clear the proxy
statement for Max, and the parties must obtain shareholders
approval (which we believe will be difficult to do while our
Superior Proposal is pending). Most importantly, the closing of
the IPC/Max transaction requires regulatory approvals from
several different state insurance departments in the United
States. Implicit in Maxs prediction of a closing date is a
presumption of the receipt of regulatory approvals, which simply
cannot be taken for granted given the likely timing of
regulatory review and the public hearing process. Thus there is
absolutely no guarantee that the IPC/Max deal can be consummated
in the second quarter. Finally, it is important for the IPC
Board not to lose sight of the fact that the Amalgamation
Agreement cedes to Max the power to delay the closing of a
Validus/IPC
combination.12
9 As
of the date of this proxy statement, this statement should be
qualified as an expression of our opinion based on our
experience and knowledge of the industry.
10 Upon
verification, the statement should refer to 134 countries,
rather than 143.
11 IPC
and Max may update their predictions as to timing as new
information becomes available to each party. For example, in a
recent letter to shareholders filed on May 1, 2008, Max
discloses that it expects the transaction to close late in
the second quarter or early in the third quarter of 2009.
12 As
of the date of this proxy statement, the Max Amalgamation
Agreement cedes to Max the power to delay the closing of a
Validus/IPC combination because IPC has no right to terminate
the Max Amalgamation Agreement until after the vote of the IPC
shareholders at IPCs Annual General Meeting, even if
IPCs board of directors changes its recommendation and
recommends a vote FOR the Validus Amalgamation
Offer. Accordingly, should IPCs board of directors choose
to recommend a vote FOR the Validus Amalgamation
Offer, Max would have the power to delay the closing of a
Validus/IPC combination by not terminating the IPC/Max agreement
until after the shareholders vote down the Proposed Max
Amalgamation.
-53-
Max also tries to make an issue of the fact that IPC has not had
a chance to conduct due diligence on Validus. Validus would
welcome the opportunity to provide IPC with customary due
diligence information. Validus stands ready to respond to any
requests IPC may make on an expedited basis, and would be more
than happy to meet with IPC to answer any questions IPC may have
about Validus, its operations, its financial health or any other
matter relevant to the Board of IPC in considering Validus
Superior Proposal. We call upon Max to permit IPCs Board
to exercise its fiduciary duties by releasing IPC from the
extraordinarily restrictive prohibition in the Amalgamation
Agreement which prevents it from even talking to Validus
regarding the terms of its Superior
Proposal.13
6. Maxs business is complementary to
IPC. Maxs assertions that a
combination of Validus and IPC would result in a loss of
customers are without merit and are particularly surprising,
given that Max has publicly stated its intention to
significantly reduce IPCs core reinsurance activities. As
we are both aware, the current reinsurance market is in the
midst of a capacity
shortage.14
As a result, we do not believe that clients will actively seek
to diversify their reinsurance placements away from our combined
company. In fact, our combined financial strength and clout
should only serve to make a combined Validus/IPC a
go-to player for reinsurance
placements.15
7. Maxs complementary and diversified
platform is appreciated by our ratings
agencies. We have been in dialogue with our
ratings agencies with regard to our proposal. We encourage the
Board of IPC to focus its attention on what the ratings agencies
actually say, rather than on Maxs
speculations.16
8. Max maintains less underwriting volatility
through greater diversification in its portfolio of
risks. Due to the significant investment
losses Max sustained in 2008, it is unsurprising that Max is
attempting to focus on underwriting volatility alone.
Selectively focusing on underwriting volatility wholly ignores
the other various risks and uncertainties that IPCs
shareholders would be assuming by combining with Max and its
risky balance sheet. With respect to underwriting performance,
in 2008, Validus successfully weathered its exposures from
Hurricanes Ike and Gustav with a combined ratio of 92.2% and net
income of $63.9 million. This performance was generated
despite the fact that Validus reserved for those events more
conservatively than its industry peers, as discussed in
paragraph 4 above. Validus disclosures offer the
highest level of transparency with regard to its probable
maximum losses, zonal aggregates and realistic disaster
scenarios and we would challenge Max to provide the same level
of transparency to its shareholders before presumptuously
speculating on the impacts of various potential events.
13 The
agreement governing the Initial Validus Offer retained this
restrictive prohibition. Validus board of directors
determined that proposing substantially similar agreement terms
with what we believed to be improved economic terms would
facilitate IPCs board of directors evaluation of the
Initial Validus Offer. On May 18, 2009, Validus amended
this provision in the Validus Amalgamation Offer to permit IPC
and its subsidiaries and their respective personnel and
representatives to participate or engage in discussions relating
to an acquisition proposal for IPC so long as IPCs board
has concluded in good faith that such action is required in
order for IPCs directors to comply with fiduciary duties
under applicable law and IPC complies with certain notification
and confidentiality requirements.
14 A
reinsurance industry commentator has recently stated that,
taking reinsurer capital as the nearest proxy for capacity, it
is estimated that reinsurer capital, which was down 8 to
10 percent from January 1, 2008 through
September 30, 2008, will be down 15 to 20 percent for
the year ending December 31, 2008 when reported. In
addition, the same commentator observed that capital markets
capacity for insurance risk has declined in similar proportions.
15 We
believe that a combined Validus/IPC would be a go-to
player for reinsurance placements because Validus will be better
capitalized (as measured by pro forma shareholders equity) than
many of the members of its peer group.
16 As
of the date of this proxy statement, this statement is intended
to emphasize that Validus believes the statement being referred
to, in the April 2, 2009 Max letter to IPCs board of
directors, is based upon speculation by Max, since, to Validus
knowledge, the rating agencies have not made a determination in
this regard.
-54-
9. Max has a proven, long term history of
successful acquisitions without incurring good
will. Validus has a proven track record of
acquiring a high quality premier business with a leading
position in its market. Maxs pointing to its acquisition
of Imagine Group (UK) Limited as an example of a successful
acquisition is ironic, especially relative to our successful
acquisition of Talbot. In that transaction, Validus acquired a
strong balance sheet with excess reserves at a multiple of 3.1x
earnings demonstrating Validus commitment to creating
value for our shareholders. When we acquired Talbot, Validus
booked $154 million of goodwill and intangible assets;
however, from acquisition closing until December 31, 2008,
we benefited from $105 million in reserve releases from the
Talbot business, emanating from periods prior to the
acquisition. Maxs acquisition history, on the other hand,
is that of acquiring subscale small businesses that
significantly lag the leaders in their respective
markets.17
10. Max has a diversified shareholder
base. Maxs attempt to characterize
our shareholder base as a liability is baseless. What is
relevant is the relative liquidity of Max and Validus shares. As
previously mentioned in our letter dated March 31, 2009,
Validus daily average trading volume was
$11.3 million vs. $6.7 million for Max for the three
months prior to announcement of the IPC/Max transaction.
Additionally, since our shareholder base is publicly disclosed,
if the market viewed it as an overhang, such
information would already be embedded in the market price of our
common shares. The combination of our trading volume and the
premium pricing of our shares compared to either Max or IPC
should put to rest any concerns IPC shareholders may have
regarding liquidity of the combined company.
11. IPC and Max have compatible
cultures. Max has mentioned that it has a
compatible culture with IPC. If that is in fact the case, we
find the paucity of IPC management that will continue in senior
roles at IPC/Max curious and an indication that such cultural
fit may be only skin deep. We have successfully integrated large
acquisitions in the past, and believe that experience is most
relevant in this regard.
12. Maxs higher asset leverage provides
greater investment income over
time. Maxs asset leverage has been a
significant liability given its risky investment
strategy.18
This leverage would similarly expose a combined IPC/Max to
significant volatility. Maxs alternative investments and
non-agency asset/mortgage backed securities alone comprise 99%
of its tangible equity, indicating a massive amount of embedded
risk.19
Maxs $233 million loss in 2008 on their alternative
investment portfolio is entirely indicative of that risk. Its
so-called outperformance in 6 of the last 8 quarters
ignores the abject underperformance it experienced in other
periods.20
In 2007, when the global credit crisis began, Maxs current
management had the opportunity to liquidate its alternative
assets. Max chose to continue holding those risky investments,
which have led to massive losses. Combined, we believe these
factors highlight Maxs poor history as stewards of
shareholder capital.
* * *
17 As
of the date of this proxy statement, we are aware of only three
small acquisitions by Max and we believe, based on our
experience and knowledge of the industry, that the acquired
entities were not leaders in their markets.
18 As
of the date of this proxy statement, we believe that the
investment strategy that has been employed by Max, and is
expected to be employed by Max management who will control the
combined IPC/Max, and that according to Maxs public
information is expected to include a 10% to 12% concentration in
alternative investments, should be considered a risky investment
strategy that could amount to a significant liability when
compared with an investment strategy, like Validus, that
does not allow for such investments in alternative investments.
19 As
of the date of this proxy statement, this statement is intended
to emphasize that Maxs alternative investments alone
comprised 61% of tangible equity, indicating what we believe to
be a significant amount of embedded risk.
20 As
of the date of this proxy statement, this statement should be
qualified as an expression of our opinion based on our
experience and knowledge of the industry and on Maxs
investment performance in the third and fourth quarters of 2008,
which was worse than the average for its peer group but better
than the investment performance of several of its peers.
-55-
In closing, I would like to reiterate that we have submitted to
you a proposal which we are confident the IPC Board will agree
is a Superior Proposal as defined in your
Amalgamation Agreement. We have submitted this proposal because
we deeply and honestly believe that the combination of IPC and
Validus will result in a far better value proposition for the
IPC shareholders than the combination of IPC and Max. Validus is
absolutely committed to our Superior Proposal and we simply do
not understand how Max can characterize our actions as
opportunistic. If Max truly believes its combination
with IPC is superior, we call upon Max to free the IPC Board
from the shackles that your Amalgamation Agreement has placed on
the ability of the members of the IPC Board to exercise their
fiduciary duties under Bermuda law, so as to create a level
playing field on which the shareholders of IPC will be able to
decide which of the two proposals is indeed superior.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
-56-
In the afternoon on April 5, 2009, Validus sent a letter to
IPCs Board of Directors regarding an error that Max had
made in its calculation of pro forma tangible book value under
the terms of the Initial Validus Offer. The text of our letter
reads as follows:
April 5,
2009
The Board of Directors of IPC Holdings, Ltd.
c/o James
P. Bryce, President and Chief Executive Officer
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
Dear Members of the Board:
We are writing to call to your attention an error contained in
the publicly disseminated letter sent to you by Mr. Becker
of Max Capital Group Ltd. (Max) dated April 2,
2009 and the accompanying presentation materials, regarding the
purported benefits of the proposed combination of IPC Holdings,
Ltd. (IPC) with Max (pursuant to an Amalgamation
Agreement between Max and IPC dated as of March 2, 2009
(the Amalgamation Agreement)), as compared to the
benefits presented by a combination of IPC with Validus
Holdings, Ltd. (Validus) on the terms we proposed to
you in our letter dated March 31, 2009 (the Validus
Proposal).
In his letter, Mr. Becker states (and he has been widely
quoted in the media stating) that [a] combination with
Max delivers 29% more tangible book value per share to
IPC. This is not correct. We, and our financial
advisors and SEC counsel, have reviewed this calculation and we
would like to provide you with the correct figures.
Specifically, Mr. Beckers calculation understates the
pro forma IPC share of Validus tangible book value per share by
$2.74, which results in overstating the premium calculated on
this basis quite significantly. We have attached some materials
that illustrate the correct calculation. Our SEC counsel has
advised us that this error is material and that Max will be
required to amend its SEC filings to correct its error.
As we noted in our letter dated April 2, 2009, putting
aside this error, we believe that this measure is the wrong
framework on which to analyze whether the IPC/Max plan is
superior to the IPC/Validus plan, and refer you to the analysis
in our earlier letter. We remain confident that the IPC Board
will agree the Validus Proposal is a Superior
Proposal as defined in your Amalgamation Agreement.
We look forward to your response to the Validus Proposal.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
cc: Marty Dolan, J.P. Morgan Securities, Inc.
In the afternoon on April 5, 2009, Validus also posted the
material referenced in the letter on its website.
On the morning of April 6, 2009, Max issued a press release
reaffirming its prior disclosure regarding the Initial Validus
Offer and stating that it continues to believe that
Validus had not presented a Superior Proposal, nor one that can
be reasonably expected to lead to a Superior Proposal (as such
term is defined in the Max Amalgamation Agreement). The
text of the press release reads as follows:
Max Capital Group Ltd. (NASDAQ:MXGL; BSX: MXGL BH) today
confirmed that the calculations of diluted book value per IPC
share and diluted tangible book value per IPC share included in
Maxs April 2, 2009 letter to the Board of Directors
of IPC Holdings, Ltd. (IPC) are true and correct.
Max has consulted with its financial advisors and SEC counsel.
-57-
In a press release dated April 5, 2009, Validus alleged
that Max had made a substantial error in its
calculation of pro forma tangible book value under
the proposed terms of Validuss unsolicited takeover of
IPC. However, Validuss allegation is incorrect and
misleading. The calculations that Max presented accurately
represent what an IPC shareholder would receive on a stand alone
basis from either Max or Validus, without giving effect to what
IPC itself contributes to a transaction. The Max presentation
allows IPC shareholders to compare the value received under each
transaction on an apples-to-apples basis. Max
believes this is an important measure in comparing the value
received today by an IPC shareholder under the agreement with
Max and the proposed Validus transaction. The pro forma
calculations Validus is utilizing include the additional benefit
derived from issuing Validus shares to purchase IPC at a
discount to book value.
One has to question whether the IPC shareholders are being
well served by the non-substantive claims being initiated by
Validus. They have made certain statements that completely
misrepresent and falsely characterize the information presented
by Max. Since Validus initially made its below book value,
unsolicited takeover offer for IPC, it has demonstrated a lack
of understanding of what is important to the shareholders of IPC
in allowing them to assess the relative value being delivered by
Max versus Validus, stated W. Marston (Marty) Becker, Max
Chairman and CEO.
The facts presented in Maxs April 2, 2009 letter to
IPC have not changed and are clear:
|
|
|
|
(i)
|
Max delivers to IPC $33.83 of diluted tangible book value per
IPC share a 29.2% premium versus $26.19 delivered by
Validus, and
|
|
|
|
|
(ii)
|
Max delivers to IPC $34.93 of diluted book value per IPC
share a 23.2% premium versus $28.35 delivered by
Validus.
|
As noted above, these figures represent the book value per IPC
share being delivered to IPCs shareholders on a standalone
basis, without giving effect to what IPC itself contributes to a
transaction.
The conclusion remains clear a combination with Max
provides greater underlying value to IPCs shareholders
today, with true diversification of underwriting exposures and
without an over-concentration in short-tail catastrophe oriented
business, and will result in greater upside for IPC shareholders
as compared to the hostile takeover proposal by Validus.
Max continues to believe that Validus has not presented a
Superior Proposal, nor one that can be reasonably expected to
lead to a Superior Proposal (as such term is defined in the
IPC/Max Plan of Amalgamation dated March 1, 2009).
Additional details on the Max calculations referred to above are
posted on [Maxs] website: www.maxcapgroup.com.
In the afternoon on April 6, 2009, Validus sent a letter to
IPCs board of directors regarding the Max press release
and issued a press release announcing the letter. The text of
our letter reads as follows:
April 6,
2009
The Board of Directors of IPC Holdings, Ltd.
c/o James
P. Bryce, President and Chief Executive Officer
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
Dear Members of the Board:
The difficulty of being unable to speak directly has lead to an
exchange of press releases, which is unfortunate. In this
context, we would like to respond to the Max statement issued
this morning by describing the analytical framework we believe
is appropriate.
-58-
In todays press release, Max modified its description of
its calculation of pro forma book value per share. In essence,
the Max calculation now describes what an IPC shareholder would
receive on a standalone basis from either Validus or Max. We
disagree with this basis for valuation. Our approach is focused
on a comparison of what an IPC shareholder would own as a result
of either transaction.
However, if we were to follow the Max approach, we would note
that there are a number of adjustments contemplated in the
proposed IPC/Max Amalgamation Agreement, which would reduce the
standalone
value21
that Max delivers by $117.4 million. The joint proxy
statement/prospectus filed by IPC and Max references, among
other adjustments, the need to increase Max loss reserves
for annuity claims as well as property and casualty claims by
$130.0 million. As a result, the Max book value delivered
would be reduced by $2.06 per Max share, resulting in a book
value delivered of $20.40 per share, on the basis of Maxs
calculation of diluted book value.
I would also note that Validus and Max use differing accounting
conventions for calculating diluted book value per share. While
each is valid, on the basis upon which Validus calculates
diluted book value per share, the Max value delivered would be
$19.68 after a $1.81 per share reduction in book value.
We have provided the attached schedule of our calculations in an
effort to be as transparent as possible in our communication
with you.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
cc: Marty Dolan, J.P. Morgan Securities, Inc.
21 If
the adjustments to reduce the net asset value of Max were made,
it would reduce by $117.4 million the book value that Max
contributes to the combined company at closing.
-59-
Adjustments
to Max Book Value Upon Combination with IPC
|
|
|
|
|
(In millions, except per share values)
|
|
|
|
|
Net book value of net assets acquired prior to fair value
adjustments(1)
|
|
$
|
1,280.3
|
|
Preliminary adjustments for fair value
|
|
|
|
|
Adjustment to deferred acquisitions costs(2)
|
|
|
(51.3
|
)
|
Adjustment to goodwill and intangible assets(3)
|
|
|
(12.0
|
)
|
Adjustment to reserve for property and casualty losses and loss
adjustment expenses(4)
|
|
|
(60.0
|
)
|
Adjustment to life and annuity benefits(4)
|
|
|
(70.0
|
)
|
Adjustment to unearned property and casualty premiums(5)
|
|
|
51.3
|
|
Adjustment to senior notes(6)
|
|
|
24.6
|
|
|
|
|
|
|
Total adjustments
|
|
|
(117.4
|
)
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
1,162.9
|
|
Total adjustments
|
|
$
|
(117.4
|
)
|
Max diluted shares outstanding(7)
|
|
|
64.9
|
|
|
|
|
|
|
Adjustment per diluted share
|
|
$
|
(1.81
|
)
|
|
|
|
|
|
Source: Note 1 to unaudited pro forma consolidated
financial information of IPC in
Form S-4
filed
3/27/2009
(S-4).
Notes 1-6
are excerpts from the
S-4.
|
|
|
|
(1)
|
Represents historical net book value of Max.
|
|
|
(2)
|
Represents adjustment to reduce the deferred acquisition costs
of Max to their estimated fair value at December 31, 2008.
|
|
|
(3)
|
Represents adjustment to reduce goodwill and intangible assets
of Max to their estimated fair value at December 31, 2008.
|
|
|
(4)
|
The fair value of Maxs reserve for property and casualty
losses and loss adjustment expenses, life and annuity benefits,
and loss and loss adjustment expenses recoverable were estimated
based on the present value of the underlying cash flows of the
loss reserves and recoverables. In determining the fair value
estimate, IPCs management estimated a risk premium deemed
to be reasonable and consistent with expectations in the
marketplace given the nature and the related degree of
uncertainty of such reserves. Such risk premium exceeded the
discount IPCs management would use to determine the
present value of the underlying cash flows.
|
|
|
(5)
|
Represents the estimated fair value of the profit within
Maxs unearned property and casualty premiums. In
determining fair value, IPCs management estimated the
combined ratio associated with Maxs net unearned property
and casualty premiums.
|
|
|
(6)
|
Represents adjustment to record Maxs senior notes to their
estimated fair value at December 31, 2008.
|
|
|
(7)
|
Common shares outstanding plus the gross amount of all warrants,
options, restricted shares, RSUs, restricted common shares and
performance share units outstanding as of the 12/31/2008 balance
sheet date (Source: Max 2008
Form 10-K)
|
-60-
In the afternoon on April 7, 2009, Kenneth L. Hammond,
Chairman of IPCs board of directors, sent a letter to
Mr. Noonan indicating that IPCs board of directors
had reaffirmed its recommendation to combine with Max. The text
of the letter reads as follows:
April 7,
2009
Edward J. Noonan
Chairman & Chief Executive Officer
Validus Holdings Ltd.
19 Par-La-Ville Road
Hamilton HM11
Bermuda
Dear Mr. Noonan:
I am writing to respond to your letter of March 31, 2009,
submitting an offer pursuant to which Validus would combine with
IPC.
IPCs board of directors, after careful consultation with
management and our financial and legal advisors, has unanimously
concluded that the Validus proposal does not constitute a
Superior Proposal as defined in the Agreement and Plan of
Amalgamation with Max Capital Group Ltd. dated March 1,
2009. Furthermore, IPCs board of directors has unanimously
reaffirmed its recommendation that IPC shareholders vote in
favor of the transaction with Max.
In reaching its decision, IPCs board of directors
considered several factors, including the following:
|
|
|
|
|
The Validus Offer Fails to Meet IPCs Diversification
Goals During 2008, IPCs board of directors
concluded that it would be in IPCs best interest to
diversify beyond its monoline property catastrophe business
model in order to reduce the volatility inherent in focusing on
catastrophe reinsurance and to spread our risk base across less
correlated risks. A key factor in our decision to choose Max
over other options is our belief that Maxs diversified
operations offer the best path to achieve this goal. The
decision was the result of a robust and thorough review of
strategic alternatives. A transaction with Validus would not
accomplish that strategic objective given Validus
substantial correlated catastrophe exposure.
|
|
|
|
The Max Transaction Has Significant Value Creation Potential and
Upside for IPC Shareholders The combination with Max
has the potential to create significant value for IPC
shareholders, as detailed in the filed
S-4
registration statement dated March 27, 2009. It also
provides greater book value per share to IPC shareholders.
Furthermore, Maxs balance sheet has significantly lower
goodwill and intangibles, resulting in an even greater tangible
book value per share to IPCs shareholders. We are
concerned that Validuss proposal enables Validus to raise
capital at a discount to book value at the expense of IPC
shareholders, on the other hand, the combination with Max allows
deployment of capital under a combined business plan that
benefits IPCs shareholders. Maxs diversified book,
when combined with IPCs, has the potential to reduce
earnings volatility. Earnings volatility affects share price
volatility, ratings and other important financial measures. A
combination with Max carries less risk, as this combination is
less exposed to catastrophe events and other risk
concentrations. On the other hand, Validus earnings and
share price are more affected by catastrophe losses. At the time
of the Validus offer, its share price was near the high end of
its 52-week trading range, resulting in an exchange ratio that
poses potential downside risk to IPC shareholders. In contrast,
we entered into the transaction with Max at an exchange ratio
determined at a time that Max was trading at 53% of its
52-week high.
|
|
|
|
The Validus Amalgamation Proposal Is Less Certain, Is
Riskier for IPCs Shareholders and Would Take Longer to
Close We currently expect to be able to complete the
transaction with Max in June, with all regulatory approvals
obtained. In contrast, in our view, any transaction with Validus
likely could not be completed before September, right in the
middle of the wind season. Our transaction with Max
|
-61-
|
|
|
|
|
would have to be rejected by IPC shareholders before IPC would
be able to conduct due diligence on and negotiate with Validus.
There is no assurance IPC would, at that time, choose to enter
into a transaction with Validus. Even if IPC were to proceed
with Validus at that time, Validus and IPC would both need to
obtain consents under their credit facilities before the deal
could close, whereas no such additional consents would be
necessary to close the IPC/Max transaction. Validus and IPC
would also need to achieve satisfactory indications from the
ratings agencies regarding the ratings outcomes of such a
combination.
|
Given these considerations and others, the board of directors
unanimously determined that the Validus proposal does not
constitute a Superior Proposal as defined in our amalgamation
agreement with Max. IPC remains committed to completing our
transaction with Max, which we believe will create a diversified
and balanced platform for growth that should drive stronger
performance and value for shareholders for many years.
Sincerely,
Kenneth L. Hammond
Chairman of the Board of Directors
On Behalf of the IPC Holdings Board of Directors
In the afternoon on April 8, 2009, Validus sent a letter to
Mr. Hammond, the Chairman of IPCs board of directors,
regarding the IPC press release and letter and issued a press
release announcing the letter. The text of the letter reads as
follows:
April 8,
2009
Kenneth L. Hammond
Chairman
IPC Holdings, Ltd.
American International Bldg.
29 Richmond Road
Pembroke, HM 08
Bermuda
Dear Mr. Hammond,
I am writing in response to your letter of April 7, 2009,
in which you confirm the continuing support of the IPC board for
the Max takeover of IPCs operations.
I am disappointed with the Boards decision and
respectfully disagree with your assessment of our Superior
Proposal. I am confident that had your Amalgamation Agreement
with Max allowed you to engage in dialogue with us, you would
have instead supported the Validus Superior Proposal on behalf
of your shareholders. In particular, although you cite a
robust and thorough review of strategic
alternatives, I am greatly disappointed that you never invited
us to participate in that process, although you spoke with
numerous potential buyers. To the extent that Max will release
you from the restrictive terms of the Amalgamation Agreement, we
continue to stand ready to discuss your objectives and how our
business meets those objectives. Until you agree to discuss our
proposal with us, we have no choice except to communicate
directly with your shareholders. We believe the facts will
demonstrate that our proposal is truly a Superior Proposal.
We hereby advise the shareholders of IPC that:
1. We have retained Georgeson as our proxy solicitor. We
will shortly file proxy solicitation materials with the SEC and
those materials will contain, among other things, the many
reasons why we believe you should vote against the Max takeover.
Once the proxy is effective, Georgeson will be in touch with
-62-
IPCs shareholders to solicit their votes AGAINST the Max
takeover. If, as we
[hope],23IPCs
shareholders vote down the Max takeover, you will be
unencumbered by the restrictive Amalgamation Agreement and free
to execute the Validus Agreement.
2. In our capacity as an IPC shareholder, we object to the
punitive nature of the $50 million Max Termination Fee. The
Termination Fee is an unenforceable penalty under Bermuda law
and we are commencing litigation to reduce this penalty. If
successful,24
we will permit IPC to pay the amount by which such penalty is
reduced as a dividend to IPC shareholders, so that IPC
shareholders and not Max or Validus
shareholders will share in the value obtained.
I regret that the terms of the Max takeover preclude the
management teams of IPC and Validus from cooperating in
delivering a superior outcome for IPC shareholders, but we are
pleased to work directly with your shareholders to achieve the
same end. We remain fully committed to our proposal.
Sincerely,
Edward J. Noonan
Chairman and Chief Executive Officer
On April 9, 2009, Validus filed a preliminary proxy
statement with the SEC which, in its definitive form, is being
used to solicit votes from IPC shareholders against the approval
of the Proposed Max Amalgamation.
On April 13, 2009, IPC filed an amendment (Amendment
No. 1) to the IPC/Max
S-4 with the
SEC, which, among other things, added to the disclosure
regarding the background to the Proposed Max Amalgamation
including the reasons as to why Validus was excluded from the
process that resulted in the Proposed Max Amalgamation.
Amendment No. 1 also contained a correction to IPCs
diluted book value for the year ended December 31, 2008.
On April 16, 2009, Validus filed this preliminary proxy
statement with the SEC with respect to soliciting votes from
Validus shareholders to approve the issuance of Validus Shares
in connection with the Acquisition.
On April 21, 2009, Validus filed an amendment to the
preliminary proxy statement with the SEC with respect to
soliciting votes from IPC shareholders against the Proposed Max
Amalgamation.
On April 28, 2009, IPC filed a second amendment to the
IPC/Max S-4
with the SEC.
On April 28, 2009, Validus filed the Bermuda Claim (as
defined below). The Bermuda Claim challenges the validity of the
Max Termination Fee and provisions which restrict the ability of
IPC to discuss competing proposals with third parties (the
no talk provisions) in the Max Amalgamation
Agreement. Further, the Bermuda Claim alleges that by entering
into the Max Amalgamation Agreement containing the Max
Termination Fee and no talk provisions and continuing to act in
accordance with the terms of these provisions, the directors of
IPC acted in breach of their fiduciary and other duties and not
in accordance with the constitution of IPC.
On April 30, 2009, Validus issued a press release outlining
its three-part plan to expedite the Acquisition.
23 As
of the date of this proxy statement, the word hope
has been inserted to replace the word expect in this
sentence.
24 As
of the date of this proxy statement, the reference to
success in this sentence relates to Validus
success in pursuing the litigation strategy referenced in the
immediately prior sentence followed by the successful
consummation of the Acquisition.
-63-
On April 30, 2009, IPC issued a press release reaffirming
its belief that the Initial Validus Offer did not represent a
superior proposal and that IPCs board of directors
continued to recommend IPC shareholders vote in favor of the
Proposed Max Amalgamation.
On May 1, 2009, Validus filed with the SEC an amendment to
its preliminary proxy statement with respect to soliciting votes
from IPC shareholders against the Proposed Max Amalgamation.
On May 1, 2009, Validus filed an application to expedite
the trial of the Bermuda Claim
On May 4, 2009, IPC filed a third amendment to the IPC/Max
S-4 with the
SEC.
On May 5, 2009, Validus filed an investor presentation
titled Superior Proposal for IPC Shareholders with
the SEC and on May 6, 2009 filed a revised investor
presentation with the SEC.
On May 6, 2009, Validus filed an amendment with the SEC to
the preliminary proxy statement with respect to soliciting votes
from IPC shareholders against the Proposed Max Amalgamation.
On May 7, 2009, IPC and Max filed a joint proxy
statement/prospectus for the IPC/Max
S-4 with the
SEC and stated that they would mail the joint proxy
statement/prospectus on or about Thursday, May 7, 2009 to
their respective shareholders of record as of the close of
business on April 28, 2009.
On May 8, 2009, Validus filed with the SEC and commenced
mailing definitive proxy materials and proxy cards to IPC
shareholders seeking proxies from IPC shareholders to vote
against the Proposed Max Amalgamation.
On May 11, 2009, Validus filed two amendments to this proxy
statement with the SEC.
On May 11-12, 2009, Validus application to expedite
the trial of the Bermuda Claim was heard by the Supreme Court of
Bermuda. Following the hearing, on May 13, 2009, the Court
denied the application for expedition of the timetable for the
proceedings. While this was not a hearing on the merits of
Validus claims, the Court acknowledged that Validus had
raised serious questions to be tried.
On May 12, 2009, Validus filed three preliminary proxy
statements with the SEC to, respectively, (i) solicit votes
from IPC shareholders to approve the Scheme of Arrangement at
the court-ordered IPC meeting, (ii) solicit requisitions
from IPC shareholders to compel the board of directors of IPC to
call the IPC special general meeting and (iii) solicit
votes to approve certain proposals at the IPC special general
meeting.
On May 12, 2009, Validus commenced the Exchange Offer.
On May 14, 2009, Validus amended the registration statement
of which the Offer to Exchange is a part.
On May 14, 2009, IPC filed a Solicitation/Recommendation
Statement on
Schedule 14D-9
reporting that IPCs board of directors had met on
May 13, 2009 and stating IPCs board of
directors recommendation that IPC shareholders reject the
Exchange Offer and not tender their IPC Shares to Validus
pursuant to the Exchange Offer.
On May 14, 2009, Validus filed an application to the
Supreme Court of Bermuda to convene a
court-ordered
meeting of IPC shareholders to approve the Scheme of
Arrangement. On May 19, 2009, the Court directed that
Validus application be heard during the week of
May 25, 2009. The application is scheduled to be heard by
the Court on
May 27-28,
2009.
On May 18, 2009, Validus delivered an offer letter to IPC
advising IPC of the increased economic terms of the Validus
Amalgamation Offer and containing the amendment to the Validus
Amalgamation Agreement.
Later on May 18, 2009, IPC issued a press release
announcing that its board of directors, along with its legal and
financial advisors, would carefully review the revised terms of
the Validus Amalgamation Offer consistent with its fiduciary
duties and make a formal recommendation to IPC shareholders in
accordance therewith.
Also on May 18, 2009, Validus filed an investor
presentation titled Improved Superior Proposal for IPC
Shareholders with the SEC.
-64-
On May 19, 2009, IPC filed an amendment to its
Solicitation/Recommendation
Statement on
Schedule 14D-9.
Also on May 19, 2009, Validus filed an amendment to this
proxy statement with the SEC.
On May 21, 2009, IPC filed an amendment to its
Solicitation/Recommendation Statement on Schedule 14D-9
reporting that IPCs board of directors had met on
May 20, 2009 and stating IPCs board of
directors recommendation that IPC shareholders reject the
revised terms of the Exchange Offer and not tender their
IPC Shares to Validus pursuant to the Exchange Offer.
On May 21, 2009, Validus amended the registration statement of
which the Offer to Exchange is a part.
On May 26, 2009, Validus filed this definitive proxy statement
with the SEC.
Reasons
Why Validus Board of Directors Recommends Approval of the
Share Issuance
By approving the Share Issuance, you will be enabling Validus to
issue the shares necessary to effect the Acquisition.
Validus board of directors believes that the Acquisition
represents a compelling combination and excellent strategic fit
that will enable Validus to capitalize on opportunities in the
global reinsurance market. Successful completion of the
Acquisition would allow Validus shareholders to benefit from the
superior growth potential of a combined company that would be a
leading carrier in Bermudas short-tail reinsurance and
insurance markets, with a strong balance sheet and quality
diversification in profitable business lines. In reaching these
conclusions and in determining that the Validus Amalgamation
Agreement, the Acquisition and the Share Issuance are fair,
advisable and in the best interests of Validus, and in
recommending the approval of the Share Issuance, Validus
board of directors consulted with Validus management as well as
legal and financial advisors and considered a number of factors.
The factors included, but were not limited to, the following:
|
|
|
|
|
Validus board of directors analysis and
understanding of the business, operations, financial
performance, financial condition, earnings and future prospects
of Validus and its assessment, based on such analysis and
understanding, that Validus will have:
|
|
|
|
|
|
lines of business concentrated in short-tail lines where pricing
momentum is strongest;
|
|
|
|
enhanced market position and client penetration that will make
Validus a more significant player in short-tail reinsurance
placements globally;
|
|
|
|
ability to add a significant amount of short-tail reinsurance
premium to Validus existing Bermuda infrastructure;
|
|
|
|
global and diversified operating platforms, with offices and
underwriting facilities in Bermuda, at Lloyds in London,
Dublin, Singapore, New York and Miami;
|
|
|
|
|
|
enhanced size and scope, with GAAP capitalization of
approximately $3.9 billion and shareholders equity of
approximately $3.6 billion (on a pro forma basis as of
March 31, 2009);
|
|
|
|
|
|
continuing financial flexibility, with debt/total capitalization
of only 1.8% and total leverage including hybrid securities of
only 9.3%; and
|
|
|
|
the opportunity to reduce costs associated with running two
separate public companies, including IPCs NASDAQ listing
fees, transfer agent fees, legal and accounting fees related to
SEC filings and shareholder mailings, printing and mailing
expenses for periodic reports and proxy statements, annual
meeting expenses and other investor relations related expenses,
which expenses Validus believes are duplicative and can be
eliminated if Validus and IPC combine resulting in these
expenses for the combined company representing a smaller portion
of combined revenues;
|
|
|
|
|
|
the fact that Validus will experience accretion to its book
value and tangible book value per share as a result of the
transaction;
|
|
|
|
the fact that Validus would remain within its stated limitations
of reinsurance aggregates by exposure zone;
|
|
|
|
Validus board of directors understanding of the
business, operations, and financial condition of IPC;
|
-65-
|
|
|
|
|
the ongoing representation by all of Validus existing
directors on Validus board of directors after the
Acquisition, and the fact that Validus senior management
will continue to manage Validus;
|
|
|
|
the written opinion from Greenhill, delivered to Validus
board of directors on May 17, 2009, to the effect that,
based upon and subject to the various limitations and
assumptions described therein, as of the date thereof, the
consideration pursuant to the proposed Acquisition was fair,
from a financial point of view, to Validus, as described
in Opinion of Validus Financial Advisor
below;
|
|
|
|
the fact that no external financing is required for the
transaction;
|
|
|
|
Validus board of directors belief, based on advice
from legal counsel, that the Acquisition is likely to receive
necessary regulatory approvals in a relatively timely manner
without material adverse conditions;
|
|
|
|
the terms of the Validus Amalgamation Agreement, including:
|
|
|
|
|
|
the requirement that the Share Issuance be approved by holders
of a majority of the outstanding Validus Shares casting votes at
the Validus special meeting, as described in The Amalgamation
Agreement Conditions to the Amalgamation below;
|
|
|
|
Validus may terminate the Validus Amalgamation Agreement if the
total number of dissenting IPC Shares for which appraisal rights
have been exercised pursuant to Bermuda law exceeds 15% of the
outstanding IPC Shares, as described in The Amalgamation
Agreement Termination of the Amalgamation
Agreement Termination below.
|
Validus board of directors considered other factors in
making its determination and recommendation, including the
following:
|
|
|
|
|
the possibility that IPC would have to pay a termination fee of
up to $50 million to terminate the Max Amalgamation
Agreement;
|
|
|
|
the fact that, in order to agree to a transaction with IPC,
Validus board of directors thought the Validus
Amalgamation Agreement would need to be substantially similar to
the Max Amalgamation Agreement;
|
|
|
|
the restrictions on the conduct of Validus business
imposed by the Validus Amalgamation Agreement prior to the
consummation of the amalgamation, requiring Validus to conduct
its business in the ordinary course, subject to specific
limitations, which may delay or prevent Validus from undertaking
business opportunities that may arise pending completion of the
amalgamation;
|
|
|
|
the inability to control IPCs conduct of business before
the Acquisition;
|
|
|
|
that Validus shareholders and IPC shareholders may not react
favorably to the Validus Amalgamation Offer or the Acquisition,
and the execution risk and additional costs that would be
required to complete the Acquisition as a result of any legal
actions and appraisal actions brought by IPC shareholders;
|
|
|
|
the effect of the announcement of the Acquisition on
Validus share price if Validus shareholders do not view
the Acquisition positively or if the Acquisition is not
completed;
|
|
|
|
the potential disruption to Validus business that could
result from the announcement and pursuit of the amalgamation,
including the diversion of management and employee attention;
|
|
|
|
that Validus may wish to purchase retrocessional protection for
the 2009 wind season and the cost and availability of that
protection;
|
|
|
|
the possibility that IPC would not find the Validus Amalgamation
Offer to be a superior proposal under the Max
Amalgamation Agreement, which would entail additional costs in
order to enable IPC shareholders to consider the Validus
Amalgamation Offer;
|
|
|
|
the possibility that the amalgamation might not be completed due
to difficulties with terminating the Max Amalgamation Agreement,
obtaining sufficient shareholder approval, the occurrence of a
material adverse effect on either companys business, or
the inability to obtain required credit facility consents;
|
-66-
|
|
|
|
|
the fact that Validus may be required to pay IPC a termination
fee of $16 million, as described in The Amalgamation
Agreement Termination of the Amalgamation
Agreement Effects of Termination; Remedies below
in certain circumstances;
|
|
|
|
the risk that A.M. Best, S&P or Moodys might
lower the ratings of Validus or any of its reinsurance
subsidiaries following the Acquisition;
|
|
|
|
the possibility that after consummation of the amalgamation
Validus might find a material adverse fact or circumstance
affecting IPC that was not disclosed by IPC in its publicly
available financial and other information, which could have a
material adverse effect on Validus; and
|
|
|
|
the risks described in this proxy statement under the section
entitled Risk Factors.
|
The foregoing discussion of the information and factors
considered by Validus board of directors is not intended
to be exhaustive, but is believed to include the material
factors considered by Validus board of directors. In view
of the variety of factors considered in connection with its
evaluation of the Validus Amalgamation Agreement, the Share
Issuance and the other transactions contemplated by the
Acquisition, Validus board of directors did not find it
practicable to, and did not, quantify or otherwise assign
specific weights to the factors considered in reaching its
determination and recommendation. In addition, each of the
members of Validus board of directors may have given
differing weights to different factors. Validus board of
directors believed that the positive factors discussed above
outweighed the negative factors discussed above, especially
after giving weight to the likelihood of occurrence.
Litigation
On April 28, 2009, Validus filed a claim in the Supreme
Court of Bermuda against IPC, IPC Limited and Max (Bermuda
Claim). The Bermuda Claim challenges the validity of the
Max Termination Fee and provisions which restrict the ability of
IPC to discuss competing proposals with third parties
(no-talk provisions) in the Max Amalgamation
Agreement. Further, the Bermuda Claim alleges that by entering
into the Max Amalgamation Agreement containing the Max
Termination Fee and the no talk provisions and continuing to act
in accordance with the terms of these provisions, the directors
of IPC have acted in breach of their fiduciary or other duties
and not in accordance with the constitution of IPC.
First, pursuant to the Max Amalgamation Agreement, in the event
of an unsolicited alternate offer from a third party, the board
of IPC is required to consider whether such a proposal amounts
to a Superior Proposal. The Bermuda Claim alleges
however, that without the ability to engage in any discussions
or information exchange with respect to the Acquisition as a
result of the no-talk provisions, the board of IPC is restricted
and/or
precluded from properly exploring or evaluating whether in fact
the alternate offer is a Superior Proposal. Second,
in the event that a Superior Proposal is being made
and the directors of IPC vary or alter their recommendation of
the Proposed Max Amalgamation within the contractual closing
deadline, pursuant to the Max Amalgamation Agreement, Max would
be entitled to terminate the Max Amalgamation Agreement and
collect the Max Termination Fee from IPC. Under the Max
Amalgamation Agreement, the Max Termination Fee is $50,000,000.
The Bermuda Claim alleges that this is equivalent to 4.97% of
the aggregate consideration value of $1,005,915,920 of the
Proposed Max Amalgamation, based on the price of Max common
shares on February 27, 2009, the last trading day before
the signing of the Max Amalgamation Agreement. The Bermuda Claim
also alleges that the quantum of the Max Termination Fee is
wholly excessive and was not calculated by reference to the
costs and expenses that would be expected to be incurred by Max
in the event that the Max Amalgamation Agreement was terminated
and substantially exceeds Maxs anticipated liability in
respect of such costs and expenses, which, based upon disclosure
in the IPC/Max
Form S-4,
is likely to be little more than $10 million. Therefore,
the Max Amalgamation Agreement constitutes an unlawful penalty
whose predominant function, the Bermuda Claim alleges, is to
deter IPC or IPC Limited from breaching the Max Amalgamation
Agreement (including by way of recommending a Superior
Proposal to its board of directors).
By agreeing to the Max Amalgamation Agreement containing the Max
Termination Fee and no-talk provisions, as well as by continuing
to act in accordance with their terms, the Bermuda Claim alleges
that the directors of IPC have failed to retain sufficient
flexibility to consider and, if thought fit, recommend an offer
which
-67-
may be more advantageous to IPC shareholders, improperly
fettering their ability to exercise the powers conferred upon
them by the constitution of IPC
and/or act
in the best interests of IPC
and/or its
shareholders. And by doing so, the directors of IPC have acted
other than bona fide in the best interest of IPC
and/or for
an improper or collateral purpose, and the Max Termination Fee
and no-talk provisions were therefore beyond the actual or
implied authority of the board of directors of IPC, and as such,
not binding on IPC and unenforceable by Max.
The Bermuda Claim requests: (1) declaratory relief that:
(a) the Max Termination Fee constitutes an unlawful and
unenforceable penalty, (b) in entering into the Max
Amalgamation Agreement containing the Max Termination Fee and
no-talk provisions, the directors of IPC acted in breach of duty
and otherwise than in accordance with the constitution of IPC,
(c) in continuing to act in accordance with the Max
Termination Fee and no-talk provisions in the Max Amalgamation
Agreement the directors of IPC continue to act in breach of duty
and otherwise than in accordance with the constitution of IPC;
(2) an injunction restraining IPC or IPC Limited from
making any direct or indirect payment to Max pursuant to the Max
Termination Fee
and/or
taking any steps, whether itself, or by its directors, servants,
agents or otherwise to give effect to the no-talk provisions of
the Max Amalgamation Agreement
and/or the
Max Termination Fee; (3) an order that IPC pay the costs of
the proceedings; and (4) any other or further relief the
court may deem just and proper.
On May 1, 2009, Validus filed an application to expedite
the trial of the Bermuda Claim. Validus requested that the
Supreme Court of Bermuda set a schedule permitting a trial to be
conducted commencing on an earlier date than any date on which
IPC seeks to hold its annual general meeting to consider the
proposals related to the Proposed Max Amalgamation. Max and IPC
opposed the application. On May 13, 2009, the Court denied
the application for expedition of the timetable for the
proceedings. While this was not a hearing on the merits of
Validus claims, the Court acknowledged that Validus had
raised serious questions to be tried.
Opinion
of Validus Financial Advisor
Validus board of directors received an oral opinion,
subsequently confirmed in writing, from Greenhill that, based
upon and subject to the various limitations and assumptions
described in the written opinion, as of May 17, 2009, the
consideration pursuant to the proposed Acquisition was fair,
from a financial point of view, to Validus.
The full text of the written opinion of Greenhill, dated
May 17, 2009, which sets forth, among other things, the
assumptions made, procedures followed, matters considered and
limits on the opinion and the review undertaken in connection
with rendering the opinion, is attached as Annex B to this
proxy statement and is incorporated herein by reference.
Greenhills opinion is not a recommendation as to how
Validus shareholders should vote with respect to the issuance of
Validus Shares pursuant to the proposed Acquisition or any other
matter. The summary of Greenhills opinion that is set
forth below is qualified in its entirety by reference to the
full text of the opinion. Validus shareholders are urged to read
the opinion in its entirety.
In connection with rendering its opinion, Greenhill, among other
things:
|
|
|
|
|
reviewed the Agreement and Plan of Amalgamation, dated as of
March 31, 2009, executed by Validus and Validus Ltd. and a
draft dated May 17, 2009 of the Amendment thereto (in each
case, not executed by IPC as of the date of the opinion)
(together, for purposes of this section, the Amalgamation
Documents);
|
|
|
|
reviewed the Form of the Scheme of Arrangement (the Form
of the Scheme of Arrangement) included in the preliminary
proxy statement on Schedule 14A filed by Validus with the
SEC on May 12, 2009;
|
|
|
|
reviewed the preliminary prospectus and offer to exchange, dated
May 13, 2009, and the related Letter of Transmittal (both
together with the Amalgamation Documents and the Form of the
Scheme of Arrangement, the Transaction Documents)
included in Amendment No. 1 to the Registration Statement
on
Form S-4
filed by Validus with the SEC on May 14, 2009;
|
|
|
|
reviewed certain publicly available financial statements of IPC
and Validus;
|
|
|
|
reviewed certain other publicly available business and financial
information relating to IPC and Validus that Greenhill deemed
relevant;
|
|
|
|
reviewed certain information, including financial forecasts and
other financial and operating data concerning Validus prepared
by the management of Validus;
|
-68-
|
|
|
|
|
discussed the past and present operations and financial
condition and the prospects of Validus with senior executives of
Validus;
|
|
|
|
reviewed the historical market prices and trading activity for
IPC Shares and Validus common shares and analyzed their implied
valuation multiples;
|
|
|
|
compared the value of the consideration pursuant to the
Acquisition with that received in certain publicly available
transactions that Greenhill deemed relevant;
|
|
|
|
compared the value of the consideration pursuant to the
Acquisition with the trading valuations of certain publicly
traded companies that Greenhill deemed relevant;
|
|
|
|
compared the value of the consideration pursuant to the
Acquisition with the relative contribution of IPC to the pro
forma combined company based on a number of metrics that
Greenhill deemed relevant; and
|
|
|
|
performed such other analyses and considered such other factors
as Greenhill deemed appropriate.
|
Given the unsolicited nature of the proposed Acquisition,
Greenhills review and analysis of IPC and its business and
financial information were necessarily limited to information
that was publicly available as of the date of the opinion.
Greenhill did not review financial forecasts and other financial
and operating data concerning IPC prepared by management of IPC
or other non-public information regarding IPC, nor did Greenhill
participate in discussions or negotiations among representatives
of IPC and its legal or financial advisor and representatives of
Validus or its legal advisor.
In giving its opinion, Greenhill assumed and relied upon,
without independent verification, the accuracy and completeness
of the information publicly available, supplied or otherwise
made available to it by representatives and management of
Validus for the purposes of its opinion. Greenhill further
relied upon the assurances of the representatives and management
of Validus that they were not aware of any facts or
circumstances that would make such information inaccurate or
misleading. With respect to the financial forecasts and
projections and other data that were furnished or otherwise
provided to it, Greenhill assumed that such financial forecasts
and projections and other data were reasonably prepared on a
basis reflecting the best currently available estimates and good
faith judgments of the management of Validus as to those
matters, and Greenhill relied upon such financial forecasts and
projections and other data in arriving at its opinion. Greenhill
expressed no opinion with respect to such financial forecasts
and projections and other data or the assumptions upon which
they were based. Greenhill did not make any independent
valuation or appraisal of the assets or liabilities of IPC, nor
was Greenhill furnished with any such appraisals. Greenhill
assumed, with the consent of Validus board of directors,
that the Acquisition will be treated as a reorganization for
United States federal income tax purposes. Greenhill assumed
that the Acquisition will be consummated in accordance with the
terms set forth in the applicable final (and fully executed, if
applicable) Transaction Documents, which Greenhill further
assumed will be identical in all material respects to the
applicable draft (and form, as applicable) Transaction Documents
that Greenhill reviewed, and without amendment or waiver of any
material terms or conditions set forth in the applicable
Transaction Documents. Greenhill further assumed that all
material governmental, regulatory and other consents, approvals
and waivers necessary for the consummation of the applicable
Acquisition will be obtained without any adverse effect on IPC,
Validus, an Acquisition or the contemplated benefits of an
Acquisition meaningful to Greenhills analysis.
Greenhills opinion was necessarily based on financial,
economic, market and other conditions as in effect on, and the
information made available to it as of, May 17, 2009. It
should be understood that subsequent developments may affect
Greenhills opinion, and Greenhill does not have any
obligation to update, revise, or reaffirm its opinion.
Greenhills opinion was for the information of
Validus board of directors and was not intended to be and
is not a recommendation as to how Validus shareholders should
vote with respect to the issuance of Validus Shares pursuant to
an Acquisition or as to whether the Validus shareholders should
take any other action at any meeting of the Validus shareholders
convened in connection with an Acquisition or any other matter.
Greenhills opinion did not address the underlying business
decision of Validus to engage in the Acquisition or the relative
merits of the Acquisition as compared to any other alternative
strategies that might exist for Validus, and as such was not
intended to be and did not constitute a recommendation to
Validus board of directors as to whether they should
approve the proposed Acquisition, the documents in connection
therewith or any related matters. Greenhill did not express an
opinion as to any aspect of the proposed Acquisition, other than
the fairness to Validus of the consideration pursuant
-69-
to the Acquisition from a financial point of view. In
particular, Greenhill did not express any opinion as to the
prices at which Validus common shares will trade at any future
time. Greenhill further did not express any opinion with respect
to the amount or nature of any compensation to any officers,
directors or employees of Validus, or any class of such persons
relative to the consideration pursuant to the Acquisition or
with respect to the fairness of any such compensation.
Summary
of Greenhills Financial Analyses
The following is a summary of the material financial analyses
provided by Greenhill to Validus board of directors in
connection with rendering its opinion described above. The
summary set forth below does not purport to be a complete
description of the analyses performed by Greenhill, nor does the
order of analyses as set forth below represent the relative
importance or weight given to those analyses by Greenhill. Some
of the summaries of the financial analyses include information
presented in tabular format. The tables must be read together
with the full text of each summary and are not alone a complete
description of Greenhills financial analyses.
Exchange
Ratio Analysis
Greenhill calculated the historical range and average of
exchange ratios (the price of an IPC common share divided by the
price of a Validus common share). Using the daily closing prices
of Validus common shares and IPC Shares, the low, high and
average exchange ratios for the three-month, six-month and
twelve-month periods ending on May 15, 2009 are set forth
in the table below. The percent premium that the consideration
pursuant to the Acquisition represents over the average exchange
ratios for each period is set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low
|
|
|
Average
|
|
|
High
|
|
|
Premium(1)
|
|
|
May 15, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.2
|
%
|
Previous 3 Months
|
|
|
0.930
|
x
|
|
|
1.090
|
x
|
|
|
1.200
|
x
|
|
|
15.0
|
%
|
Previous 6 Months
|
|
|
0.930
|
x
|
|
|
1.140
|
x
|
|
|
1.450
|
x
|
|
|
10.0
|
%
|
Previous 12 Months
|
|
|
0.930
|
x
|
|
|
1.239
|
x
|
|
|
1.560
|
x
|
|
|
2.6
|
%
|
|
|
|
(1) |
|
Calculated as the premium of $3.00 plus 1.1234 times the average
daily closing price of Validus common shares in the period over
the average daily closing price of IPC Shares in the period. |
Transaction
Multiple Analysis
Greenhill calculated the multiple of a range of assumed offer
values per IPC Share to several operating metrics for calendar
years 2009 and 2010, including estimated earnings per share
based upon mean estimates obtained from Institutional Brokers
Estimate System, which we refer to as IBES. The calculations
were based upon IPC Shares outstanding as of March 31, 2009
on a fully diluted basis. This analysis indicated the following
multiples:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
|
|
|
|
|
|
Value per
|
|
2009E P/E
|
|
2010E P/E
|
|
Price/Book
|
|
Price/Tangible
|
IPC Share
|
|
IBES Estimate
|
|
IBES Estimate
|
|
Value(1)
|
|
Book Value(1)
|
|
|
$28.00
|
|
|
|
5.5x
|
|
|
|
5.8x
|
|
|
|
0.85x
|
|
|
|
0.85x
|
|
|
$28.50
|
|
|
|
5.6x
|
|
|
|
5.9x
|
|
|
|
0.87x
|
|
|
|
0.87x
|
|
|
$29.00
|
|
|
|
5.7x
|
|
|
|
6.0x
|
|
|
|
0.88x
|
|
|
|
0.88x
|
|
|
$29.50
|
|
|
|
5.8x
|
|
|
|
6.1x
|
|
|
|
0.90x
|
|
|
|
0.90x
|
|
|
$30.14
|
|
|
|
5.9x
|
|
|
|
6.3x
|
|
|
|
0.92x
|
|
|
|
0.92x
|
|
|
$30.50
|
|
|
|
6.0x
|
|
|
|
6.3x
|
|
|
|
0.93x
|
|
|
|
0.93x
|
|
|
$31.00
|
|
|
|
6.1x
|
|
|
|
6.4x
|
|
|
|
0.95x
|
|
|
|
0.95x
|
|
|
$31.50
|
|
|
|
6.2x
|
|
|
|
6.5x
|
|
|
|
0.96x
|
|
|
|
0.96x
|
|
|
$32.00
|
|
|
|
6.3x
|
|
|
|
6.7x
|
|
|
|
0.98x
|
|
|
|
0.98x
|
|
|
$32.50
|
|
|
|
6.4x
|
|
|
|
6.8x
|
|
|
|
0.99x
|
|
|
|
0.99x
|
|
|
$33.00
|
|
|
|
6.5x
|
|
|
|
6.9x
|
|
|
|
1.01x
|
|
|
|
1.01x
|
|
|
$33.50
|
|
|
|
6.6x
|
|
|
|
7.0x
|
|
|
|
1.02x
|
|
|
|
1.02x
|
|
-70-
|
|
|
(1) |
|
Book value per IPC common share is calculated as of
March 31, 2009 and is based upon 55,948,821 IPC common
shares outstanding, 526,000 options outstanding and 493,000
unvested restricted stock units, restricted common shares and
performance share units. |
Dividend
Discount Analysis
Greenhill performed a dividend discount analysis of IPC to
determine a range of implied present values per IPC common share
assuming that IPC continues to operate as a stand-alone company.
This range was determined by adding the present value of the
estimated future excess capital of IPC available to be
dividended in each period and the present value of the estimated
terminal value of IPC Shares. To estimate present values,
Greenhill discounted the estimated future excess capital of IPC
available to be dividended in each period through 2013 and the
estimated terminal value of IPC Shares by a range of discount
rates that take into account risk, the opportunity cost of
capital, expected returns and other appropriate factors.
In connection with this analysis, Greenhill utilized
5-year net
income and revenue projections based on IBES estimates for 2009
and 2010, extrapolated by Greenhill to 2013. In calculating
these extrapolations, Greenhill assumed, among other things, a
4.0% return on total assets, with projections based on an
assumed total assets to total equity ratio of 1.30x, and a net
premiums written to total equity ratio of 0.20x. In addition,
Greenhill assumed that 493,000 unvested restricted shares of IPC
would vest at the end of 2009, and that IPC would continue to
pay an aggregate annual dividend equal to $0.88 per IPC common
share throughout the
5-year
projection period.
Greenhill then calculated a range of implied present values per
IPC common share by applying:
|
|
|
|
|
a range of terminal multiples of 0.70x to 0.90x to year 2013
estimated book value of IPC Shares; and
|
|
|
|
a range of discount rates of 9.0% to 11.0% to each of the
estimated future excess capital of IPC available to be
dividended in each period through 2013 and the estimated
terminal value of IPC Shares.
|
This analysis resulted in a range of implied present values per
IPC common share from $26.77 to $36.23.
Comparable
Company Analysis
Greenhill reviewed and compared specific financial multiples,
ratios and operating statistics of IPC to corresponding
financial multiples, ratios and operating statistics for
selected publicly traded reinsurance companies and compared the
trading value of IPC to the trading values of the selected
companies. The companies chosen by Greenhill were:
|
|
|
|
|
ACE Limited
|
|
|
|
Allied World Assurance Company Holdings Ltd
|
|
|
|
Arch Capital Group Ltd.
|
|
|
|
Aspen Insurance Holdings Limited
|
|
|
|
Axis Capital Holdings Limited
|
|
|
|
Endurance Specialty Holdings Ltd.
|
|
|
|
Everest Re Group, Ltd.
|
|
|
|
Flagstone Reinsurance Holdings Limited
|
|
|
|
Greenlight Capital Re, Ltd.
|
|
|
|
IPC Holdings, Ltd.
|
|
|
|
Max Capital Group Ltd.
|
|
|
|
Montpelier Re Holdings, Ltd.
|
|
|
|
Munich Re Group
|
-71-
|
|
|
|
|
Odyssey Re Holdings Corp.
|
|
|
|
PARIS RE Holdings Limited
|
|
|
|
PartnerRe Ltd.
|
|
|
|
Platinum Underwriters Holdings, Ltd.
|
|
|
|
RenaissanceRe Holdings Ltd.
|
|
|
|
Swiss Reinsurance Company Ltd.
|
|
|
|
TransAtlantic Holdings, Inc.
|
|
|
|
XL Capital Ltd
|
For each of the companies identified above, Greenhill calculated
and compared various financial multiples, ratios and operating
statistics based on publicly available financial data and
closing share prices as of May 15, 2009.
Although none of the companies are directly comparable to IPC
(other than IPC), Greenhill selected these companies because
they had publicly traded equity securities and were deemed to be
similar to IPC in one or more respects including the nature of
their business, size, diversification, financial performance and
geographic concentration. This analysis indicated the following
mean and median trading multiples for the selected companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price/
|
|
|
|
|
|
|
|
|
|
Price/
|
|
|
Tangible Book
|
|
|
Price/EPS
|
|
|
Price/
|
|
|
|
Book Value
|
|
|
Value
|
|
|
2009E
|
|
|
EPS 2010E
|
|
|
Mean
|
|
|
0.85
|
x
|
|
|
0.94
|
x
|
|
|
6.5
|
x
|
|
|
6.4
|
x
|
Median
|
|
|
0.81
|
x
|
|
|
0.84
|
x
|
|
|
6.1
|
x
|
|
|
5.8
|
x
|
Greenhill then applied a range of selected multiples derived
from the selected companies to corresponding financial data of
IPC for the corresponding periods. This analysis indicated the
following ranges of implied equity value and per share value for
IPC:
|
|
|
|
|
|
|
Implied per
|
|
Statistic
|
|
Share Value(2)
|
|
|
2009E Net Income(1)
|
|
$
|
25.04 - $32.56
|
|
2010E Net Income(1)
|
|
$
|
23.63 - $30.71
|
|
Book Value
|
|
$
|
25.97 - $29.22
|
|
Tangible Book Value
|
|
$
|
25.97 - $29.22
|
|
|
|
|
(1) |
|
Estimates are mean IBES. |
|
(2) |
|
Based upon 55,948,821 IPC common shares outstanding, 526,000
options outstanding and 493,000 unvested restricted stock units,
restricted common shares and performance share units. |
Precedent
Transaction Analysis
Global Reinsurance Transactions. Using publicly available
information, Greenhill analyzed selected merger and acquisition
transactions with transaction values over $100 million in
the global reinsurance industry beginning
-72-
in February 1999. The following table identifies the global
reinsurance transactions reviewed by Greenhill in this analysis:
|
|
|
|
|
Announcement Date
|
|
Target
|
|
Acquiror
|
|
August 4, 2008
|
|
CastlePoint Holdings, Ltd.
|
|
Tower Group, Inc.
|
January 7, 2008
|
|
Helicon Re Holdings, Ltd.
|
|
White Mountains Insurance Group, Ltd.
|
November 5, 2007
|
|
PXRE Reinsurance Company
|
|
TAWA plc
|
December 9, 2003
|
|
ABB Insurance Holding Sweden AB (Sirius International Group)
|
|
White Mountains Insurance Group, Ltd.
|
October 24, 2003
|
|
ERC Life Reinsurance Corporation
|
|
Scottish Re Group Limited
|
December 19, 1999
|
|
LaSalle Re Holdings Limited
|
|
Trenwick Group Inc.
|
August 15, 1999
|
|
Terra Nova (Bermuda) Holdings Ltd.
|
|
Markel Corporation
|
June 21, 1999
|
|
Chartwell Re Corporation
|
|
Trenwick Group Inc.
|
May 27, 1999
|
|
Capital Re Corporation
|
|
ACE Limited
|
February 15, 1999
|
|
NAC Re Corp.
|
|
XL Capital Ltd.
|
For the selected global reinsurance transactions, to the extent
this information was available, Greenhill calculated the
multiples implied by each transaction relative to a number of
metrics, including the target companys book value and
tangible book value at the time of such transaction. This
analysis indicated the following mean and median multiples for
the selected global reinsurance transactions:
|
|
|
|
|
|
|
|
|
|
|
GAAP Multiples
|
|
|
|
|
Tangible
|
|
|
Book Value
|
|
Book Value
|
|
Mean
|
|
|
0.99x
|
|
|
|
1.03x
|
|
Median
|
|
|
0.95x
|
|
|
|
0.96x
|
|
Greenhill then applied a range of selected multiples derived
from the selected global reinsurance transactions to
corresponding financial data of IPC for the corresponding date.
This analysis indicated the following ranges of implied equity
value and per share value for IPC:
|
|
|
|
|
|
|
Implied per
|
Statistic
|
|
Share Value(1)
|
|
Book Value
|
|
$
|
29.22 - $38.96
|
|
Tangible Book Value
|
|
$
|
29.22 - $38.96
|
|
|
|
|
(1) |
|
Based upon 55,948,821 IPC common shares outstanding, 526,000
options outstanding and 493,000 unvested restricted stock units,
restricted common shares and performance share units. |
Premiums Paid Analysis. Greenhill analyzed the premiums
paid in stock-for-stock and part cash, part stock acquisition
transactions since May 2004 with a transaction value of between
$500 million and $5 billion. Greenhill calculated, for
each of these transactions, the premium of the transaction
consideration over the historical closing prices for each of the
one-day,
one-week and one-month periods prior to announcement of such
transaction. Greenhill then applied the medians and ranges of
such premiums, shown in the table below, to corresponding
closing prices per IPC Share, using the day immediately prior to
the announcement of IPCs proposed merger with Max as the
corresponding announcement date. This analysis indicated a range
of implied values per IPC Share shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied per
|
|
Timing
|
|
Premium Range
|
|
|
Share Value
|
|
|
One Day Prior
|
|
|
14.0% - 25.0%
|
|
|
$
|
28.97 - $31.76
|
|
One Week Prior
|
|
|
15.0% - 25.0%
|
|
|
$
|
32.20 - $35.00
|
|
One Month Prior
|
|
|
16.0% - 25.0%
|
|
|
$
|
29.77 - $32.08
|
|
It should be noted that no transaction utilized in the analyses
above is identical to the proposed Acquisition. A complete
analysis involves complex considerations and judgments
concerning differences in financial and
-73-
operating characteristics of the companies involved in these
transactions and other factors that could affect the premiums
and multiples in these transactions to which the proposed
Acquisition is being compared.
Book
Value Growth Analysis
Using IPC book value as of March 31, 2009, based on
IPCs public filings, and mean Bloomberg estimates of IPC
book value through the end of year 2009, Greenhill calculated
the implied price to book value multiple that a range of assumed
offer values per IPC Share would represent at the end of each
quarter set forth in the table below. This analysis indicated
that due to IPCs projected book value growth, the implied
price to book value multiple would decrease over time, as
illustrated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
per Share Value
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
$29.50
|
|
|
|
0.900x
|
|
|
|
0.863x
|
|
|
|
0.852x
|
|
|
|
0.825x
|
|
|
$30.14
|
|
|
|
0.919x
|
|
|
|
0.882x
|
|
|
|
0.871x
|
|
|
|
0.843x
|
|
|
$30.50
|
|
|
|
0.930x
|
|
|
|
0.892x
|
|
|
|
0.881x
|
|
|
|
0.853x
|
|
|
$31.00
|
|
|
|
0.946x
|
|