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Aspen's board rejects revised proposal from Endurance

2nd June

  • Revised Proposal Represents an Even Lower Multiple of Book Value Per Share than Initial Proposal;
  • Fails to Address Fundamental Flaws in Initial Proposal

Aspen announced today that its directors unanimously rejected a revised unsolicited proposal from Endurance Specialty Holdings Ltd. ("Endurance") to acquire Aspen for a combination of Endurance common stock and cash. The directors rejected a proposal made privately by Endurance in May on substantially the same terms as are contained in the proposal publicly announced today.

Glyn Jones, chairman of the board of directors, said: "Endurance's revised proposal represents a backwards step in their efforts to pursue what has always been an ill-conceived transaction. Given Aspen's strong 4.4 percent book value growth in the first quarter, Endurance's new proposal represents an even lower multiple of book value per share than its initial proposal, and the stock portion of the proposal lags even further behind given the decline in Endurance's stock price since its initial proposal. Despite Endurance touting its headline price of $49.50 per share, based on the proposed exchange ratio, the 60 percent of the consideration that would consist of stock had a value of $47.57 per share on May 30.

"In addition to grossly undervaluing Aspen, the proposal represents a strategic mismatch and, based on our conversations with major clients and brokers, would result in significantly greater dis-synergies than Endurance claims. Moreover, the revised proposal does nothing to address additional serious concerns we raised with respect to Endurance's prior proposal, including a stock consideration that is highly unappealing and financing terms that remain unclear and lack certainty.

"We are confident that Aspen can achieve more value for its shareholders – and without the risks that are inherent in a merger with Endurance – by continuing to execute its standalone plan. As demonstrated by our strong first quarter results, we are delivering on that plan. Aspen generated strong results across all parts of our business in the first quarter, with a resulting annualized operating ROE of 14.8 percent. We are well positioned to achieve our 10 percent operating ROE objective in 2014 and to deliver on our expectation that 2015 operating ROE will increase in the order of 100 basis points from 2014."

Regarding Endurance's proposed tactics to pursue its transaction, Glyn Jones said: "Rather than offer a transaction that provides our shareholders with superior value, Endurance is offering coercive legal tactics in a desperate attempt to continue to advance an unattractive proposal that neither our board nor our shareholders support. Endurance's potential plan to seek a court petition for an involuntary scheme has never been used successfully in Bermuda to attempt to effect a hostile acquisition. In fact, other hostile bidders have tried in vain to convince the Bermuda Supreme Court to impose an involuntary scheme of arrangement. In its most recent consideration of this issue, the Bermuda Supreme Court described this stratagem as an 'unprecedented course to embark upon a hostile bid by way of a scheme in the teeth of the board's opposition.'

"Moreover, Endurance's plan to attempt to call a special meeting of shareholders to try to increase the size of Aspen's board from 12 to 19 members and then, approximately one year from now at Aspen's 2015 annual meeting, potentially nominate its own slate of directors is a similarly desperate attempt to force through a proposal that is not in the best interests of Aspen or its shareholders. As illustrated by these desperate and unusual legal tactics of Endurance, Aspen continues to believe that Endurance simply has no clear or compelling path to force its unattractive proposal on our board and our shareholders. We intend to defend vigorously against these latest coercive tactics by Endurance."

Aspen noted that the problems the Company identified with respect to Endurance's prior proposal remain unaddressed in Endurance's revised proposal. Among other things:

  • Endurance stock as consideration is unappealing. Endurance's business mix is unattractive, with an overreliance on the volatile and challenged crop insurance business and an ongoing dependency on reserve releases to fuel earnings. Excluding further significant reserve releases, Endurance's insurance segment would have had another underwriting loss in the first quarter.
  • The availability and terms of the cash consideration remains highly uncertain. Endurance disclosed that CVC is no longer standing by its commitment to provide financing for Endurance's proposal. This is now the second firm noted by Endurance as a financing source that apparently has backed away from funding a transaction, providing further validation for the concerns Aspen has consistently expressed with Endurance's ability to finance the cash portion of its proposal. Endurance is now relying on an affiliate of its financial advisor to provide a short-term loan, and has granted equity options to CVC on undisclosed terms. Endurance still has no commitment for long-term financing for a transaction, the details of which could have a significant negative effect on shareholder value.
  • Aspen would expect significant dis-synergies from a combination. Given the overlap between the two companies, a combination would result in significant loss of existing attractive business. As a result of the cultural mismatch between Endurance's top-down management style and Aspen's collegial, teamwork-oriented culture, the possibility of losing key personnel, including some of our underwriters, is a serious and real risk. Indeed, feedback from employees, customers and brokers indicates that significant dis-synergies are likely.

Aspen also notes that over 60 percent of shareholders who voted at Endurance's May 21 annual meeting rejected Endurance's existing compensation arrangement for top executives, including the compensation package and terms of chairman and CEO John Charman. This is a major and highly unusual rejection of a "Say-on-Pay" referendum by shareholders, and raises serious concerns about Endurance's ability to win approval for the transaction from its own shareholders, which would be required to complete a transaction. It also raises questions about the behavior of Endurance's management team and board, which enacted the compensation plan either oblivious to, or not caring about, the concerns of its own shareholders.

Read the full press release