Aspen Insurance Holdings Limited (“Aspen”) (NYSE:AHL) today
issued a letter to shareholders regarding a previously disclosed
unsolicited proposal from Endurance Specialty Holdings Ltd.
(“Endurance”) (NYSE:ENH) to acquire Aspen for a combination of
Endurance common stock and cash.
Glyn Jones, Chairman of the Board of Directors, said: “Since
Endurance publicized its letter to Aspen on 14th April, we have
actively reached out to shareholders and have found overwhelming
consensus for our rejection of Endurance’s ill-conceived
‘proposal,’ which undervalues Aspen, represents a strategic
mismatch and carries significant execution risk. Furthermore, our
discussions with clients and brokers have confirmed our view that
the combination would result in substantial dis-synergies. Mr.
Charman's characterizations are merely an attempt to deflect from
the real point that the ‘proposal’ is unattractive and not
actionable.”
Goldman, Sachs & Co. is acting as financial advisor and
Wachtell, Lipton, Rosen & Katz and Willkie Farr & Gallagher
LLP are acting as legal advisors to Aspen.
The text of the letter is provided below:
April 20, 2014
Dear Aspen Shareholders:
As you are undoubtedly aware, the Board of Directors of Aspen
Insurance Holdings Limited believes that the transaction that
Endurance Specialty Holdings Ltd. seeks with Aspen – first
indicated in its 18th February letter, repeated again in its 3rd
April letter and then repeated publicly on 14th April – is not in
the best interests of Aspen or its shareholders. Since Endurance
publicized its letter on 14th April, we have been in touch with a
number of you, as well as a number of our clients and brokers, and
have found overwhelming consensus for our rejection of Endurance’s
“proposal.”
We have repeatedly informed Endurance of our serious concerns
regarding its “proposal,” but Endurance has failed to respond
substantively to any of them. These concerns include:
Endurance significantly undervalues Aspen’s
business
The Aspen Board has concluded that Aspen will be able to create
superior value for Aspen shareholders based on our standalone plan.
We have built a diversified business with a clear strategy, strong
balance sheet, proven management team and disciplined risk
management, and are confident that continued execution of our
strategy provides value far in excess of what is suggested in a
risky combination with Endurance. In that regard, the investments
we have made in our Lloyd’s business and US Insurance business are
on track to fulfill our expectations, and we expect our book value
to increase meaningfully as a result. We are very focused on
executing on our clear strategy for building superior value for
you.
Endurance stock as consideration in a
combination is not appealing
Endurance has an unattractive business mix and quality of
earnings issues. A combination with Endurance would cause Aspen
and its shareholders to suffer from the difficulties attributable
to Endurance’s business, including: (1) its over-reliance on crop
insurance, a business which is troubled, low-margin, recently
volatile and exposed to major risks, (2) the lack of progress in
its other insurance businesses, which are in a nascent stage and
(3) its weak reinsurance business. Moreover, Endurance’s earnings
in recent years have been driven disproportionately by prior-year
reserve releases. The combination Endurance proposes is, in our
view, an effort by Endurance to solve its business issues at the
expense of Aspen and its shareholders.
There are substantial risks regarding the supposed
synergies. Endurance claims that a combination would result in
“over $100 million of annual synergies,” but its discussion is
superficial, its claims are unsubstantiated and the types and
sources of synergies are unidentified. Importantly, we believe this
claim assumes no disruption or loss of business to the combined
company. Based on what we are hearing from clients and brokers so
far, our serious concerns about the potential combination’s
dis-synergies, as indicated in our letter of 8th April, are on
target. If anything, we appear to have understated the
dis-synergies and the impact they would have on the value of the
combined company. Scale for the sake of scale is not a reason to
pursue a business combination with Endurance.
The CVC investment will negatively impact the shareholders of
both companies. Endurance states that CVC’s $1.05 billion
investment consists of Endurance shares at a “pre-negotiated
discount,” Endurance warrants with an exercise price “higher than
an average market price” and “customary” governance rights for a
“significant” minority investment. The amount of equity to be given
up to CVC and at what “discount[ed]” price, the amount and terms of
the warrants and the “customary” governance rights that CVC would
receive all significantly impact the economics of a potential
transaction – not just for Aspen and its shareholders, but for
Endurance and its shareholders as well. These terms are extremely
important to the valuation of the stock component of the
consideration that Endurance proposes. If answers to these
questions are in fact known, the information should be disclosed to
Endurance’s own shareholders and the market as a whole.
Endurance has expressed a strong dislike for Lloyd’s
business. In an attempt to convince the market that Endurance
would embrace Aspen’s top tier Lloyd’s business, John Charman,
Chairman and Chief Executive Officer of Endurance, stated on 14th
April that “Aspen’s core strength in the London insurance market –
including through Lloyd’s – is an attractive area.” This is in
stark contrast to Endurance’s previously expressed disdain for
Lloyd’s, including less than a year ago when Mr. Charman stated, “I
find it difficult to want to be a . . . piece of [Lloyd’s].”
(Insurance Insider, 10th June 2013). Given such statements, we
would be extremely concerned that a combination with Endurance
would pose risks to our Lloyd’s syndicate, which is one of the most
dynamic parts of our insurance franchise and a top performer
amongst Lloyd’s syndicates.
The availability of the cash consideration
is highly uncertain
Endurance states that the CVC “commitment,” which constitutes
most of the cash Endurance would use in a transaction, is “subject
to customary due diligence of Aspen by the investors.” Endurance’s
response to the concerns we noted in our 8th April letter regarding
the certainty of CVC’s “commitment” – that it will provide the
terms of the commitment only if we sign a non-disclosure agreement
and sit down to meet with Endurance – is no answer at all. Either
Endurance has the funds or it does not, and if it has the funds, it
should say so. The financing commitment letter should be fully
disclosed publicly.
We would expect material personnel
disruption and loss of business due to the cultural mismatch
between the two companies
We have serious concerns about the significant personnel
disruption and loss of attractive business that would result from a
combination of Aspen’s collaborative, teamwork-oriented culture
with Endurance’s centralized, top-down management model.
Endurance’s recent description of its “collegial environment” is
inconsistent with the industry’s experience. Aspen is currently in
litigation as a result of Endurance’s orchestrated poaching of
Aspen employees, and, according to news reports, Mr. Charman was
relieved of his positions at his last two companies for his less
than collegial attitude – reportedly leaving ACE due to “personal
differences” and AXIS when the “board kicked him out in 2012
without cause.” (SNL Insurance Daily, 23rd August 2013). Yet, now
Endurance assures our and its own shareholders that a business
where the most valuable assets are its people will thrive, and that
the merging of the two cultures will proceed smoothly, in the
“collegial environment” established under Mr. Charman’s
leadership.
Endurance’s “proposal” is highly
conditional
Endurance’s “proposal” is merely a request for a one-way option
to start an investigation of our company and then later decide if
it wishes to pursue a transaction. In addition to the transaction
being subject to due diligence of Aspen by Endurance, Endurance’s
financing sources would similarly require due diligence of Aspen
and would later decide whether or not they wanted to provide the
necessary cash funding to Endurance. Furthermore, in addition to a
number of regulatory approvals, the transaction described by
Endurance would be subject to the approval of both Aspen’s and
Endurance’s shareholders – such approvals being sought for a
transaction where there would be economically dilutive
sponsor-financing and warrants issued of an undisclosed amount and
undisclosed value.
The foundation of Aspen’s business is our client relationship
franchise, and our people are our most valuable asset. The Aspen
Board of Directors is vehemently opposed to the hostile attempt of
Endurance to address its business problems at the expense of Aspen
and its shareholders. Our Board takes very seriously its fiduciary
obligation to pursue all credible offers that have the potential to
create superior shareholder value, and we have carefully and
thoroughly evaluated Endurance’s “proposal.” For all the reasons
indicated in this letter and our prior letter to Endurance, we are
resolute that Endurance’s proposal is not in your best
interests.
Sincerely,
/s/
/s/ Glyn Jones Chris O’Kane
Chairman of the Board of Directors
Chief Executive Officer
- ENDS -
About Aspen Insurance Holdings Limited
Aspen provides reinsurance and insurance coverage to clients in
various domestic and global markets through wholly-owned
subsidiaries and offices in Bermuda, France, Germany, Ireland,
Singapore, Switzerland, the United Kingdom and the United States.
For the year ended December 31, 2013, Aspen reported $10.2 billion
in total assets, $4.7 billion in gross reserves, $3.3 billion in
shareholders’ equity and $2.6 billion in gross written premiums.
Its operating subsidiaries have been assigned a rating of “A”
(“Strong”) by Standard & Poor’s, an “A” (“Excellent”) by A.M.
Best and an “A2” (“Good”) by Moody’s.
Application of the Safe Harbor of the Private Securities
Litigation Reform Act of 1995
This press release may contain written “forward-looking
statements” within the meaning of the U.S. federal securities laws.
These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all statements that do not
relate solely to historical or current facts, and can be identified
by the use of words such as “expect,” “intend,” “plan,” “believe,”
“project,” “anticipate,” “seek,” “will,” “likely,” “estimate,”
“may,” “continue,” “deliver,” and similar expressions of a future
or forward-looking nature.
All forward-looking statements rely on a number of assumptions,
estimates and data concerning future results and events and are
subject to a number of uncertainties and other factors, many of
which are outside Aspen’s control that could cause actual results
to differ materially from such statements.
Forward-looking statements do not reflect the potential impact
of any future collaboration, acquisition, merger, disposition,
joint venture or investments that Aspen may enter into or make, and
the risks, uncertainties and other factors relating to such
statements might also relate to the counterparty in any such
transaction if entered into or made by Aspen.
Aspen believes these factors include, but are not limited to:
our ability to successfully implement steps to further optimize the
business portfolio, ensure capital efficiency and enhance
investment returns; the possibility of greater frequency or
severity of claims and loss activity, including as a result of
natural or man-made (including economic and political risks)
catastrophic or material loss events, than our underwriting,
reserving, reinsurance purchasing or investment practices have
anticipated; the assumptions and uncertainties underlying reserve
levels that may be impacted by future payments for settlements of
claims and expenses or by other factors causing adverse or
favorable development; the reliability of, and changes in
assumptions to, natural and man-made catastrophe pricing,
accumulation and estimated loss models; decreased demand for our
insurance or reinsurance products and cyclical changes in the
highly competitive insurance and reinsurance industry; changes in
insurance and reinsurance market conditions; increased competition
from existing insurers and reinsurers and from alternative capital
providers and insurance-linked funds and collateralized special
purpose insurers on the basis of pricing, capacity, coverage terms,
new capital, binding authorities to brokers or other factors and
the related demand and supply dynamics as contracts come up for
renewal; changes in the availability, cost or quality of
reinsurance or retrocessional coverage; changes in general economic
conditions, including inflation, deflation, foreign currency
exchange rates, interest rates and other factors that could affect
our financial results; the risk of a material decline in the value
or liquidity of all or parts of our investment portfolio; evolving
issues with respect to interpretation of coverage after major loss
events; our ability to adequately model and price the effect of
climate cycles and climate change; any intervening legislative or
governmental action and changing judicial interpretation and
judgments on insurers’ liability to various risks; the
effectiveness of our loss limitation methods, including our
reinsurance purchasing; changes in the total industry losses, or
our share of total industry losses, resulting from past events and,
with respect to such events, our reliance on loss reports received
from cedants and loss adjustors, our reliance on industry loss
estimates and those generated by modeling techniques, changes in
rulings on flood damage or other exclusions as a result of
prevailing lawsuits and case law; the impact of one or more large
losses from events other than natural catastrophes or by an
unexpected accumulation of attritional losses; the impact of acts
of terrorism, acts of war and related legislation; any changes in
our reinsurers’ credit quality and the amount and timing of
reinsurance recoverables; the continuing and uncertain impact of
the current depressed lower growth economic environment in many of
the countries in which we operate; the level of inflation in repair
costs due to limited availability of labor and materials after
catastrophes; a decline in our operating subsidiaries’ ratings with
S&P, A.M. Best or Moody’s; the failure of our reinsurers,
policyholders, brokers or other intermediaries to honor their
payment obligations; our ability to execute our business plan to
enter new markets, engage in acquisitions or introduce new products
and develop new distribution channels, including their integration
into our existing operations; our reliance on the assessment and
pricing of individual risks by third parties; our dependence on a
few brokers for a large portion of our revenues; the persistence of
heightened financial risks, including excess sovereign debt, the
banking system and the Eurozone debt crisis; changes in our ability
to exercise capital management initiatives (including our share
repurchase program) or to arrange banking facilities as a result of
prevailing market changes or changes in our financial position;
changes in government regulations or tax laws in jurisdictions
where we conduct business; changes in accounting principles or
policies or in the application of such accounting principles or
policies; Aspen or Aspen Bermuda Limited becoming subject to income
taxes in the United States or the United Kingdom; loss of one or
more of our senior underwriters or key personnel; our reliance on
information and technology and third party service providers for
our operations and systems; and increased counterparty risk due to
the credit impairment of financial institutions.
For a detailed description of uncertainties and other factors
that could impact the forward-looking statements in this press
release, including the positioning to deliver profitable growth and
value for investors, please see the “Risk Factors” section in
Aspen’s Annual Report on Form 10-K for the year ended December 31,
2013, filed with the U.S. Securities and Exchange Commission on
February 20, 2014. Aspen undertakes no obligation to update or
revise publicly any forward-looking statements, whether as a result
of new information, future events or otherwise.
For further
information:Please visit www.aspen.co or
contact:InvestorsKerry Calaiaro, Senior Vice President,
Investor Relations, AspenKerry.Calaiaro@aspen.co+1 (646) 502
1076orKathleen de Guzman, Vice President, Investor Relations,
Aspenkathleen.DeGuzman@aspen.co+1 (646) 289 4912orMediaSteve
Colton, Head of Communications, AspenSteve.Colton@aspen.co+44 20
7184 8337orNorth America – Sard Verbinnen & CoPaul Scarpetta or
Jamie Tully+1 (212) 687 8080orInternational – Citigate Dewe
RogersonPatrick Donovan or Caroline
Merrellpatrick.donovan@citigatedr.co.ukcaroline.merrell@citigatedr.co.uk+44
20 7638 9571
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