Revised Proposal Represents an Even Lower
Multiple of Book Value Per Share than Initial Proposal;
Fails to Address Fundamental Flaws in
Initial Proposal
Aspen Insurance Holdings Limited (“Aspen”) (NYSE:AHL) announced
today that its directors unanimously rejected a revised unsolicited
proposal from Endurance Specialty Holdings Ltd. (“Endurance”)
(NYSE:ENH) 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% 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% 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%. We are well positioned to achieve our 10%
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.”1
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% 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.
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.
1 Guidance as at April 23, 2014. In 2014, ROE
guidance assumes a pre-tax catastrophe load of $185 million, normal
loss experience and given the current interest rate and insurance
pricing environment. In 2015, ROE guidance assumes a pretax
catastrophe load of $200 million, normal loss experience, Aspen’s
expectations for rising interest rates, and a less favorable
insurance pricing environment. See Safe Harbor disclosure below.
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 contains written, and Aspen may make related
oral, "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," "do not believe," "aim," "project," "anticipate,"
"seek," "will," "likely," "estimate," "may," "continue,"
"guidance," “outlook,” “trends,” “future,” “could,” “target,” 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.
All forward-looking statements address matters that involve
risks and uncertainties. Accordingly, there are or will be
important factors that could cause actual results to differ
materially from those indicated in these statements. 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; 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 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 judgements on insurers’
liability to various risks; the effectiveness of our risk
management 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;
changes in the availability, cost or quality of reinsurance or
retrocessional coverage; 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, 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 more
detailed description of these uncertainties and other factors,
please see the "Risk Factors" section in Aspen's Annual Report on
Form 10-K as filed with the U.S. Securities and Exchange Commission
on February 20, 2014 and in Aspen’s Quarterly Report on Form 10-Q
as filed with the U.S. Securities and Exchange Commission on May 1,
2014. Aspen undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise. Readers are cautioned not
to place undue reliance on these forward-looking statements, which
speak only as of the dates on which they are made.
The guidance in this press release relating to 10% Operating ROE
in 2014 and with a further 100 basis point increase over 2014 in
2015 was and is made as at April 23, 2014. Such guidance assumes
for 2014 a pre-tax catastrophe load of $185 million per annum,
normal loss experience and given the current interest rate and
insurance pricing environment and for 2015 a pre-tax catastrophe
load of $200 million, normal loss experience, our expectations for
rising interest rates, and a less favorable insurance pricing
environment. Aspen has identified and described in the presentation
dated May 2014, in the investor relations section of its website
actions and additional underlying assumptions in each of its three
operating return on equity levers – optimization of the business
portfolio, capital efficiency and enhancing investment returns – to
seek to achieve the targeted operating ROE in 2014 and 2015. These
forward looking statements are subject to the assumptions, risks
and uncertainties, as discussed above and in the following slides,
which could cause actual results to differ materially from these
statements.
In addition, any estimates relating to loss events involve the
exercise of considerable judgment and reflect a combination of
ground-up evaluations, information available to date from brokers
and cedants, market intelligence, initial tentative loss reports
and other sources. The actuarial range of reserves and management's
best estimate represents a distribution from our internal capital
model for reserving risk based on our then current state of
knowledge and explicit and implicit assumptions relating to the
incurred pattern of claims, the expected ultimate settlement
amount, inflation and dependencies between lines of business. Due
to the complexity of factors contributing to the losses and the
preliminary nature of the information used to prepare these
estimates, there can be no assurance that Aspen’s ultimate losses
will remain within the stated amounts.
Additional Information
This communication does not constitute an offer to buy or
solicitation of an offer to sell any securities or a solicitation
of any vote or approval. This communication is for informational
purposes only and is not a substitute for any relevant documents
that Aspen may file with the SEC.
Endurance Specialty Holdings Ltd. has indicated its intention to
commence an exchange offer for the outstanding shares of Aspen
(together with associated preferred share purchase rights).Such
exchange offer has not yet been commenced. If and when such
exchange offer is commenced, Aspen will file a
solicitation/recommendation statement on Schedule 14D-9 with the
U.S. Securities and Exchange Commission (“SEC”).
INVESTORS AND SECURITY HOLDERS OF ASPEN ARE URGED TO READ THIS
AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY
AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. Investors and security holders will be able to obtain
free copies of these documents (when available) and other documents
filed with the SEC by Aspen through the web site maintained by the
SEC at http://www.sec.gov. These documents will also be available
on Aspen’s website at http://www.aspen.co.
Certain Information Regarding Participants
Aspen and certain of its respective directors and executive
officers may be deemed to be participants under the rules of the
SEC. Security holders may obtain information regarding the names,
affiliations and interests of Aspen’s directors and executive
officers in Aspen’s Annual Report on Form 10-K for the year ended
December 31, 2013, which was filed with the SEC on February 20,
2014, and its proxy statement for the 2014 Annual Meeting, which
was filed with the SEC on March 12, 2014. These documents can be
obtained free of charge from the sources indicated above.
Please visit www.aspen.coorInvestorsAspenKerry Calaiaro, Senior
Vice President, Investor Relations+1 (646) 502
1076Kerry.Calaiaro@aspen.coorAspenKathleen de Guzman, Vice
President, Investor Relations+1 (646) 289
4912kathleen.deguzman@aspen.coorMediaAspenSteve Colton, Head of
Communications+44 20 7184 8337Steve.Colton@aspen.coorNorth America
– Sard Verbinnen & CoPaul Scarpetta or Jamie Tully+1 (212) 687
8080orInternational – Citigate Dewe RogersonPatrick Donovan or
Caroline Merrell+44 20 7638
9571patrick.donovan@citigatedr.co.ukcaroline.merrell@citigatedr.co.uk
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