Mark Byrne's Haverford (Bermuda) Ltd. confirmed Friday, Dec. 2, that it won't extend a partial £50 million ($78.5 million) offer for Lloyd's of London target Omega Insurance Holdings Ltd., insisting that it has the right to allow the tender to lapse.
The company is attempting to withdraw after Omega delivered a trading bulletin on Nov. 18 which Haverford said demonstrated a "very significant and unexpected deterioration" in its financial position. Those figures, and information subsequently provided, means Haverford's planned strategy for Omega "may require significant amendment if the long-term financial stability and improved performance of the Omega Group is to be secured," it said.
Omega disputes Haverford's analysis of its business position and the two sides also have different interpretations of the minimum acceptance conditions. Haverford said this was not reached as of the Wednesday deadline, even though around four times more than the minimum level of shares were tendered.
Haverford had offered to buy 60,240,964 shares, or 25% of Omega, at a price of up to 83 pence per share through a so-called Dutch auction process. Haverford said Friday the strike price would have been the maximum 83 pence, and since 162,274,479 shares were tendered, the offer would have been scaled back.
"HBL continues to seek discussion and negotiation with the Omega Board in respect of strategy and the proposed new partial cash offer at a fixed price of 74p per share," it said.
Omega shares had closed Thursday down 4.8% at 64.50 pence after Haverford warned it might retreat.
Haverford gained Omega's defacto backing on Oct. 20 after 29% shareholder Invesco Ltd. supported the proposal over two alternatives. Bermuda-based Omega's other options were an offer worth more than £202.7 million from London's Canopius Group Ltd., pitched at an unspecified price above Canopius' originally envisaged 83 pence per share; and a complex, two-stage fusion with Barbican Insurance Group, of Guernsey, Channel Islands, entailing an 84 pence per share offer to some Omega shareholders.
Byrne is the founder and former chairman of Bermuda's Flagstone Reinsurance Holdings SA. Under the deal, his father, Jack Byrne, former CEO of GEICO and insurance chief at General Electric Co., would also join the board, as a nonexecutive director. Omega's Richard Pexton would remain in place as CEO.
In its original Sept. 12 offer, Haverford reserved the right to withdraw the bid or cut its price if Omega has to revise already published first-half results, or if one or more catastrophes occur before completion that are likely to cost Omega more than 5% of net tangible asset value.
As of June 30, Omega had net tangible assets of $332.3 million; no figure was released at the nine-month level.
Haverford's offer also requires clearance from the Financial Services Authority, which has approved the deal, as well as the Lloyd's of London insurance syndicate and the Delaware Insurance Commissioner. The clearances must be received within 21 days of the first closing, or Wednesday, under the terms of the offer.
Announcing results on Nov. 18, Omega said nine-month gross written premiums had fallen about 16% year-on-year to $258.5 million. It also said first-half losses from previously disclosed catastrophe events had increased by about $6 million, while third-quarter U.S. catastrophes including Hurricane Irene, the Texas wildfires and the Slave Lake fire would cost the company an estimated $10 million, and smaller U.S. and international catastrophes in 2011 would cost another $9 million.
However, Omega said it saw no material impact from the Thailand floods.
A run of natural catastrophes in Japan, Australasia and the U.S. led to record claims for weakened Lloyd's of London insurers. Canopius put Omega in play with a preliminary approach in January and the offer period subsequently exposed a split between those Omega shareholders seeking a cash exit and those looking for a continued exposure to Omega's business.
Canopius retreated after Omega announced Oct. 20 that Haverford was the "only proposal capable of being concluded" in view of Invesco's stance. But Canopius reserved the right to return if the situation changed. Canopius is 83% owned by private equity firm Bregal Capital LLP.
Omega is advised by a Cenkos Securities plc team including Ian Soanes and Kinmont Ltd.'s John O'Malley and Mat Thackery. A Debevoise & Plimpton LLP team led by Jeremy Hill and including Richard Ward, Edite Ligere and Xin-Yi Yak is providing legal counsel.
Citigroup Inc.'s Basil Geoghegan, John Sandhu and Cyrille Cotte are advising Haverford, which is taking legal advice from a Slaughter and May team led by corporate partners James Cripps and Robert Chaplin.
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