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Endurance Specialty Holdings Ltd.
("Endurance")
ENH today announced that it has delivered a proposal to
the Board of Directors of Aspen Insurance Holdings Limited ("Aspen")
AHL to acquire all of the common shares of Aspen for $3.2 billion, or $47.50
per Aspen share, with a combination of cash and Endurance common shares.
The combined company will be a global leader in specialty insurance and
reinsurance, with:
o Increased scale, market presence, diversification and profit potential;
o Over $5 billion of combined annual gross premiums written, diversified
across products and geographies; and
o Over $5 billion of pro forma common shareholders equity, yielding a large
and strong capital base to compete in the global market.
Endurance's proposal provides compelling value for Aspen shareholders,
including:
o 21% premium to Aspen's closing share price on April 11, 2014;
o 15% premium to Aspen's all-time high share price of $41.43 on December 31,
2013;
o 1.16x Aspen's December 31, 2013 diluted book value per share; and
o 13.4x 2014 consensus Street earnings estimates for Aspen.
Each Aspen shareholder will have the right to receive for their Aspen shares,
at their election: all cash ($47.50 per Aspen share); all Endurance common
shares (0.8826 Endurance shares for each Aspen share); or a combination of
cash and Endurance common shares. The election will be subject to a customary
proration mechanism to achieve an aggregate consideration mix of 40% cash and
60% Endurance common shares.
John R. Charman, Endurance's Chairman and Chief Executive Officer, said, "This
transaction is, quite simply, a unique opportunity to deliver value to
shareholders of both Aspen and Endurance, while creating a new global leader
in the industry. The proposal offers up-front value for Aspen's shareholders,
who will receive a substantial premium for their shares, as well as the
opportunity to participate - along with Endurance's shareholders - in future
value created by a stronger and more profitable company.
"The specialized businesses of Endurance and Aspen, such as Endurance's
market-leading agriculture insurance business and Aspen's Lloyd's operations,
are highly complementary, and together we will create a company with increased
scale, an attractive diversified platform across products and geographies, and
greater market presence and relevance. The combined company will have a
strong balance sheet and capital position, with an enhanced ability to pursue
growth opportunities and to withstand volatility. Further, we believe the
combined company will enjoy increased profitability driven by a strong
management team comprised of industry-leading talent and world-class
underwriting expertise from both companies, as well as meaningful transaction
synergies," Mr. Charman said.
In connection with the transaction, Endurance expects the combined company to
generate synergies exceeding $100 million annually, resulting in significant
ROE and EPS accretion in 2015. These synergies will include cost savings,
underwriting improvements, capital efficiencies and enhanced capital
management opportunities.
"Despite our repeated attempts since late January to engage in confidential
and friendly discussions, Aspen's Board and management have rebuffed our
proposal and refused to engage with us, thereby denying Aspen's shareholders
the ability to understand and attain the clear financial, operational and
strategic benefits of this transaction. We are fully committed to this
transaction and are confident that Aspen's shareholders will recognize the
value of our proposal and actively encourage their Board to begin constructive
discussions with Endurance without delay, with the goal of reaching a
negotiated transaction," Mr. Charman added.
The cash consideration to be offered to Aspen shareholders will be funded from
Endurance's substantial cash resources and $1.05 billion of newly issued
common shares to investors led by funds advised by CVC Capital Partners
Advisory (U.S.), Inc. and its affiliates, which have already completed due
diligence on Endurance and the merits of the transaction, and have provided an
equity commitment letter to Endurance.
Mr. Charman concluded, "Endurance shareholders will also significantly benefit
from bringing these two leading companies together. Reflecting my own deep
conviction about the future of Endurance and the benefits of the combination,
I will purchase $25 million of Endurance common shares in connection with this
transaction in addition to the $30 million of personal capital I have already
invested in Endurance."
Endurance intends to maintain the headquarters of the combined company in
Bermuda, with a significant presence in London, New York and other key
markets.
Endurance's financial advisors in connection with the proposed transaction are
Morgan Stanley & Co. LLC and Jefferies LLC, and its legal counsel is Skadden,
Arps, Slate, Meagher & Flom LLP and ASW Law Limited.
Endurance's proposal to the Aspen Board of Directors was communicated in a
letter sent this morning, the full text of which is set forth below.
For additional information about Endurance's proposal to acquire Aspen,
including a slide presentation for investors, please visit
www.endurance-aspen.com or ir.endurance.bm.
Text of the April 14, 2014 Letter to the Aspen Board of Directors
April 14, 2014
Board of Directors
c/o Mr. Glyn Jones, Chairman of the Board
Aspen Insurance Holdings Limited
141 Front Street
Hamilton HM 19
Bermuda
Dear Members of the Board:
As you know, we have been trying since late January to engage with Aspen in a
confidential and friendly dialogue regarding a combination of our two
companies, and have previously made a specific written proposal that offers
your shareholders a substantial premium valuation. Since you and your
management have refused, despite our repeated attempts, to engage in any
discussions with us regarding the compelling value proposition this
transaction presents for your shareholders, we have no choice but to advise
them of our proposal directly, which we are doing this morning.
Our Board of Directors has unanimously approved our proposal, and we remain
fully committed to pursuing this transaction. In the paragraphs below, we (i)
reiterate the key terms of our proposal, (ii) reiterate the key strategic and
financial benefits of our proposal and our approach to the transaction and
(iii) discuss next steps for making this mutually beneficial transaction a
reality.
Key Terms of Our Proposal
Endurance proposes to acquire all of the common shares of Aspen for $3.2
billion, or $47.50 per Aspen share (based on 66.7 million fully diluted Aspen
common shares as of February 24, 2014), with a combination of cash and
Endurance common shares.
Each Aspen shareholder will have the right to receive for their Aspen shares,
at their election:
o All cash ($47.50 per Aspen share);
o All Endurance common shares (0.8826 Endurance shares for each Aspen
share); or
o A combination of cash and Endurance common shares.
The election will be subject to a customary proration mechanism to achieve an
aggregate consideration mix of 40% cash and 60% Endurance common shares.
The cash component of the consideration will be funded from our substantial
cash resources and $1.05 billion of newly issued common shares to investors
led by funds advised by CVC Capital Partners Advisory (U.S.), Inc. and its
affiliates, which have already completed due diligence on Endurance and the
merits of the transaction, and have provided an equity commitment letter to
Endurance. We would be pleased to share with you a copy of the investors'
equity commitment letter upon the commencement of discussions.
We believe our proposal represents a premium valuation meaningfully in excess
of the standalone potential value to Aspen shareholders:
o 21% premium to Aspen's closing share price of $39.37 on April 11, 2014;
o 15% premium to Aspen's all-time high share price of $41.43 on December 31,
2013;
o 1.16x Aspen's December 31, 2013 diluted book value per share; and
o 13.4x 2014 consensus Street earnings estimates for Aspen.
Aspen shareholders who receive cash will receive up-front value that would
otherwise take over two years to achieve based on consensus Street estimates
for Aspen's ROE. For those Aspen shareholders who remain invested in the
combined company, our proposal provides the same highly attractive up-front
premium as well as the opportunity to participate in a combined company with
meaningfully improved earnings and ROE outlook, with significant additional
upside opportunity over time.
Key Strategic and Financial Benefits of our Proposal
We have devoted significant time and resources, both internal and external, to
assessing this transaction over the past months, and continue to believe it is
a unique, transformative transaction for both companies.
o Increased scale and market presence: On a combined basis, the companies
will have over $5 billion of shareholders' equity and over $5 billion of
annual gross premiums written, a size equal to or greater than many of our
key competitors. This will create an enterprise of both scale and broad
expertise well positioned to capitalize on the critical distribution
relationships within its global markets and more effectively able to
compete in an increasingly challenging market environment.
o Diversified platform across products and geographies: While Endurance and
Aspen share certain common businesses, the relative weighting of each is
quite complementary. Aspen's core strength in the London insurance market
- including through Lloyd's - is an attractive area where Endurance has
significant management experience but currently has limited market
presence. In addition, while Endurance has a market-leading and
profitable agriculture insurance business in the U.S. that is uncorrelated
with traditional property and casualty insurance and reinsurance, as well
as a highly profitable global catastrophe reinsurance business, Aspen has
historical strength in marine and energy lines. These are just a few
examples where each company's relative strengths are a natural fit and
where, on a combined basis, the two companies can form a market leader of
significant importance to brokers and customers.
o Enhanced profit potential: While a key strategic rationale for this
transaction is the enhanced scale and diversification evident in the
combined company, as described above, we believe the combination of a
strong management team comprised of industry-leading talent and
world-class underwriting expertise from both companies, and expected
transaction synergies exceeding $100 million annually (including cost
savings, underwriting improvements, capital efficiencies, and enhanced
capital management opportunities) will enable significantly improved
profit potential.
o Strengthened balance sheet and capital position: With a pro forma
combined shareholders' equity as of December 31, 2013 of $5.4 billion and
total capital of $7.6 billion, the combined Endurance and Aspen will have
a significantly enhanced capital position, which will allow the combined
company to more meaningfully pursue growth opportunities and better
withstand volatility. We also believe the added diversification of the
business has the potential to create capital efficiencies. Through the
unique combination of our businesses we also believe this added
diversification, significantly increased size, as well as the combined
strength of reserves and investments from both companies, will be viewed
favorably by rating agencies.
Reflecting my own deep conviction about the future of Endurance and the
benefits of the combination, I will purchase $25 million of Endurance common
shares in connection with this transaction in addition to the $30 million of
personal capital I have already invested in Endurance.
Our Approach to the Transaction
This transaction is not only highly beneficial to Aspen's shareholders, but
also to Aspen's employees, customers, brokers and other constituencies. In
this regard, we have developed what we believe is a constructive set of
guiding principles for a transaction with Aspen:
o Aspen's team is crucial to the success of the combined company: The
retention of key members of the Aspen management team, underwriters and
employees will be critical to the success of the combined business.
o The entrepreneurial cultures of our two companies will blend together
well, yielding a combined entity that is strongly positioned to address
changes facing the markets in which we operate. Aspen's collaborative,
teamwork-oriented culture will integrate seamlessly with Endurance's
collegial environment. Within the past year, many talented and
experienced people in the industry have chosen to join Endurance in light
of their enthusiasm for our business plan and strategic vision.
o Respect for Aspen's franchise and deep customer relationships: We have
great respect for the Aspen franchise and its relationships with its key
customers, as reflected in the purchase price we are willing to pay. As a
result, we envision working together to enhance the combined company's
customer and broker relations.
o The execution of this transaction will enhance the strengths of each
company: The planning of the integration of overlapping areas will be
well executed, sensitive to all views and issues, and will draw and build
upon the strengths of each organization. It is our intention to maintain
the headquarters of the combined company in Bermuda, with a significant
presence in London, New York and other key markets.
Next Steps
As would be the case in any M&A transaction, consummation of the transaction
is subject to completion of customary due diligence, execution of a definitive
merger agreement and receipt of required shareholder and regulatory
approvals. We are confident that all required regulatory approvals will be
obtained on a timely basis.
We propose working in parallel on definitive documents and our mutual due
diligence review in order to enter into a transaction expeditiously. We are
prepared to enter into a mutual non-disclosure agreement, deliver to you a
draft merger agreement and commence due diligence immediately. In light of
the significant ownership that your shareholders will have in the combined
company, we are prepared for you and your advisors to also perform customary
due diligence on Endurance. Our financial advisors at Morgan Stanley & Co.
LLC and Jefferies LLC, and our legal advisors at Skadden, Arps, Slate, Meagher
& Flom LLP and ASW Law Limited, stand ready to coordinate with your advisors
on next steps.
We look forward to commencing constructive discussions with Aspen regarding
our proposal in the coming days.
Yours sincerely,
John R. Charman
Chairman and Chief Executive Officer
Endurance Specialty Holdings Ltd.
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