UPDATE: Brit Insurance Shares Leap After Apollo Takeover Bid

11th Jun 2010 14:17

(Adds bid details, Apollo comment.) By Vladimir Guevarra Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Shares of U.K. insurer and reinsurer Brit Insurance Holdings NV (BRE.LN) rocketed on Friday after the company said late Thursday it had rejected a takeover offer from a private equity group. The group was later disclosed as New York-based Apollo Global Management LLC. At 1244 GMT, Brit Insurance shares were up 20% at 875 pence, while the FTSE350 Non-Life Insurance Index was up 2.5%. The shares have been at least 20% higher since the market opened. Brit on Friday confirmed newspaper reports that the offer was from Apollo and that the indicative price was GBP10-a-share. That was 37% more than Brit's closing price of 729 pence on Thursday and valued the company at around at GBP785 million. The Financial Times reported that Apollo on Thursday night was considering whether to return with a higher offer. Brit said Thursday the offer it received "significantly undervalues the group" and told the bidder that "it does not represent a basis on which the board is prepared to engage in any further discussions." An Apollo spokesman declined to comment. Shore Capital analyst Eamonn Flanagan said: "The fact that an approach was made should encourage investors in the sector, although at current ratings we do not suspect that management was under enormous pressure to accept." "However, with a number of companies in the sector trading at significant discounts to our 2010 forecast net tangible asset values, this approach does highlight the value latent within the sector," said Flanagan, who kept his hold rating on the stock. KBC Peel Hunt analysts said that a "best-case-scenario" offer--which gives the buyer a discount on prospective net asset values and the seller a premium above its market capitalization--would be around GBP11 per share, or 51% above the closing price Thursday. Analysts from Oriel Securities said: "We expect M&A to become an increasingly important theme for the sector and could provide a positive catalyst." The range of prospective buyers appears to have also expanded from just the usual insurance players. "We note that the offer did not come from a trade buyer," Oriel said. Last year, Chaucer Holdings PLC (CHU.LN) received offers from Brit and Novae Group PLC (NVA.LN). "Even if no M&A transactions actually complete, this should remind investors of the value in the sector," Oriel said. Despite posting lower first-quarter premiums last month, Brit received praises from analysts for saying it won't sacrifice margins just to get more business. Brit reported a 13% fall in first-quarter gross written premiums to GBP483.5 million, compared with GBP557.6 million a year earlier. Chief Executive Officer Dane Douetil said the company is prepared to walk away from what it considers to be inadequately priced business, and it has increased insurance rates 1.4% on its renewal business. Brit said it is pulling away from sectors with particularly soft rates such as professional indemnity and accident and health, where premium volumes were down 33% and 24%, respectively. KBC Peel Hunt said other non-life insurers--Chaucer, Novae, Hardy Underwriting Bermuda Ltd. (HDU.LN) and Beazley PLC (BEZ.LN)--could be attractive M&A targets due improvements in their businesses as well as the discounts at which they trade relative to their forecast net tangible asset values. -By Vladimir Guevarra, Dow Jones Newswires; +44 (0) 2078429486, [email protected] (END) Dow Jones Newswires June 11, 2010 09:17 ET (13:17 GMT)