Bermudian Aspen and investment heavyweight Apollo Global Management will continue discussions this week over an acceptable price and key terms that - if agreed - could lead to a recommended circa $2.55bn deal being formally put both to the Aspen board later this month, re-Insurance.com can reveal.
It has been incorrectly reported elsewhere that the Aspen board “met” on Friday - typically understood to be a meeting in the sense of a physical gathering. But re-Insurance.com understands from banking sources that a conference call took place on Friday between advisers and the board to discuss options for the company including progress on the Apollo talks. Discussions are believed to be continuing this week.
Aspen’s share price was up by as much as 4.5 percent in early trading today as investors speculated on the likelihood of an agreed buy-out taking place before month-end. That would see the two firms stick to an August timetable that was informally agreed between Aspen and Apollo, following re-Insurance.com’s article on 24 July revealing the firms were in advanced talks.
The submitted price has narrowed from earlier indicative bid interest but remains within the low end of the 1.1x-1.15x price to tangible book that this publication also predicted last month, according to sources.
In addition to further discussion of the final price, talks this week are likely to seek agreement on key terms such as material adverse development triggers and the impact they could have on the final price paid at completion. Those discussions are standard in a deal of this magnitude.
The lower end of the 1.1x-1.15x range is $42 per share which is the equivalent to a 10 percent premium to the Aspen’s mid-year net tangible assets of $38.21, valuing the deal at $2.53bn. It is a 15 percent increase to Aspen’s closing share price last week of $36.50.
However, a bid in that region is thought to be below the Aspen board’s initial expectations of a $45+ per share price when the sale process began earlier this year. The lower figure reflects the lack of sale competition following early interest and also the range of alternative businesses which are rumoured to be for sale.
Since then, Aspen posted steady second quarter results, which saw the firm’s stodgy expense ratio recede on the back of a cost reduction programme. However, the results also highlighted how much business was now being ceded to reinsurers as part of a deliberate de-risking strategy following 2017’s heavy losses. Since then, the firm’s share price has drifted as investors realise the prospect of a $45+ take-out is unlikely.
O’Kane told investors on his firm’s Q2 earnings call that he expected the process to be resolved “relatively soon”. If Aspen does not agree terms with Apollo, it is unclear whether it would seek to remain independent as it is or look to partner with another company, such as a legacy acquirer that could free up its capital requirements – perhaps also while implementing further management changes.
Aspen is believed to have previously held talks with Enstar before the formal sale began this year and market sources suggest legacy acquirers would likely place a “buy to kill” valuation in the region of $37 to $38 per share.
Aspen is being advised by Goldman Sachs and JP Morgan.
If Apollo does finalise terms with Aspen this month, then the two firms would target a completion date in the first half of next year.
After completion, the transaction is likely to have echoes of Apollo’s 2011 buy-out of Brit Insurance with the firm expected to parachute in new management, shrink Aspen’s book to focus on profitable lines, cut costs and improve the investment return.
O’Kane has already implemented a rationalisation program at Aspen – which began in late 2017 - and earlier this month revealed that headcount at the firm could even fall by as much as 20 percent when the two-year process completes in 2019.
Apollo did not respond to a request for comment at time of going to press while an Aspen spokesperson said it “does not comment on market rumour and speculation”.