Ed Noonan, chairman and chief executive officer of Validus Holdings, today told Reactions that the $50m termination fee included in Max Capital's proposed acquisition of IPC Holdings is tantamount to "ransom".
In an exclusive interview, Noonan came out fighting in favour of the deal on the table from his firm, criticising Max Capital's business model and spelling out why he felt Validus' bid was better for IPC shareholders.
Max Capital and IPC agreed a perspective merger on March 1. But almost a month later class of 2005 Bermudian reinsurer Validus launched its own bid for the company which has sparked a war of words between the companies.
This week the IPC board reaffirmed its recommendation of the Max Capital offer to its shareholders.
One stumbling block is believed to be a $50m termination fee in the contract between Max Capital and IPC. But Noonan questions the legalities of that.
"That is an outrageous fee," Noonan told Reactions. "You would never get away with that in the UK or US and I'm not sure it is something you can get away with in Bermuda either. It's so onerous. It doesn't sound like a break-up fee, it sounds like ransom."
Asked whether he is seeking legal advice on the matter Noonan responds: "Absolutely."
However, in response Max Capital chief executive officer Marty Becker told Reactions that he is in no doubt that the clause in the contract is not only legal, but is in fact common practice.
"The contract speaks for itself," he says. "There were a number of very sophisticated financial and regulatory advisers involved. This is a large transaction and everything in the contract is very reasonable. We have had lawyers in all jurisdictions involved."
Becker adds: "In a hostile situation he is making the only comments he can to try and defend his case."
Despite the problems that could arise from the insertion of the termination fee in the Max Capital and IPC contract and the IPC board recommending a deal with Max Capital, Noonan is still confident that Validus' offer will be approved.
Max Capital believes its bid offers better diversification. But Noonan is quick to hit out at that suggestion.
"Our business is extremely attractive and we are in a great rate environment," he told Reactions.
"Almost 60% of their
"There will come a day when liability will become attractive and that is when we will give it a good hard look and see if we can put together the right team to do it but that day isn't here. I don't understand the rationale of people writing liability business today. It's destroying shareholder value.
"We bring IPC $1bn of non-catastrophe business around the world and write in 143 countries and are market leaders in things like marine, energy, terrorism and so on – none of which correlate with catastrophe risk. We've got a better offer and a better platform."
Becker, however, laughs off Noonan's claim that liability business was headed for disaster.
He said: "Over 50% of the insurance industry has liability business and it's been having very good returns. I would say the facts speak for themselves.
"He offers little to no diversification. He has already had one rating agency indicate that there is too heavy a concentration of property-catastrophe."