BRIT INSURANCE, the Lloyd’s of London outfit, has its largest investors’ backing to demand an improved takeover offer from US private equity giant Apollo, City A.M. understands.
The FTSE 250-listed insurer on Friday knocked back a cash approach from Apollo worth £785m, or 1,000p per share, arguing it “significantly undervalues” the company. Apollo was last night mulling over an improved second offer for the firm, which specialises in property and casualty cover.
The majority of Brit Insurance’s key shareholders – who include Schroders, Third Avenue, Deutsche Bank and Jupiter Asset Management – are understood to support chairman John Barton’s stance. They believe the company is worth at least £865m, or 1,100p per share, based on market estimates of its net tangible asset value for this year and expectations of a rebound for the wider insurance sector.
One major investor said: “We are exceptionally supportive of management in rebuffing any approach that values the business at less than its net asset value. There’s a price at which they would open the books up and do due diligence, but it’s not £10.”
A second City shareholder remarked that recent insurance deals had been done at more attractive multiples, but added: “If Apollo walks away the company will have some explaining to do.”
Shares in Brit Insurance, which sponsors the Oval and Test Match Cricket on Sky Sports, soared nearly 21 per cent to 880p after the company said it would not enter talks “unless a higher indicative offer, which was capable of recommendation, was forthcoming”.
Apollo will try to accelerate direct talks with Brit Insurance’s largest shareholders today, it is understood. But one barrier to a higher offer is an employee reward scheme at Brit Insurance, which means an extra four million shares come into play if the company is taken over, diluting its net asset value. Apollo believes the scheme, together with the cost of Brit Insurance’s dividend, could make its net asset value closer to 960p.