Validus to buy IPC for $1.65 billion, beats Flagstone

By Jonathan Stempel and Lilla Zuill

NEW YORK (Reuters) - Validus Holdings Ltd (VR.N) said it agreed to buy Bermuda reinsurance rival IPC Holdings Ltd (IPCR.O) for $1.65 billion in cash and stock, beating another rival, Flagstone Reinsurance Holdings Ltd (FSR.N), and likely ending a months-long bidding war.

On a conference call with investors held by both companies, Validus management said they expected the acquisition to close before the end of the third quarter, and as early as late next month.

IPC accepted Validus' offer after months of rebuffing the company, as it was sweetened to give its shareholders 0.9727 of a Validus share for each of their shares and $7.50 in cash. That values IPC at $29.48 per share, or 6.8 percent above its Wednesday closing price.

Validus' previous offer included more shares but only half as much cash. The company's shares were down 3.6 percent at $21.79 at midday on the New York Stock Exchange. IPC shares were up 21 cents at $27.82 and Flagstone shares were up 7.4 percent at $10.45.

The deal looks set to end four months of uncertainty for IPC, which had initially planned a tie-up with Max Capital Group (MXGL.O), only to have it derailed by Validus' unfriendly rival offer.

Flagstone, the third bidder to emerge, on July 1 offered 2.638 of its common shares and $5.50 in cash for each IPC share. That valued IPC at about $1.74 billion, or $31.17 per share, based on Wednesday's close. The company said it was "surprised and disappointed" in a statement issued after Validus and IPC's joint agreement was announced.

Buying IPC gives the buyer more capital, allowing it to sell more property catastrophe reinsurance just as rates are rising. Validus will have about $3.4 billion in shareholders' equity after the purchase closes.

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