Offer is 'not a bad price' given Brit's recent history, analysts say

Private equity firm Apollo’s latest bid for Lloyd’s insurer Brit, made in conjunction with a partner, means that a deal is a near certainty, say analysts.

On Friday, Brit broke almost two months of silence on the takeover attempt by announcing that Apollo had teamed up with another private equity firm, CVC Capital Partners, to table a new offer. While the offer retains the previous headline price of £10.75-a-share, the two firms will pay Brit up to 25p extra if the insurer’s 2010 net tangible assets (NTA) exceed £10.75 a share.

Brit said its independent directors will recommend the offer. The insurer’s board has agreed to work with the consortium until 15 October and not to seek other offers in the meantime.

The extra amount will be paid on a sliding scale after Brit’s NTA reaches £10.75 a share. To receive the full 25p, Brit’s 2010 NTA would need to reach or exceed £11 a share.

“The offer sounds sensible and it is pretty much a done deal now,” Collins Stewart analyst Ben Cohen said. “They are not getting a bad price given their recent history.”

“There is a strong probability of the deal going ahead,” agreed KBC Peel Hunt analyst Mark Williamson, pointing out that Brit had described Apollo/CVC consortium’s due diligence as reasonably advanced. He said that nothing untoward had come up so far, “so I would be surprised if it doesn’t go through”.

Apollo’s decision to bring in a partner rather than pursue Brit by itself adds credence and greater certainty to the deal, according to Oriel Securities analyst Thomas Dorner. “The fact that there is a consortium behind the deal rather than just Apollo is significant because it increases the weight behind the proposal,” he said.

“It now seems a lot more likely to go through.”

He added that the due diligence process can be time-consuming and expensive. “You wouldn’t go through a rigorous due diligence process unless you were very serious,” he said.

Analysts feel there is a good chance Brit will be able to earn a good chunk of the additional 25p that the consortium is offering. “We have got the year-end tangible asset value on a fully diluted basis coming in at about £10.90,” Williamson said. In a research note, Jefferies analyst Nicholas Pope said his firm was expecting Brit’s full-year NTA to come in at £10.97.