Analysts says other contenders should not be discounted

Brit Insurance has become the lead contender to acquire Lloyd’s insurer Chaucer Insurance Holdings as final bids are posted, according to reports. But analysts are divided as to whether Brit will be the ultimate winner.

“[Brit] are ambitious and they are keen to do something,” said Eamonn Flanagan, equity analyst at Shore Capital.

“They would buy it with a mix of shares and cash. The problem Brit have got is that their shares are lowly rated relative to their book value, so any issue from their point of view would be quite dilutive. That’s the quandary they find themselves in.”

Barrie Cornes, equity analyst at Panmure Gordon & Co, meanwhile doubts whether Brit would be in a position to buy Chaucer.

“Brit seemed to have issues in terms of raising capital. Assuming they haven’t got cash to do it, I presume Chaucer would be bought with shares. But if you are a shareholder in Chaucer, would you appreciate shares in Brit? And the answer is probably not. I can’t really see Brit as being the acquirer.”

Cornes added that Brit had had difficulties in the past when making acquisitions. “A few years ago it bought a company called PRI and a lot of the talent walked out the door before the deal was completed.”

Flanagan said other contenders should not be discounted. He said initial speculation was that Amlin and Brit were the two interested trade buyers, but that Amlin had subsequently bowed out. “There are also two private equity firms that are interested – Pamplona and Lightyear,” he added.

A spokesman for Chaucer and Brit refused to comment, but confirmed that there were still a number of interested parties in the deal and talks were ongoing. The spokesman would not give a timeline as to when the deal would be completed.

But Flanagan said it made sense to close a deal before the start of the hurricane season on 1 June. “If it doesn’t happen over the next couple of weeks, the likelihood is that it will cool till the hurricane season ends.”