Asset manager has casting vote in any takeover agreement under Bermudian law

Canopius is looking to make a deal with asset management house Invesco as part of its bid to buy fellow Lloyd’s insurer Omega.

Invesco is Omega’s biggest single shareholder, with a 29.2% stake as of 29 July this year. As such, the asset manager has the power to block any full takeovers it does not approve of.

Canopius said in a statement on Monday that its 13 October offer to buy all of Omega’s outstanding share capital for 83p a share was conditional on “certain Omega shareholders reinvesting a substantial portion of their cash proceeds” into the combined Canopius/Omega entity.

Insurance Times understands that this condition is designed to allow Invesco to effectively retain its stake in Omega, which it does not want to relinquish at 83p a share.

Though it underwrites at Lloyd’s and is listed in London, Omega is registered in Bermuda, and the takeover is subject to Bermuda company law. Under Bermuda rules suitors need approval from 75% of shareholders to effect a takeover, giving Invesco the casting vote on any full takeover bid.

In its own statement, also issued on Monday, Omega acknowledged that there was a rift between shareholders. “The board is aware that amongst the Omega shareholders there are different views on the form of the most appropriate transaction, with some shareholders seeking a cash exit and others seeking to continue to have an exposure to Omega’s business,” it said.

In addition to Canopius, Omega is under offer from two other firms: Lloyd’s insurer Barbican and Bermudian investment firm Haverford (Bermuda) Ltd (HBL).

Both the other suitors have sought to get around the problem of reluctant sellers in different ways. HBL is only trying to buy 25% of Omega for 83p a share, allowing those shareholders that do not want to sell at that price to retain their stakes.

Barbican proposes a stock-for-stock merger, after which it would buy back 25% of the shares for 84p each, giving an exit route to those shareholders that want it.

Omega said the reinvestment condition in Canopius’s offer “is outside the control of the Omega board and may or may not be met”.

The company also suggested there are complications with the HBL bid, saying: “The board has discussed with HBL and its advisers the issues that have been raised by certain of Omega’s shareholders regarding the terms of the tender offer.”

However, it is unclear what the issues are and whether they have been resolved. Omega declined to comment beyond the information in its statement.

One issue could be the structure of the transaction: the 83p a share offered by HBL is a maximum, and the company could be sold for less.

Despite the complications, Omega said it is continuing discussions with all three suitors. “The board will further engage with Omega’s shareholders in order to reach finality as soon as possible,” it added.

The complications are the latest twist in a protracted takeover battle for Omega. Canopius first made its interest known last September. Omega said that it became clear at the beginning of 2011 that most shareholders wanted the board to explore a sale.

Shareholder patience is already wearing thin given the time the deal has taken to put together. However, while it is unclear when the transaction will be completed, Insurance Times understands that some of the suitors are keen to wrap things up well in advance of the 1 January 2012 renewals.

We say …

● Haverford (Bermuda) Ltd’s bid is the most advanced, the only one to have received the board’s recommendation and FSA approval so far. It is also potentially the least disruptive, as it doesn’t require a merger with another group. However, it is still anybody’s game.
● Both Canopius’s Michael Watson and HBL’s Mark Byrne are seasoned deal-makers in the business. Barbican, a relatively new force in the London market, is a more unknown quantity.
● While there have been several developments since bidding began, one fact remains: Invesco holds the aces.