Lloyd’s insurer claims Beazley’s £3-a-share takeover bid is opportunistic

Beazley will need to put in a higher bid for fellow Lloyd’s insurer Hardy Underwriting if it is to acquire it, according to analysts.

Beazley offered £3 a share for Hardy on 6 October, valuing the company at £158.3m, based on the 52.76 million Hardy shares outstanding.

According to Beazley, the offer was 1.2 times Hardy’s fully diluted net tangible assets as at 20 June 2010. Beazley received a letter from Hardy on 11 October rejecting the proposal.

Hardy issued a statement saying that the proposal “substantially undervalues the company” and was made opportunistically in light of the low valuations of listed Lloyd’s insurers and Hardy itself following heavy first-half catastrophe losses.

“Hardy is a very well run company with an excellent track record and I can see why Beazley would want to acquire it at 1.2 times net tangible assets,” Panmure Gordon analyst Barrie Cornes said.

“However, I suspect that it is much too cheap and would require a higher bid. Beazley has a fair bit of cash and doesn’t need to do a rights issue [to acquire Hardy]. You could describe it as a cheeky bid for a very good company whose share price has been hit overly hard as a result of non-US cat losses in the first half.”

He added: “Maybe if the proposal was something like 1.4 or 1.5 times book value, then there could be a meeting of minds, but at 1.2 times I can see why Hardy would reject it.”

Collins Stewart analyst Ben Cohen said Hardy should seriously consider the offer, in particular because there is a good cultural fit between the two firms. However, on the opening amount, he added: “It’s a reasonable starting point but is probably not a full offer. I’d be surprised if it were the final point.”

A spokesman for Beazley declined to comment on whether the firm would be making a higher bid. In a statement announcing the rejection, Beazley said it was “surprised and disappointed” by Hardy’s outright rejection.

However, Hardy chief executive Barbara Merry told Insurance Times that Hardy’s board had unanimously rejected Beazley’s offer after “a very thorough discussion of the proposal”.

Merry declined to comment on what an appropriate valuation would be or what the next steps might be.