Canopius’s offer for rival may have to be at least 1.3 times book value

Omega Insurance Holdings’ shareholders are unlikely to accept less than £1.40 a share for the company, say analysts, following rival Lloyd’s insurer Canopius’s proposed offer for the firm.

Omega confirmed on Monday that it had received an unsolicited approach from Canopius, proposing a mixed cash and unquoted share offer. Omega’s announcement did not detail the value of Canopius’s offer, but press reports suggested shareholders would be willing to accept £1.20 a share.

However, analysts pointed out that Omega raised £130m in 2008 by issuing stock at £1.40 a share. “I think £1.20 a share is too low,” said Shore Capital analyst Eamonn Flanagan. “Although Omega has been through catastrophe losses and a change of management, it would be a bit odd for someone that paid £1.40 for the shares to accept less than that.”

Collins Stewart analyst Ben Cohen agrees that shareholders could seek more than £1.20 a share. The rumoured amount is 1.15 times Omega’s book value. “I would have thought they would look for at least 1.3 times book, given that the new management team has just come in, has cleared the decks a bit and there is a bit of a turnaround story,” he said.

At the beginning of last year, Omega appointed six new directors and brought in Richard Pexton as chief executive to replace Richard Tolliday.

Much could depend on Invesco Perpetual, Omega’s largest shareholder with a 29.5% stake. It appears ambivalent to the deal, however. “While any approach which may be in shareholders' interests will be duly considered, the board continues to build the business. The board has consulted with Invesco Perpetual, which is supportive of that position,” Omega’s statement read.

“With Neil Woodford [head of investment] at Invesco Perpetual owning 29.5% of the company, whatever he decides is key,” said Edison research analyst Martyn King. “However, judging by Omega’s statement, it doesn’t seem that he is pushing the company to talk at whatever price is on the table.”

The appetite of Canopius’s shareholders, which comprise management (17%) and private equity firm Bregal Capital (83%), to boost its bid will also have a bearing on the outcome. However, Cohen said: “I doubt Canopius would want to pay a material premium to book value, and that is probably reflected in the fact that the stock is only up 10%.”