Canopius looked like a promising bidder, but a rival group has now been identified. Whatever the outcome, Omega needs to take action soon
Omega’s fate is still undecided nearly nine months after it confirmed that fellow Lloyd’s insurer Canopius had approached it for a possible takeover.
The troubled company’s future continues to keep the market guessing. Reports on Friday, citing City gossip, put Canopius as the frontrunner to buy Omega with a rumoured 95p-a-share offer.
This morning’s Telegraph, on the other hand, asserted that an investor group led by former Flagstone Re chairman Mark Byrne was in “pole position” with an offer of between 82p and 87p a share.
A good buy?
It is easy to see why there is confusion about Omega’s value and why it has taken so long for would-be buyers to reach a decision.
As Espirito Santo analyst Joy Ferneyhough put it in a research note this morning: “The question therefore needs to be asked of any of the ‘third parties whom Omega are currently in ongoing discussions with’, what do you pay for a business that is making no money?”
Omega announced a first-half after-tax loss this morning of $44.5m (£27.2m), which followed a $32.3m loss in the first half of 2010 and a $42.8m loss for the full year. The main cause was a $51.3m natural catastrophe bill, which pushed the company’s first-half 2011 combined ratio to 133.2%.
Trying to do better
The news is not all bad: the company’s re-underwriting efforts meant that its losses were much more in keeping with those of its peers. While Omega was the only company in its peer group to make a loss in 2010, several companies, strong ones included, have been forced into the red in the first half of 2011 as a result of heavy catastrophe losses.
Furthermore, Omega’s $1m reserve release, while small, is a sign that the company is heading in the right direction after being forced to add $12m to reserves at the same point last year.
However, it is also clear that Omega is still very much in a state of flux, and that recent actions may take time to feed into results. And although chief executive Richard Pexton assured the market that Omega’s reinsurance programme is primed for the US hurricane season, there is still much uncertainty about what will happen.
Top priority
Investors have already expressed frustration about the lack of a deal. If the continuing uncertainty about Omega continues to cause delays, they could lose patience altogether. Omega has clearly picked up on the restlessness, promising this morning that it is “striving” to reach a deal soon.
Shareholders must be hoping the urgency in its words will be matched with action around the negotiating table.
By contrast, Giles’s bid to take over fellow broker CBG has gone swimmingly, reaching unconditional status just over a month after CBG first confirmed the approach.
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