A tale of two rivals: where next for Beazley and Hardy?

Despite Beazley’s efforts to engage the shareholders of fellow Lloyd’s insurer Hardy over its latest all-cash offer for the company, the prospects for a deal do not look good.

Analysts say that Hardy’s confident rejection of £3.30 a share is a signal that shareholders agree with the snub, and Beazley has insisted it will walk away if Hardy continues to reject talks.

The approach could, however, prompt bids for Hardy from other parties, and Beazley may be tempted back by the good fit between the two businesses.

Panmure Gordon analyst, Barrie Cornes, says “There is a good chance that there could be other offers for Hardy as a result of it being perceived to be in play,” he says. “I don’t think this is necessarily the end of it.”

Future is very bright

Beazley chief executive, Andrew Horton, has tried to appeal to shareholders’ concerns about a slow recovery in insurance sector valuations, particularly the Lloyd’s market. He argues that, while Hardy may be worth more than £3.30 a share, it may be some time before its stock hits that level without a buyer.

However, Cornes counters: “I think Hardy is undervalued and so if I was a shareholder I would be thinking: ‘Even if it stays independent, the future is very bright anyway.’”

He says: “They got caught in the first half of this year with some unfortunate cat claims but it is very well-run, good organisation. It has been highly profitable over the years and has shrunk when the market was soft and expanded into a hardening market. It has always done all the right things.”

Hardy is unlikely to have any problems continuing to go it alone. Barbara Merry, Hardy’s forthright chief executive, told Insurance Times in March: “The bottom line is that we want to stay independent and we want to show what we can do.”

Back to organic growth

It also seems that the company and its shareholders are in no rush to accept a deal. Merry says: “I think this business is incredibly valuable. We have some really talented people here and, whatever happens, we’re not going cheaply.”

Although Hardy may attract more suitors if the Beazley approach comes to nothing, the options are slimmer for Beazley if it is eager to make a purchase.

Horton says: “There aren’t many acquisitions that we really like. They have to have those tenets of an underwriting culture and profitability in lines of business we understand and like ¬– that is why [Hardy] fits so nicely with us. If we don’t do this deal, we would go back to organic growth with the few acquisitions we have already made.”

It is clear that Horton relishes the prospects of a merger with Hardy. “It would be a nice to have, in that the businesses are highly complementary and would combine incredibly well.

Logic to a marriage

“They both have an underwriting culture and the lines of business complement each other. Hardy tends to be more internationally focused and we tend to be US-focused. We have also got similar track records of always having made money for our capital providers.”

KBW analyst, Chris Hitchings, dismisses Beazley’s approach for Hardy as “ill-thought-out” — because it was assumed Hardy shareholders would lobby for acceptance - but he concedes there is logic to a marriage between the companies.

“The idea of a merger of the two makes a kind of sense. The two together would be just as good in quality, but bigger and more diversified – more like, say, Hiscox – and therefore something that might be valued more highly,” he says.

There is a slim chance, then, that £3.30 may not be Beazley’s last bid. Panmure Gordon’s Cornes says: “If you read Beazley’s announcement [of the offer rejection] you would say it is fairly black and white that they have no intention of going higher. We have, however, had this situation with Apollo, CVC and Brit. It is hard to say.”