Anger over new Omega bid puts Haverford deal at risk

Haverford’s purchase of 25% of Lloyd’s insurer Omega has been thrown into turmoil amid a dispute over contract terms and shareholder anger at Haverford’s pursuit of a lower offer.

Under Haverford’s original offer, approved by Omega’s board and the FSA, the Bermudian investment firm would pay up to 83p a share for 60.2m Omega shares. The actual price paid is determined by the value of the tenders.

With the deadline for tenders on 30 November, the deal was almost three times oversubscribed. Had the deal been declared unconditional, shareholders would have received the maximum of 83p a share.

But certain conditions were not fulfilled, including the receipt of approval from US regulators.

Omega says that the offer can still be declared unconditional if approval is received within 21 days of the deadline. But Haverford disagrees, and argues the offer has lapsed.

Haverford’s desire for a new deal is prompted by Omega’s worsening performance. In its third-quarter interim management statement, the Lloyd’s insurer revealed additional losses of $25m (£16m) - $6m of deterioration in previously announced catastrophe claims, $10m in new catastrophe losses and $9m in attrition losses.

Haverford said Omega had suffered a “significant and unexpected deterioration” in its financial position, and the further information Haverford had requested suggested that its envisaged post-acquisition strategy for Omega may require “significant amendment”.

Haverford has also proposed a new, fixed-price offer of 74p a share, although it has yet to submit a formal offer document to Omega.

Omega shareholders - initially angry at Invesco Perpetual, which has the largest holding, for approving a deal with a variable price - have turned their ire on Haverford chairman Mark Byrne for trying to rewrite what looked like a done deal.

Some observers report incredulity at Byrne’s surprise over Omega’s worsening losses, given that some of its peers in Lloyd’s and Bermuda have suffered similar catastrophe loss deterioration. Catlin, for example, saw its catastrophe bill jump 25% to $670m at the third quarter.

Critics say Byrne, co-founder and former executive chairman of Bermuda-based catastrophe reinsurer Flagstone Re, should not be surprised by catastrophe loss deterioration.

Also, there is a ‘material adverse change’ clause in the offer document to protect Haverford against deterioration in Omega’s results. Omega says that despite Haverford’s complaints about its target’s performance, it has not yet indicated whether this clause has been triggered.

But Haverford has indicated that if all the conditions of the original offer are fulfilled or waived, it will seek common ground with Omega.