Brit holds out for improved share offer from Apollo

Private equity group Apollo Global Management’s attempt to buy UK insurer Brit could be successful if it boosts its offer, and a successful acquisition would benefit Brit’s shareholders, according to equity analysts.

Last Thursday, Brit rejected Apollo’s £10-a-share bid on the grounds that it “significantly undervalues the group”.

In a statement on Friday that also confirmed the name of the suitor and size of the bid, the firm said: “Accordingly, the board advised Apollo that it was not prepared to engage in further discussions unless a higher indicative offer, which was capable of recommendation, was forthcoming.”

“It’s hard to say whether a deal will go through, but I suspect that if the bid is left at £10 it won’t,” said Panmure Gordon insurance analyst Barrie Cornes. But he added: “If the offer is increased materially, there is a good chance. I think shareholders would view this as being slightly opportunistic, but our view is that it is not a bad price.”

Cornes believes that Apollo’s initial £10-a-share offer is attractive, given that it is in cash and is a 37% premium to Brit’s closing price before the offer was revealed. Brit’s shares closed at 729p on Thursday, down from 739p the previous day, but they jumped to 880p on Friday.

Cornes acknowledged that the bid is a discount to Brit’s book value. He said Panmure Gordon’s estimates put Brit’s net tangible assets per share for 2010 at £10.80, which would be diluted to about £10.30 if a deal went through. Brit puts its 2009 net tangible assets per share at £10.52.

“If, as we think might be the case, Apollo were to increase their offer, one suspects they might get up towards book value,” he said. “In that case, bearing in mind the offer is cash and the sector has had a number of issues in the first quarter – in particular the Chile earthquake – and that reserves are being revised upwards, you can see why there would be an attraction from a shareholder point of view.”

Brit chief executive Dane Douetil said in February that the firm would continue to focus on underwriting profit and maximising shareholder value. The insurer made a 2009 net profit of £87.5m from £1.7bn of gross written premium.