Brit tests Apollo’s will with latest bid rejection

Brit’s decision to reject a second offer from private equity suitor Apollo Global Management has divided opinion among analysts.

Brit announced on Friday that it had received a revised cash offer of £10.50 a share, up from the initial £10 bid, but again rejected it on the grounds that it undervalued the company. The firm added, however, that the board remained open to engaging with its suitor if it came up with an offer “capable of recommendation”. Brit’s board is thought to be seeking £11 a share.

KBC Peel Hunt analyst Christian Stobbs believes the firm will accept less than £11 a share. “The shareholders I have spoken to would all be happy with £10.50 to £10.75,” he said. “My understanding is that Brit is still quite excited by the prospect, and all it is going to take is 25p more.”

Weekend news reports suggested that Apollo is likely to walk away from the deal. But Stobbs argues that the private equity firm’s desire to buy a Lloyd’s company, and Brit in particular, will keep it in the bidding. “Apollo has wanted a Lloyd’s platform for a number of years. They have spoken to a number of the players and they have decided on Brit,” he said.

He added that Apollo was unlikely to come out with its best bid first, and pointed out that the firm has a history in making multiple bids. “When Apollo bid for Countrywide in 2007, it bid up a number of times significantly higher than its initial offer. It has the firepower, and £10.75 for Apollo is not a push.”

Panmure Gordon analyst Barrie Cornes, on the other hand, described the weekend news reports of Apollo’s frustration as a “wake-up-call” for Brit’s shareholders to encourage the firm to engage Apollo.

“Bearing in mind that it is in cash and at a premium to what the shares were trading at previously, it is a good offer. I think there is a real danger that Brit will have lost Apollo’s interest if it doesn’t play ball at these sorts of levels,” he said.

Cornes suggested Apollo could look elsewhere if it is determined to buy a Lloyd’s vehicle. “It could go after the likes of Chaucer or Novae if it is looking to buy something that is undervalued and trading at a discount to book value,” he said.