With the target date for a vote on two governance proposals from Endurance Specialty Holdings approaching later this month, the ball is in the court of the shareholders of Aspen Insurance Holdings.

Endurance designed the proposals to increase its chances of acquiring Aspen for $49.50 per share—a bid that Aspen’s board and management team has rejected.

Off on the sidelines late last week, proxy advisor Institutional Shareholder Services added its voice to the contest, recommending that shareholders vote down the two proposals:

• One that would convene a special meeting of Aspen shareholders to vote on an increase in the size of the Aspen board of directors—from 12 to 19 members.
• Another supporting a proposed “Scheme of Arrangement” by Endurance.

Essentially, voting for this second authorization means that a court-ordered meeting would be held during which Aspen shareholders could directly consider Endurance’s acquisition offer.

Endurance has set a target date of July 25 as the voting deadline on the proposals.

In a July 11 publication, “ISS M&A Edge,” the proxy advisor suggested that the costs that would be incurred to support the two shareholder proposals are too high. “If Aspen shareholders wanted to send a message to their board to engage with Endurance, they could simply tender their shares,” the ISS report said, adding that such actions would have a “more immediate effect” but would not commit them to a deal at the $49.50 price. A poison pill put in place by Aspen earlier this year “would preclude Endurance from completing the tender at this point,” ISS explained.

The proposed increase in board size could not be implemented until the next annual meeting (likely next April), and unwarranted costs would be incurred to call an Extraordinary General Meeting, the ISS M&A Edge report said, raising similar objections to the second proposal.

Earlier ISS Report

While ISS did not weigh in on the financial terms of the deal—and, in fact, specifically indicated that it is not doing so—this marks the second time that ISS has delivered a negative opinion relating to Endurance.

The first time was back in May when ISS gave its analysis of various matters to be voted on at Endurance’s annual meeting—one of which was the approval of a pay package for Endurance Chief Executive Officer John Charman.

Aspen called out the May ISS analysis of Charman’s pay package in a July 1 letter to its shareholders attacking what Aspen termed “Endurance’s poor governance practices”—namely, entrenched directors, a combined chair and CEO position, and excessive executive pay packages—as “highly relevant considerations.”

The ISS analysis, obtained by Carrier Management, not only expressed concerns about Charman’s pay arrangement but also commented on the severance package awarded to David Cash, the former CEO, who Charman replaced in May 2013.

Highlighted as a key takeaway on the opening page of the analysis, ISS said: “The new CEO received a mega equity award totaling $42 million that is not linked to any performance criteria. The outgoing CEO received a severance payment upon his resignation which exceeded his prior year’s total pay.”

According to ISS’s May analysis, Endurance has “described Cash’s departure as a ‘resignation.'” Based on information in a prior proxy statement reviewed by ISS, however, the report concluded that it was “more akin to a ‘termination without cause’ scenario.” The compensation benefits were more consistent with that classification in prior proxies, ISS said.

As for Charman, “the mega equity award is entirely time-based, and vesting accelerates by 50 percent upon a termination without cause, raising potential pay for failure concerns,” the report said.

Reacting to Aspen’s inclusion of this snippet of the earlier ISS report in its July letter to shareholders, Endurance called Aspen’s statements misleading in a July 1 media response. “No other CEO in our industry is aligned with shareholders like John Charman,” the July 1 Endurance statement said, noting that Charman invested $30 million of his own money into Endurance when he joined and another $25 million in connection with the Aspen bid—and also that he takes no base pay, fully committing himself “as a shareholder on a long-term basis.”

“Noticeably absent from Aspen’s letter is any discussion of their long-term track record of poor operating performance under current management and dismal corporate governance practices,” the July 1 response said.

The Profit Numbers Battle

Apart from executive pay and other governance issues, the companies have been waging an ongoing war of numbers, with each saying its record of profit is better than the other’s. Making the latest move in the numbers contest, Aspen preannounced its earnings for the second quarter last week—putting operating earnings in the range of $1.30 and $1.35, the combined ratio at about 90.0, and estimating an annualized operating return-on-equity between 12 percent and 12.8 percent.

Earlier last week, on July 10, both Endurance and Aspen sent letters to shareholders recapping relative performance of the two companies with dueling graphics and highlighting differences from their vantage points. The two sides also sparred about Aspen’s growing catastrophe reinsurance book, its controls over program business and disclosures about loss reserving practices.

As for the numbers, Aspen, showing accident-year combined ratios for 2009-2013, noted that it had outperformed Endurance in four of five years. Endurance’s bar graphic—displaying calendar-year combined ratios for the same years—shows Endurance with better results for three of the five.

But how much better one is than the other isn’t entirely clear to outsiders—even to experienced analysts. In a July 2 blog item, analyst Stuart Shipperlee of Litmus Analysis set out his own table of the loss ratios, combined ratios and returns, with calculations of the five-year averages.

“These are two peas from the same performance pod. Even the volatility profiles are remarkably alike,” he concluded.

Separately, representatives of Aspen also sent a research note to the media from another insurance analyst last Friday, this one from an investment firm, suggesting that the combination of the two companies is a good idea but that the deal should command a higher price when taking second-quarter results into account. (Permission to cite the exact language of the note was requested from the analyst but not granted at press time, so we cannot identify the firm or share the pricing details.)

The latest play in the Endurance vs. Aspen match came on Monday morning, with Endurance responding to the ISS commentary on the shareholder proposals.

“While we are disappointed by the ISS recommendations and strongly disagree with the positions taken, Aspen shareholders should note that the ISS report explicitly takes no position whatsoever on the merits of our offer,” the statement says, attributing the response to Charman.

Charman maintains that the ISS report “surprisingly ignores the substantial and fundamental issues of poor corporate governance continuously demonstrated by Aspen’s board and management, relying instead on questionable technical assessments of vote timing and mechanics.”

“ISS fails to recognize that Endurance was forced to take the two proposals directly to Aspen shareholders because of the failure of Aspen’s board and management to enter into discussions with Endurance,” he says.

“The ability to demand good corporate governance and effect change at Aspen is now in the hands of Aspen shareholders. We strongly encourage Aspen shareholders to vote for our shareholder proposals or risk losing all of the immediate benefits and opportunity for future value creation of our proposed transaction,” Charman concluded.