It started with a phone call—from American International Group’s Brian Duperreault to Validus Holdings’ leader Ed Noonan.

Roughly two-and-a-half months later, including time for just over one month of due diligence by AIG, the companies would ink a merger deal worth $5.6 billion—but not without some serious back-and-forth about the purchase price, according to a deal timeline set forth in a Validus Holdings Ltd. March 7, 2018 proxy statement.

A section of Wednesday’s filing detailing the background of the merger reveals that while the Validus board of directors had reviewed and considered the Bermuda company’s ability to execute its strategic plan as a standalone entity over the last two years, it was AIG’s chief executive officer who made the first move that would eventually put AIG and Validus together.

Five days after Duperreault’s call to Noonan on Nov. 10, 2017, the two leaders met in person for the first time to discuss the tie-up. Duperreault offered a deal price of $60 per share—$8 below the eventual level at which the deal would be struck on Jan. 21, 2018.

Noonan is a veteran acquirer whose deals have included a 2007 deal to acquire Talbot, a Lloyd’s operation writing short-tailed insurance businesses; the 2009 hostile takeover of monoline property-catastrophe reinsurer IPC Re; a 2012 deal to acquire startup Flagstone Reinsurance, a fellow member of the Bermuda “Class of 2005”; and a 2014 deal to acquire U.S. specialty insurer Western World. He wasn’t very impressed with the initial amount of Duperreault’s offer.

At the Nov. 15 meeting, Noonan told Duperreault that he would share the proposal with the Validus board but that “the price did not seem compelling,” according to the filing.

Keeping his word, Noonan connected with Jeffrey Greenberg, the lead director of Validus, to deliver the information. And Duperreault reached out again on Nov. 17 with an offer to put the proposal down in writing for the Validus board.

Rejection to the written proposal came quickly. On Nov. 19, Noonan told Duperreault that Validus “would not be willing to move forward at that [$60 per share] level.”

The filing does not disclose whether or not the Validus board had independently decided that standalone status was not viable during the two years in advance of Duperreault’s Nov. 10 phone call proposing a potential transaction between AIG and Validus. It states only that the board considered factors including “the impact of continuing consolidation in the insurance and reinsurance industry, losses incurred within the insurance and reinsurance industry as a result of catastrophes during 2017, and increasingly competitive pricing in many of the insurance and reinsurance markets in which Validus operates, including the response of those markets to the 2017 catastrophe year” during the course of its prior deliberation on standalone status.

Back and Forth

With the ball back in Duperreault’s court after the Validus board’s negative response to an AIG-Validus combination on Nov. 19, AIG’s CEO turned to email, sending a letter to Noonan with a range of deal prices extending from $65 per share to $68 per share—in cash—subject to due diligence. Duperreault also wrote that AIG’s due diligence would not interfere with Jan. 1 renewal activities at Validus. (The need for Validus to work through renewals unencumbered was a seemingly large concern for the reinsurer, which is mentioned several times in the filing.)

After the Thanksgiving holiday, the Validus directors went back to work, meeting on the phone with legal counsel from Skadden Arps and financial advisers at J.P. Morgan, stressing “the importance of the upcoming January 1 renewals season and the particular risk of the impact of any leak on Validus’ ongoing business during that time period.” During the meeting, J.P. Morgan shared its information on prices for comparable deals, comparing transaction multiples implied by $65 and $68 per share figures “to precedent transactions in the insurance and reinsurance industry,” the filing states, without indicating how the AIG offer actually stacked up.

The meeting ended with the Validus board authorizing Noonan to continue speaking with Duperreault and giving the green light for AIG “to conduct limited due diligence on Validus.”

When Noonan phoned Duperreault on Nov. 27 with the update, he also shared the fact that the Validus board of directors felt that AIG’s offer was “not entirely consistent with relevant comparable transactions nor fully reflective of Validus’ value,” also telling Duperreault that Validus’ directors “had not made any determination that Validus was for sale, or that [it] would be for sale at the price range stated in AIG’s letter,” according to the filing.

A later section of the March 7 filing, outlining J.P. Morgan’s analysis of the fairness of an eventual deal price of $68 per share, details ranges for values from three forms of analysis, including a review of comparable deals. Using eight deals between 2014 and 2016 as a guide, starting with the Nov. 2014 merger of Platinum Underwriters and Renaissance Re and ending with the Dec. 2016 deal in which Fairfax Financial acquired Allied World Assurance Company, the financial adviser developed a range of implied per-share equity values of $44.07 to $59.40. Based on two alternative analyses—a review of public trading multiples of similar companies and a discounted dividend analysis—J.P. Morgan calculated two alternative ranges, with the highest value coming from the latter analysis at implied equity value of $65.31 per common share of Validus.

After a period of due diligence that started on Dec. 6, Duperreault offered about that amount—$65 per share—in a phone call to Noonan two days after Christmas. Duperreault told Noonan that AIG had not identified any material findings that would compromise its valuation framework during just two-plus weeks of limited due diligence already completed, and the CEO with an actuarial background officially put the low end of the range that he had proposed on Nov. 19 back on the table.

The board countered. With the start of the new year just days away, the Validus board instructed Noonan to deliver a $71 per share price to Duperreault. In addition to the extra $6 per share, the board also wanted confirmation that Validus would have the ability to pay out a second-quarter 2018 dividend in an amount up to $0.38 per share even if the deal closed before the record date for the dividend. Noonan did so on Dec. 29.

Final Steps

With the Jan. 1 reinsurance renewal date a recent memory, Duperreault invited Noonan to meet him in person at AIG on Jan. 3, 2018. During the face-to-face meeting, Duperreault upped AIG’s offer one final time—this time to the high end of the range he proposed on Nov. 19. Reminded by Noonan that his board needed assurance that Validus could pay that second-quarter dividend that was a nagging concern, the deal was now within reach, culminating in a deal on the afternoon of Jan. 21 at the $68 price per share.

“We believe this transaction offers compelling value for our shareholders and reflects the strength of the business we’ve built together with our talented global team,” Noonan said in the media announcement on Jan. 22, which valued the deal at $5.56 billion—a 46 percent premium to Validus’ closing share price on Jan. 19.

In the weeks that followed the Jan. 3 meeting, the filing indicates that AIG completed its due diligence and describes some of the legal details that needed to be ironed out, including termination provisions and fees provision, “fiduciary out” language (relating to the rights of the board to consider other offers or change its recommendation, according to legal dictionaries), and the treatment of Validus’ outstanding employee equity awards among them. (A $162 million termination fee is documented in the filing.)

The 46 percent premium is just one of roughly two-dozen reasons that the board recommends that shareholders vote in favor of the deal. Among the others listed in the filing is one that recognizes the “possibility that, if Validus did not enter into the merger agreement, there would likely be few, if any, other parties that would be willing to offer more than AIG’s offer of $68.00 per common share.”