Although Aspen Insurance Holdings, through its representatives, reached out to 26 potential parties to find a buyer for the company, 17 said they weren’t interested right off the bat, according to details revealed in a public filing on Monday.

The Oct. 22, 2018 proxy statement details activity that started unofficially in January with a call from Gary Parr, senior managing director of Apollo to Aspen Group’s Chief Executive Officer Christopher O’Kane, and also notes that Apollo’s bid to acquire Aspen was revised downward several times from an initial price of $45-$47 per share communicated in April to $41 per share (about $300,000 lower) in August. The parties finally agreed on a counterprice proposed by Aspen of $42.75 per share, or a total value of $2.6 billion, representing a 6.6 percent premium to the closing price of ordinary shares on Aug. 27, 2018, the last full trading day prior to the announcement of the transaction.

The statement also discloses conditions that could terminate the merger, including Aspen incurring net catastrophe losses of more than $350 million between July 1, 2018 and Jan. 31. 2019.

According to the filing, Parr’s call in January was just one of the routine calls that members of Aspen management and directors received “from time to time,” although none had “proceeded past preliminary inquiries.”

Once Aspen’s board decided to seriously entertain the possibility of a sale, setting up a Strategy Committee in March with a charge to review strategic alternatives before its May 2 board meeting, representatives of Aspen’s financial advisers started putting out feelers to strategic and financial buyers—26 in all, including Apollo—”to gauge their interest in making a proposal to acquire Aspen.” (Editor’s Note: The Strategy Committee included a board member with ties to Apollo, who for some months served as chair of the committee, but he relinquished that role as the parties came close to the finish line in August.)

Nine of the 26 “ultimately entered into confidentiality agreements with Aspen in connection with the ongoing sale process,” while the other 17 said they weren’t interested.

At one point, the filing notes that Aspen’s financial advisers told the board (during a telephone meeting in April) that a few prospective bidders were only interested in buying Aspen’s reinsurance business and one prospective bidder only wanted to buy Aspen’s capital markets business.

In the end, it came down to four parties that actually put offers on the table to buy the specialty insurer and reinsurer—Apollo and three other parties, identified as A, B and C in the filing.

And Then There Were Four

According to the proxy statement, offers from suitors other than Apollo came from:

• Party A, “a company that operates in the insurance and reinsurance industries.” A board member of Party A actually contacted a member of Aspen’s board in February to discuss the potential for a stock-for-stock business combination transaction in February—before the Strategy Committee was set up.

In late March, this party communicated to a member of Aspen’s board that instead of a stock-for-stock deal, it could alternatively partner with a private equity firm to acquire Aspen for cash or a mix of cash and stock.

On April 30, Party A submitted its nonbinding proposal to enter into a stock-for-stock business combination transaction that would result in Aspen’s current shareholders retaining a majority of the pro forma ownership of the combined company. But Party A’s proposal “suggested an implied valuation of Aspen that was disproportionately lower than the implied valuation of Party A because Party A would be valued using a significantly higher multiple to book value than the multiple to book value that was used to value Aspen in the transaction.”

Although Party A was invited to conduct due diligence on Aspen in May and June, Party A would ultimately pull out of negotiations.

On June 20, 2018, a member of Aspen’s board and a representative of Party A talked about doing a “merger of equals,” in which Party A and Aspen would both be “valued in a consistent manner and using the same multiple to book value.” But a day later, Party A withdrew, offering neither a revised “merger of equals” proposal or a cash-stock deal, stating instead that it might be coaxed to “re-engage in the future” on terms in line with its first stock-for-stock bid.

• Party C, which said no thanks in April. This party initially withdrew from the process without even submitting a proposal in response to outreach from Aspen’s financial advisers.

But Party C came back into the mix to join the bidding party in June. On June 28, 2018, Party C’s chairman called John Cavoores, a member of Aspen’s board and a former executive of OneBeacon, American International Group and Chubb, to convey this party’s interest in re-entering the process.

In subsequent discussions between the parties and their financial advisers, Party C was unwavering on a condition that Aspen enter into an agreement to negotiate exclusively with Party C.

Though the board authorized its financial advisers to gauge the seriousness of Party C and the likelihood that it could beat a proposal from Apollo then on the table ($44-$45 per share), Party C stood firm on the exclusivity requirement and said that it would not pay anything above the market price of Aspen shares and that the deal would not be all cash. (Editor’s Note: Aspen shares traded between roughly $36.50 per share and $42 per share since late June.)

“Party C did not subsequently make any proposal or submit any preliminary indication of interest to acquire Aspen,” the filing states.

• Party B, a company that operates in the insurance and reinsurance industries, submitted a nonbinding proposal to acquire 100 percent of Aspen’s outstanding ordinary shares for $38 per ordinary share in Party B common stock plus a pre-closing dividend payable by Aspen to Aspen’s shareholders of $7 per ordinary share in cash on April 30.

Although Party B conducted due diligence in May and June, on June 29 this party decided to withdraw without submitting any other offers.

Evaluating the Fairness

In the section of the filing that presents financial analyses from Aspen’s financial advisers, the merger consideration of $42.75 per share is compared to book value and estimated earnings per share for 2018 and 2019 in an effort to convince shareholders to vote “yes” on the deal.

According to the filing, the deal value is 1.12-times June 30 book value, 15.3-times estimated EPS for 2018 and 12.4-times estimated earnings for 2019.

The 1.12-times multiple to book is at the low end of a range of comparables of four competitors judged similar to Aspen by the financial advisers—Arch Capital Group, Everest Re Group, RenaissanceRe Holdings and Axis Capital Holdings. The highest price-to-book multiple (Arch’s 1.50-times figure) would imply an equity value of $57.16 for Aspen.

The 15.3-times-2018 EPS exceeds any of the competitors, with Arch representing the high end of the range at 13.7-times or an implied value of $38.22 per share for Aspen.

The 12.4-times-2019 EPS falls in a range of 9.2-times to 13.1-times for comparable companies Everest and Arch, implying a range of values extending from $31.68 per share to $45.22 per share for Aspen.

The $42.75 consideration being voted on for Aspen also falls at the low end of price-to-book multiples for recent deals. The low end of that range is actually 1.10-times-book, the value of EXOR’s August 2015 deal for PartnerRe. On the high side, AIG paid 1.57-times-book for Validus in the deal announced in January 2018, according to the filing.

Listing other recent deals, the Aspen filing notes that in October 2016, SOMPO Holdings agreed to pay 1.36-times book, or $6.3 billion for Endurance Specialty Holdings.

In 2014, Endurance tried to acquire Aspen in a protracted battle that started with a bid of $3.2 billion, or $47.50 per Aspen share, and ended with a final offer at $49.60 per share.