IPC likely to stick with Max; Agrium may up CF bid to $85/share; Lilly, Amylin combo a distant dream

By Cristal Cody

Tupelo, Miss., March 31 - Validus Holdings, Ltd.'s offer to beat out Max Capital Group Ltd. and acquire IPC Holdings, Ltd. in a $1.68 billion stock deal only seems superior on face value, a market observer told Prospect News on Tuesday.

In other hostile takeover attempts, Agrium Inc. could offer up to $85.00 a share to acquire CF Industries Holdings, Inc., which itself is trying to buy out Terra Industries Inc., an analyst said Tuesday.

Meanwhile, reports swirled Tuesday that Eli Lilly & Co. plans to pick up its merger activity, and news broke that Amylin Pharmaceuticals Inc.'s experimental diabetes drug, which was developed in partnership with Lilly, had been given top ratings during tests. However, Amylin probably would be too large a conquest for Eli Lilly, an analyst told Prospect News.

On Wall Street Tuesday, investors managed a rally that sent indexes up.

The Dow Jones Industrial Average added 86.90 points, or 1.16%, to close at 7,608.92.

The Standard & Poor's 500 index closed up 10.34 points, or 1.31%, at 797.87, while the Nasdaq Composite index rose 26.79 points, or 1.78%, to end at 1,528.59.

Validus swoops in

Under Bermuda-based reinsurance and insurance provider Validus' offer to acquire IPC, each IPC share would be exchanged for 1.2037 Validus shares.

"The shareholders of both companies would benefit from being part of a larger, more diversified, global business, which would be a market-leading carrier in Bermuda's short-tail reinsurance and insurance market," Ed Noonan, Validus' chairman and chief executive officer, said in a statement.

Noonan asked IPC's board in a letter sent Tuesday to reach a decision by April 15.

The offer values IPC at $29.98 a share and represents an 18.00% premium based on the companies' closing stock prices on Monday.

IPC's board "may take a second look at it, but in the long term, we don't think it is a superior offer," Doug Mewhirter, an equity research associate with RBC Capital Markets Corp., said in an interview. "In the short term, it's more dollars per share, but we don't think the compatibility is quite there."

IPC announced on March 2 plans to acquire Max Capital, a specialty insurer and re-insurer, in an all-stock deal valued at about $912 million. IPC provides property catastrophe reinsurance as well as aviation, property-per-risk excess and other short-tail reinsurance.

The Bermuda-based companies said they planned to operate under the Max Capital Group Ltd. name to provide global specialty insurance and reinsurance services.

"IPC and Max Capital got together after a fairly long and extensive search for the right partner," Mewhirter said. "Max gives them the ability to diversify, which is the reason why they even looked for merger partners in the first place."

Max's pending merger with IPC is expected to be completed by the third quarter of this year.

W. Marston Becker, chairman and CEO of Max Capital, said in a statement Tuesday, "While we have not yet had the opportunity to review Validus' proposal carefully, we believe that combining two short-tailed property catastrophe oriented companies would appear to do little for true shareholder diversification."

IPC representatives did not have an immediate comment.

Validus shares lost $1.23, or 4.94%, to close at $23.68 on Tuesday.

Shares of IPC gained $1.63, or 6.41%, to close at $27.04.

Max Capital's stock added 28 cents, or 1.65%, to end trading at $17.24.

Agrium could go higher

Investors pushed up shares of CF Industries and Terra as a three-way battle heats up.

CF Industries' stock added 74 cents, or 1.05%, to close at $71.13, and Terra shares gained 81 cents, or 2.97%, to close at $28.09.

Agrium shares rose 14 cents, or 0.39%, to close at $35.79.

Deerfield, Ill.-based CF Industries' board of directors has voted against the latest offer made by Agrium, a Calgary, Alta.-based agricultural producer.

The company offered $35.00 in cash and one share of Agrium for each CF Industries share.

CF Industries, a major producer and distributor of nitrogen and phosphate fertilizer products, said its financial advisers have reported that Agrium could offer $100.00 per CF Industries share, but Agrium has said it would not pay that much.

Also underway is CF Industries' hostile takeover attempt of Sioux City, Iowa-based nitrogen provider Terra in an all-stock deal valued at $30.50 per share.

Agrium could make another bid increase to sway CF Industries shareholders, an analyst said Tuesday.

"Another bump in the offer price by Agrium seems possible," the analyst said. "Agrium has said that it will pursue CF aggressively and that it is willing to increase its offer further if it is allowed to perform due diligence."

Amylin too big

Indianapolis-based Eli Lilly's plans to take on deals valued up to $15 billion just a few months after its $6.5 billion acquisition of ImClone Systems Inc. would be undertaken over a couple of years, an analyst told Prospect News on Tuesday.

"Amylin is probably too big for Lilly to buy in the next couple of years," said Jon Lecroy, an analyst with Natixis Bleichroeder. "The ImClone acquisition used up all their cash, and I wouldn't expect them to make any large acquisitions this year."

San Diego-based Amylin's chances of a merger depend on government approval of its diabetes drug, Byetta, Lecroy said.

On Tuesday, reports were released that showed good results from the experimental once-a-week version of the long-acting drug. The current version of the drug must be used twice a day.

A buyout of the drug company would cost about $3 billion with a premium attached, Lecroy said.

"It could be something that happens down the road but is highly dependent on whether the long-acting Byetta is approved," he said. "Until that gets approved, I just don't think it will happen."

Amylin currently is in a fight with dissident shareholders over control of board seats.

Shares of Amylin gained 43 cents, or 3.80%, to close at $11.75 on Tuesday.

Eli Lilly's stock closed at $33.41, up 57 cents, or 1.74%.

Mentioned in this article:

Agrium Inc. NYSE: AGU

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

CF Industries Holdings, Inc. NYSE: CF

Eli Lilly & Co. NYSE: LLY

IPC Holdings, Ltd. Nasdaq: IPCR

Max Capital Group Ltd. Nasdaq: MXGL

Terra Industries Inc. NYSE: TRA

Validus Holdings, Ltd. NYSE: VR

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