Aspen takeover is becoming less likely: Deutsche Bank

Investors in Aspen Insurance appear to believe that Endurance will not succeed in its bid to buy the company, analysts at Deutsche Bank have said in a research note.

The investment bank has argued that the increase in the share price of Aspen, since Endurance first made its offer, has more to do with Aspen’s performance and an improvement in sentiment in the sector more generally than it does with the Endurance bid.

On top of this, Deutsche Bank believes that the fact that proxy vote recommendation services ISS and Glass Lewis have advised Aspen shareholders against the deal makes it increasingly likely that Endurance might soon withdraw its offer.

Deutsche Bank explains that while Aspen’s share price is up 10.4 percent since Endurance announced its desire to buy Aspen on April 14, this reflects broad equity market performance and an improvement in Aspen's operating results.

In the intervening three months, the S&P 500 has rallied 8.3 percent and consensus estimates for Aspen's 2014 and 2015 earnings have risen 23 percent and 7 percent, respectively, Deutsche Bank notes.

“We believe shares of Aspen would have likely appreciated nearly as much without Endurance's bid (worth $49.29 today). We believe Aspen's current stock price suggests only modest upside, supporting our Hold rating.”

It also notes that peers of Aspen with improving EPS outlooks have appreciated nearly as much in the three months that followed Endurance’s announcement. While Aspen saw a strong 1Q14 result and pre-announced a strong 2Q14 result, several peers have seen similar significant upward earnings revisions –including Allied World, Montpelier and Platinum – and their stock prices have been impacted favourably to a similar degree.

“As such, we don’t expect significant downside risk if Endurance fully withdraws its bid,” Deutsche Bank notes.

In terms of the influence of the perspectives of ISS and Glass Lewis on the process, Deutsche Bank believes this makes a takeover much less likely.

“With proxy vote recommendation services ISS and Glass Lewis advising Aspen shareholders against Endurance’s tactics aimed at superseding the opinion of Aspen’s board and management, we believe Endurance management might soon withdraw its offer,” Deutsche Bank said.

It adds: “Following these events, we believe Aspen’s ‘takeout price’ may be considerably higher than a potential buyer could afford.”