Ace Ltd. Sues Capital Re Corp. Over Broken Merger Agreement

Strategic Insights -

Ace Ltd. filed a lawsuit against Capital Re Corp. in October 1999, alleging that the financial guaranty reinsurer broke its merger agreement by negotiating a separate deal with XL Capital Ltd. The lawsuit stemmed from Capital Re's decision to terminate its merger agreement with Ace in favor of XL's offer of $14 a share, which was superior to Ace's offer of $13 a share. The disputed agreement was forged in May, and Ace had expected the transaction to close on October 7.

Key Takeaways:

  • Ace Ltd. filed a lawsuit against Capital Re Corp. on October 21, 1999, seeking a temporary injunction to prevent Capital Re from terminating its merger agreement.
  • The disputed merger agreement was forged in May, and Ace had expected the transaction to close on October 7.
  • Capital Re decided to terminate its merger agreement with Ace in favor of XL Capital Ltd.'s offer of $14 a share, which was superior to Ace's offer of $13 a share.
  • XL raised its offer to $14 a share on October 19, and Ace submitted a revised offer meeting the $13-a-share price with a combination of stock and cash.
  • Ace owners and committed stockholders held a significant stake in the company, with 33.5% of Capital Re's shares outstanding committed to vote in favor of the Ace transaction.
  • The majority of Capital Re stockholders had filed proxy votes supporting the Ace transaction by October 6.

Statistics:

  • October 7: Expected closing date for the disputed merger agreement between Ace and Capital Re.
  • October 6: The date by which most Capital Re stockholders had filed proxy votes supporting the Ace transaction.
  • October 14: The date on which Ace first threatened to pursue legal action against Capital Re in an October 14 letter to Capital Re's board.
  • October 19: The date on which XL raised its offer to $14 a share and offered to pay Ace $25 million to cancel its agreement with Capital Re.
  • $13 a share: The offer made by Ace to Capital Re's stockholders.
  • $14 a share: The offer made by XL to Capital Re's stockholders, which was superior to Ace's offer.
  • $12.50 a share: The initial offer made by XL to Capital Re's stockholders on October 6, before being sweetened to $13 and finally $14.
  • $25 million: The amount offered by XL to pay Ace to cancel its agreement with Capital Re.

Sources:

  • Ace Ltd. (quote by Brian Duperreault)
  • Capital Re Corp. (press statement)
  • COMTEX (http://www.comtexnews.com)
  • A. M. Best Company, Inc. (Copyright 1999)
  • BestWeek (By Theresa Miller, senior associate editor, millert@ambest.com)