Aspen takeover may fail in case of large cat loss

The takeover of Aspen Insurance Holdings by alternative investment manager Apollo may fail if the Bermuda-based insurer is hit by large cat losses.

Apollo is offering $2.6 billion to buy Bermuda-based Aspen Insurance Holdings and take the carrier private.

The deal involves an agreement and plan of merger among Aspen, Highlands Holdings and Highlands Merger Sub , a wholly-owned subsidiary of Highlands Holdings.

The agreement can be terminated by Highlands Holdings if Aspen suffers losses exceeding $350 million resulting from certain catastrophic events occurring between July 1, 2018, and Jan. 31, 2019.

Between July and December 2017 Aspen reported a net loss of $438.7 million, driven by losses from hurricanes in North America.

If the merger agreement was terminated, under circumstances including a termination by Highlands Holdings in the event of a change in the recommendation of Aspen’s board of directors or termination by Aspen in order to enter into an alternative acquisition agreement with respect to a “superior proposal”, Aspen is required to pay Highlands Holdings a termination fee of $82.9 million.

The agreement also requires Highlands Holdings to pay Aspen a reverse termination fee of $165.9 million if the merger agreement is validly terminated for Highlands Holdings’ failure to close when required to do so, or in case of a material breach by Highlands Holdings of its obligations.

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