SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 3, 1996
IPC HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
BERMUDA
(State or other jurisdiction of incorporation)
0-27662 NOT APPLICABLE
Commission File Number (IRS Employer Identification No.)
AMERICAN INTERNATIONAL BUILDING
29 RICHMOND ROAD, HAMILTON, HM 08, BERMUDA
(Address of principal executive offices)
(441) 295-2121
Registrant's Telephone Number
Page 1 of 3<PAGE>
Item 5. Other Events.
On June 3, 1996, IPC Holdings, Ltd. (the "Company")
sent a letter (the "Proposal Letter") to the Board of Direc-
tors of Tempest Reinsurance Company, Ltd. ("Tempest") making
a proposal to acquire Tempest for aggregate consideration of
approximately $943 million in cash and stock, subject to cer-
tain adjustments. On June 4, 1996, the Company issued a
press release announcing the Proposal.
The Proposal Letter and the form of press release
announcing the Proposal are attached hereto as exhibits and
are incorporated herein by reference.
Item 7. Exhibits.
1.1 Letter from IPC Holdings, Ltd. to Tempest Re-
insurance Company, Ltd., dated June 3, 1996.
1.2 Form of press release dated June 4, 1996.
Page 2 of 3<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Ex-
change Act of 1934, the registrant has duly caused this re-
port to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: June 4, 1996
IPC Holdings, Ltd.
By /s/ John P. Dowling
John P. Dowling
President and Chief
Executive Officer
Page 3 of 3<PAGE>
EXHIBIT LIST
Page No.
1.1 Letter from IPC Holdings, Ltd. to Tempest Re-
insurance Company, Ltd., dated June 3, 1996.
1.2 Form of press release dated June 4, 1996.
EXHIBIT 1.1
[LETTERHEAD OF IPC HOLDINGS, LTD.]
June 3, 1996
Mr. Donald Kramer
Co-Chairman
Tempest Reinsurance Company, Ltd.
14 Par-La-Ville Road
Hamilton, HM 08 Bermuda
Dear Mr. Kramer:
On behalf of the Board of Directors of IPC Holdings,
Ltd., I am writing to submit the following proposal to combine
our companies. We have always held Tempest in high regard and
believe strongly that the combination of our companies will
create a leading property catastrophe reinsurer in Bermuda.
Because of the very significant benefits that this combination
will provide to your Company and your shareholders, we ask that
you and your Board of Directors give prompt and careful consid-
eration to our proposal.
Strategic Benefits of IPC/Tempest Amalgamation
The amalgamation of our two companies would create
opportunities for long-term growth and provide the combined
company with significant strategic advantages:
- The amalgamation would, in a single step, expand our
client relationships to a level that would otherwise
require several years for either company to achieve
on its own.
- The combined company would be the third largest prop-
erty catastrophe company in Bermuda in terms of mar-
ket value and equity.
- The amalgamation would create a company with a
broader geographic spread of risk and an expected
improved profitability.
- The combined company would have a lower expense ratio
since it would realize significant cost savings
through consolidation of administrative activities
and the continuation of AIG's existing relationship
with IPC, which provides a lower cost structure than
Tempest has under its current agreement with General
Re.
- The combined company would be focused on the property
catastrophe reinsurance business, which we believe
has greater prospects for high returns than joining
with a <PAGE>
much larger, lower return, multiline insurer in a
transaction having minimal synergies.
- We expect this deal to be accretive on the basis of
book value per share and first full year of earnings
per share -- offering shareholders significant upside
potential for stock appreciation.
Terms
We propose that IPC and Tempest combine to form a new
holding company ("New IPC"). In the transaction, Tempest
shareholders would receive aggregate cash and stock consider-
ation of $943 million, representing $180 per share. This
amount would be subject to adjustment for changes in Tempest's
book value from March 31, 1996 through the closing date. The
consideration would be payable as follows:
$146 million - Payments from Tempest to General Re to
(i) repurchase 75% of the Tempest
shares held by General Re, (ii) cancel
General Re's options to purchase Tem-
pest shares and (iii) terminate all
contractual arrangements between Gen-
eral Re and Tempest.
$100 million - Cash dividend by Tempest on its re-
maining shares ($22.60 per share), as
adjusted for changes (positive or
negative) in Tempest's book value from
March 31, 1996 to the closing date
(excluding the above payments to Gen-
eral Re).
$697 million - Cash and New IPC common stock issued
in an amalgamation. Tempest share-
holders would receive $157.40 per
share, which they could elect to get
paid either in cash or New IPC common
stock, subject to certain limits.
______________
$943 million - Total Consideration
In the opinion of Wachtell, Lipton, Rosen & Katz,
IPC's U.S. counsel, the receipt of New IPC common stock in ex-
change for Tempest shares should be tax-free to Tempest share-
holders under the U.S. federal income tax laws. We note that
no tax opinion is provided in the ACE proxy statement.
Our proposal contemplates a collar to protect the
value of the New IPC stock to be received by Tempest sharehold-
ers as long as the average price of the IPC stock during the
ten-day measurement period prior to the shareholder meetings is
not less than $18 and not more than $22. Tempest would have
the right to terminate the agreement if the average IPC stock
price was less than $16 during the measurement period unless
IPC elected to top up the number of New IPC shares issued to
Tempest shareholders. If IPC's stock price during the measure-
ment period were to exceed $24, the number of New IPC shares to
be issued would be adjusted in
-2-<PAGE>
order to put a cap on the maximum value of the consideration
issued in the amalgamation of approximately $735 million
(excluding the dividend). IPC would not have the right to
"walk away" if the IPC stock price was above or below specified
prices during the measurement period.
Under the cash/stock election for the amalgamation,
Tempest shareholders would be able to elect to exchange their
Tempest shares for either cash or stock, subject to certain
proration only if the holders of less than 39% or more than 48%
of the outstanding Tempest shares elect to take cash. The cash
consideration in the amalgamation will constitute a minimum of
$275 million and a maximum of $340 million, with the additional
cash funded by AIG's equity commitment described below.
IPC shareholders would exchange their IPC shares in
the transaction for New IPC shares on a one-for-one, tax-free
basis.
Comparison with ACE Amalgamation
Under the ACE transaction, Tempest shareholders
(other than General Re) would receive a $9.66 cash dividend per
share (based upon the March 31, 1996 balance sheet) and, assum-
ing ACE's stock stays above $45, 3.2091 ACE ordinary shares for
each Tempest share. Such number of ACE shares were valued at
$154.04 based upon today's $48 closing price of ACE stock. In
addition, Tempest shareholders would be entitled to an ad-
ditional contingent dividend based upon the increase in book
value from March 31, 1996, but only after making a provision
for losses at the greater of actual incurred losses or 42% of
year to date earned premiums.
The following chart summarizes the consideration pay-
able per share to Tempest shareholders (other than General Re)
under our proposal and under the ACE transaction, in each case
based upon market prices of IPC and ACE stock on June 3, 1996:
IPC ACE
Dividend through $22.60 $9.66
3/31/96
Exchange $157.40 in New IPC shares $154.04 in ACE
shares
Total $180.00 $163.70
Contingent Dividend Subject only to actual Subject to
losses greater of ac-
tual losses or
42% loss ratio
To fully appreciate our proposal, I would like to
highlight some important comparisons between our proposal and
the transaction contemplated by ACE:
-3-<PAGE>
- Our overall proposal offers at least a $90 million,
or 11%, premium to the ACE transaction, as well as
the prospect of significantly higher contingent divi-
dends because our proposal does not assume a minimum
42% loss ratio. For example, if the actual loss ra-
tio for the three months ended June 30, 1996 is 20%,
we estimate that our proposal would result in an ad-
ditional $10 million advantage compared to the ACE
transaction.
- Almost 50% of the aggregate consideration paid to
Tempest shareholders (other than General Re) in our
proposal is cash, compared to only 6% in the ACE
transaction.
- Our proposal provides Tempest shareholders protection
from declines in the IPC share price up to 10%. In
contrast, at the recent stock price levels, the value
of the ACE proposal is at risk for any downward move-
ment in ACE's stock price. Each $1 decline in the
ACE stock price (down to a price of $45) will reduce
the value of their offer by $13 million, and cor-
respondingly increase the price advantage of our pro-
posal.
- Our proposal offers the potential for greater consid-
eration if the IPC stock price appreciates above $22.
In contrast, ACE (or Tempest) has the right to termi-
nate the ACE transaction if the average ACE stock
price during its measurement period is over $49. On
May 31, 1996 -- the first day of ACE's measurement
period -- the closing price of ACE stock was $49.
- Our proposal provides General Re, your sponsor and
principal shareholder, with aggregate consideration
having the same value on a per share basis as paid to
other Tempest shareholders, as well as the op-
portunity to participate in the upside potential in
the transaction through equity participation in New
IPC and the contingent dividend. In return for such
payment, General Re would be required to cancel its
options and all of its contracts with Tempest. The
following table compares the payments to General Re:
Payment to General Re
(in millions)
IPC ACE
Cash payment for shares,
cancellation of options, and
termination of contracts $146 $172
Dividend 6 --
Stock (assuming 100% equity
election) $ 43 --
Total $195 $172
-4-<PAGE>
- Our proposal allows shareholders to continue to real-
ize the exceptional returns available in the property
catastrophe reinsurance industry through a liquid
investment in a top quality company, while allowing
investors to realize a cash return on a portion of
their holdings. Moreover, as we discussed earlier,
we expect this transaction to be accretive on the
basis of both book value per share and our first full
year of earnings per share -- offering shareholders
significant upside potential for stock appreciation.
- In contrast, the ACE proposal forces your sharehold-
ers either (i) to maintain an investment in a lower
return company whose diversification could be
achieved instead through an investment in ACE and an
investment in existing Bermuda property catastrophe
reinsurers or (ii) to receive cash through the sale
of the ACE shares (in which case, they incur market
risk as well as transaction costs).
AIG Support and Equity Commitment
American International Group, Inc. ("AIG") is the
largest shareholder of IPC and provides administrative and in-
vestment management services to IPC pursuant to contractual
arrangements. As you know, AIG is also a shareholder of Tem-
pest and has expressed to Tempest shareholders its "deep reser-
vations" about the proposed ACE transaction. AIG believes the
ACE transaction provides inadequate value to Tempest sharehold-
ers and is not a prudent diversification of Tempest. We have
consulted with AIG regarding our proposal and have been in-
formed that AIG strongly endorses it. AIG has also advised us
that if our proposal were to be consummated, AIG would elect in
the amalgamation to receive New IPC shares with respect to its
entire investment in Tempest.
Furthermore, AIG has committed to purchase up to $65
million of New IPC common stock from New IPC to the extent that
holders of more than 39% of Tempest's shares elected to receive
cash in the amalgamation thereby increasing AIG's equity inter-
est in the combined company up to approximately 24.4% of the
outstanding shares -- AIG's current percentage ownership of
IPC. AIG's equity commitment will permit IPC to increase the
relative cash/stock mix of its proposal and reduce the risk and
amount of proration in the event the cash election were over-
subscribed. To the extent the equity commitment is not fully
drawn by New IPC, AIG has indicated its intention following the
consummation of the transaction to acquire additional shares of
New IPC in open market or privately negotiated transactions
from time to time, subject to market conditions and other fac-
tors, in order to increase its equity interest to approximately
24.4%.
-5-<PAGE>
Financing
We have had discussions with a major money center
bank with respect to all of the financing required to complete
the transaction. Such bank has advised IPC it is prepared to
execute a commitment letter for the entire amount. We expect
that all borrowings will be repaid by December 31, 1996 from
the combined company's cash flow and an orderly disposition of
a portion of the investment portfolio.
Process
Our Board of Directors strongly supports the proposed
transaction and has authorized management to pursue this pro-
posal with you. IPC's financial advisor, Morgan Stanley & Co.
Incorporated, has advised IPC's Board of Directors that, sub-
ject to, among other things, completion of its due diligence
review of Tempest, if IPC enters into a definitive agreement
with Tempest on the terms set forth in this proposal, Morgan
Stanley expects to provide an opinion to IPC's Board that the
consideration to be paid is fair, from a financial point of
view, to IPC's shareholders.
We have reviewed the information contained in the ACE
proxy statement and the Tempest Annual Reports regarding your
business, financial condition, results of operations and pros-
pects. However, our proposal is necessarily subject to our
completion of an appropriate due diligence review, including
access to non-public information regarding Tempest. Since we
are in the same business as you, we anticipate that such due
diligence can be completed within 3-4 days with your coopera-
tion. Please furnish us with a customary confidentiality
agreement that we will execute prior to receiving such non-
public information.
We have also carefully reviewed the Agreement and
Plan of Amalgamation dated as of March 14, 1996 (the "ACE Amal-
gamation Agreement") relating to the ACE transaction. Subject
to our receipt and review of the Disclosure Letter referred to
in the ACE Amalgamation Agreement and your cooperation with our
due diligence review, we would be prepared to move expedi-
tiously to complete a definitive agreement to effect our pro-
posal. Moreover, we would expect the definitive agreement to
be substantially similar to the ACE Amalgamation Agreement.
For example, we expect that the representations, warranties and
covenants in our definitive agreement will essentially mirror
those that you have negotiated with ACE, although we would de-
lete Section 5.09 (relating to the waiver of appraisal rights
and the lock-up) and Section 5.17 (relating to certain employee
arrangements) and would address employee benefit issues once we
understand the existing arrangements.
Our proposal is subject to termination of the ACE
Amalgamation Agreement in accordance with its terms (without
the payment of any termination fee or expenses to ACE unless
such payments are required under ACE's current contract), ap-
proval of a mutually satisfactory amalgamation agreement by our
respective Boards of Directors, and approval by our respective
shareholders. We anticipate that, with Tempest's cooperation,
our transaction would be consummated by September 30, 1996. In
order to provide greater certainty of consummation for our pro-
posal, we would delete the following conditions to closing that
are contained in the ACE Amalgamation Agreement:
-6-<PAGE>
* Section 6.02(c) (no material change in acquirer's
financial statements)
* Section 6.02(d) (no material adverse effect on ac-
quirer)
* Section 6.03(c) (no material change in the
Company's financial statements)
* Section 6.03(d) (no material adverse effect on the
Company)
* Section 6.03(e) (no national crisis or material
adverse change in financial markets)
* Section 6.03(f) (waiver of appraisal rights by 75%
of Company's shareholders)
* Section 6.03(l)(iv) (stop loss reinsurance with
General Re)(appropriate changes would be made to
other General Re conditions to conform to our pro-
posal described above)
I would like to reiterate that the combination of our
two companies will create a leading reinsurer in the Bermuda
market which should provide a tremendous investment opportunity
for our shareholders. This will enable your shareholders to
continue their investment in a focused, specialty property ca-
tastrophe reinsurer that was the basis of their original in-
vestment. On the basis of our superior proposal, we are confi-
dent that your Board will carry out its fiduciary duties and
provide the Tempest shareholders the opportunity to realize
these benefits. In view of the importance of this matter, time
is of the essence and we look forward to your earliest possible
response.
Sincerely,
/s/ J.C.H. Johnson
J.C.H. Johnson
Chairman
cc: Tempest Board of Directors
-7-
EXHIBIT 1.2
IPC HOLDINGS MAKES PROPOSAL TO ACQUIRE TEMPEST
Pembroke, Bermuda -- June 4, 1996. IPC Holdings,
Ltd. (NASDAQ--IPCRF) has announced that it has made a proposal
to the Board of Directors of Tempest Reinsurance Company, Ltd.
to acquire Tempest for aggregate consideration of approximately
$943 million, or $180 per share, payable in cash and stock,
subject to adjustment for changes in Tempest's book value since
March 31, 1996. The transaction includes a $100 million cash
dividend to Tempest shareholders as well as a $146 million cash
payment by Tempest to General Reinsurance Corporation for the
repurchase of 75% of their shares, cancellation of General Re's
option, and termination of their existing contracts with Tem-
pest. The balance of the consideration will be paid in cash
and stock, with approximately 61% paid in stock and 39% paid in
cash.
American International Group, Inc., IPC's largest
shareholder, has committed to purchase up to $65 million of
stock of the combined company to the extent holders of more
than 39% of the Tempest shares elect to receive cash in the
combination, to enable AIG to maintain its approximately 24.4%
ownership level. AIG's equity commitment will permit IPC to
increase the relative cash/stock mix of its proposal and reduce
the risk and amount of proration in the event the cash election
were oversubscribed. In addition, to the extent such commit-
ment is not fully exercised, AIG has advised IPC that it cur-
rently intends, following consummation of the transaction, to<PAGE>
increase its ownership to approximately 24.4% through open mar-
ket or privately negotiated transactions from time to time,
subject to market conditions and other factors.
Tempest and ACE Limited entered into an agreement in
March 1996 pursuant to which Tempest would be acquired for ACE
stock and cash. The ACE agreement is currently scheduled to be
considered by stockholders of ACE and Tempest at special share-
holders meetings on June 19, 1996. The IPC proposal offers
more than a 10% premium to the ACE offer based upon ACE's clos-
ing stock price yesterday.
Joe Johnson, Chairman of IPC, commented, "We, at IPC,
are very excited about the potential combination which would
create the third largest property catastrophe reinsurance com-
pany in Bermuda, with a combined capital base expected to be
approximately $900 million. We have always held Tempest in
high regard and believe the combination of these companies cre-
ates a tremendous opportunity for our shareholders, Tempest
shareholders and both of our customer bases." Mr. Johnson con-
tinued, "This acquisition will, in a single step, expand our
client relationships and diversify the geographic spread of
risk to levels that would otherwise require several years for
either company to achieve on its own. In addition, the con-
solidation of administrative activities will enable the company
to realize significant cost savings. Most importantly, we ex-
pect this transaction to be accretive to our shareholders on a
-2-<PAGE>
basis of both book value per share and 1997 earnings per
share."
IPC's proposal includes an adjustment to the number
of shares to be issued in the transaction to protect value of
such shares, subject to certain limits. This contrasts with
the ACE proposal which, at current stock price levels, declines
$13 million for each $1 decline in its stock price, up to $39
million. The IPC proposal also allows the Tempest shareholders
to realize the full benefit of increases in its book value
through closing while the ACE offer limits the increase in book
value to that implied by the greater of actual losses or an
assumed 42% loss ratio. Finally, the IPC proposal allows Tem-
pest shareholders to continue to realize the attractive returns
available in the property catastrophe reinsurance industry
through a focused publicly traded company, while allowing such
shareholders to realize a cash return on a portion of their
holdings.
IPC's proposal is subject, among other things, to
Tempest providing due diligence access to IPC, termination of
the ACE agreement, approval of a definitive agreement by the
Boards of Directors of Tempest and IPC, and approval by their
respective shareholders. IPC anticipates that, with the coop-
eration of Tempest, the transaction can be consummated by Sep-
tember 30, 1996.
-3-<PAGE>
Joe Johnson summarized, "We believe our proposal is a
superior offer for both Tempest shareholders and their cli-
ents."
IPC Holdings, Ltd., through its Bermuda-domiciled
subsidiary International Property Catastrophe Reinsurance Com-
pany, Ltd., provides property catastrophe reinsurance and, to a
limited extent, marine, aviation, property-per-risk excess and
other short-tail property reinsurance on a worldwide basis.
For further information, please contact Joseph C.H.
Johnson, Chairman of the Board of IPC, or John P. Dowling,
President & Chief Executive Officer of IPC, at (441) 295-2121.
-4-
