Filed by IPC Holdings, Ltd. pursuant to Rule 425 under the Securities Act of 1933, as amended.
Subject Company: Max Capital Group Ltd. (Commission File No.: 000-33047)
IPC HOLDINGS, LTD.
MAX
Comparative analysis June 9, 2009
BERMUDA IRELAND UNITED STATES LLOYD’S
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This press release includes statements about future economic performance, finances, expectations, plans and prospects of both IPC Holdings, Ltd. (“IPC”) and Max Capital Group Ltd. (“Max”) that constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties, including the risks described in the definitive joint proxy statement/prospectus of IPC and Max that has been filed with the Securities and Exchange Commission (“SEC”) under “Risk Factors,” many of which are difficult to predict and generally beyond the control of IPC and Max, that could cause actual results to differ materially from those expressed in or suggested by such statements. For further information regarding cautionary statements and factors affecting future results, please also refer to the most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q filed subsequent to the Annual Report and other documents filed by each of IPC or Max, as the case may be, with the SEC. Neither IPC nor Max undertakes any obligation to update or revise publicly any forward-looking statement whether as a result of new information, future developments or otherwise.
This press release contains certain forward-looking statements within the meaning of the U.S. federal securities laws. Statements that are not historical facts, including statements about our beliefs, plans or expectations, are forward-looking statements. These statements are based on our current plans, estimates and expectations. Some forward-looking statements may be identified by our use of terms such as “believes,” “anticipates,” “intends,” “expects” and similar statements of a future or forward looking nature. In light of the inherent risks and uncertainties in all forward-looking statements, the inclusion of such statements in this press release should not be considered as a representation by us or any other person that our objectives or plans will be achieved. A non-exclusive list of important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: (a) the occurrence of natural or man-made catastrophic events with a frequency or severity exceeding our expectations; (b) the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time; (c) any lowering or loss of financial ratings of any wholly-owned operating subsidiary; (d) the effect of competition on market trends and pricing; (e) changes in general economic conditions, including changes in interest rates and/or equity values in the United States of America and elsewhere and continued instability in global credit markets; and (f) other factors set forth in the definitive joint proxy statement/prospectus of IPC and Max, the most recent reports on Form 10-K, Form 10-Q and other documents of IPC or Max, as the case may be, on file with the SEC. Risks and uncertainties relating to the proposed transaction include the risks that: the parties will not obtain the requisite shareholder or regulatory approvals for the transaction; the anticipated benefits of the transaction will not be realized; and/or the proposed transactions will not be consummated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not intend, and are under no obligation, to update any forward looking statement contained in this press release, except as required by law.
ADDITIONAL INFORMATION ABOUT THE PROPOSED BUSINESS COMBINATION AND WHERE TO FIND IT:
This press release relates to a proposed business combination between IPC and Max. On May 7, 2009, IPC and Max filed with the SEC a definitive joint proxy statement/prospectus, which was first mailed to shareholders of IPC and Max on May 7, 2009. On June 4, 2009, IPC and Max filed with the SEC a supplemental joint proxy statement/prospectus, which was first mailed to shareholders of IPC and Max on June 4, 2009. This press release is not a substitute for the definitive joint proxy statement/prospectus that IPC has filed with the SEC, the supplemental joint proxy statement/prospectus or any other document that IPC or Max may file with the SEC or send to their respective shareholders in connection with the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC AS THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED BUSINESS
COMBINATION. All such documents, if filed, would be available free of charge at the SEC’s website (www.sec.gov) or by directing a request to IPC, at Jim Bryce, President and Chief Executive Officer, or John Weale, Executive Vice President and Chief Financial Officer, at 441-298-5100, in the case of IPC’s filings, or Max, at Joe Roberts, Chief Financial Officer, or Susan Spivak Bernstein, Senior Vice President, Investor Relations at 441-295-8800, in the case of Max’s filings.
PARTICIPANTS IN THE SOLICITATION:
IPC and Max and their directors and executive officers are participants in the solicitation of IPC and Max shareholders, respectively, in connection with the proposed business combination.
Information about IPC’s directors and executive officers is available in the definitive joint proxy statement/prospectus filed with the SEC on May 7, 2009, relating to IPC’s 2009 annual meeting of shareholders; information about Max’s directors and executive officers is available in the amendment to its annual report on Form 10-K, filed with the SEC on April 1, 2009.
IPC HOLDINGS, LTD.
2
Max
Impact of Cash Payment for IPC Shareholders
IPC / Max Transaction
Maintained exchange ratio
Dividends to shareholders are paid from excess capital; combination generates $300-$400 million of excess capital
Lender consent and satisfactory rating agency feedback obtained
June 17th and July 8th, subject to shareholder vote(1)
Validus Offer
Reduced exchange ratio on 5/18
Payment of cash is not from excess capital and increases risk of the combination
Lender consent to be obtained and IPC would need to meet with rating agencies to obtain satisfactory indicative ratings
Inferior valuation, hostile acquisition process costly and uncertain and timing of any acquisition (friendly or hostile) uncertain
(1) Assuming June 16th close
IPC HOLDINGS, LTD.
3
Max
Analysis of Validus Offer – Cash Component
Validus — Original Offer (3/31/09)
Validus share price $23.96
Initial Validus offer 1.2037x
Consideration per IPC share Stock $28.84
Total $28.84
P/BV 0.88x
Validus — First Revised Offer (5/18/09)
Validus share price as of 6/5/09 $23.96 Less: cash paid per share1 ($2.23) Implied Validus share price post cash $21.73
Reduced exchange rate per revised offer 1.1234x
Consideration per IPC share Stock $24.42 Cash $3.00
Total $27.42
P/BV 0.84x
Change from original offer ($1.42)
Validus — Second Revised Offer (6/8/09)
Validus share price $23.96 Less: cash paid per share2 ($2.78) Implied Validus share price post cash $21.18
Reduced exchange rate per revised offer 1.1234x
Consideration per IPC share Stock $23.79 Cash $3.75
Total $27.54
P/BV 0.84x
Change from original offer ($1.30) Change from previous offer $0.12
Note: Validus share price as of 6/5/09
(1) Calculated as $170 million cash paid divided by 76 million Validus basic shares (2) Calculated as $212 million cash paid divided by 76 million Validus basic shares
IPC HOLDINGS, LTD.
4
Max
RiskMetrics Framework
RiskMetrics Framework (As Published, Updated For Revised Terms)
2009 estimates 2010 estimates
(All values are in $ millions, except per share data) Max Validus Max Validus
Consensus BVPS 24.27 27.88 26.53 31.56
Add dividends 0.38 0.82 0.40 0.87
Adjusted BVPS 24.65 28.7 26.93 32.43
Share outstanding 56.68 76.14 56.68 76.14
Estimated book value (year end) $1,397 $2,185 $1,526 $2,469
IPC book value as of 31 March 09 $1,849 $1,849 $1,849 $1,849
Combined book value w/o purchase accounting adj $3,247 $4,035 $3,376 $4,319
Purchase accounting adjustments ($117.4) $0.0 ($117.4) $0.0
Cash payments ($175.8) ($211.9) ($175.8) ($211.9)
Transaction costs ($26.2) ($26.2) ($26.2) ($26.2)
Termination fee $0.0 ($50.0) $0.0 ($50.0)
Combined book value after purchase accounting ad $2,927 $3,747 $3,056 $4,031
Fully diluted shares outstanding post merger 93.56 145.37 93.56 145.37
Pro forma adjusted BVPS (post merger) $31.29 $25.77 $32.67 $27.73
Exchange ratio 1.0000 1.1234 1.0000 1.1234
IPC BVPS (post merger) $31.29 $28.95 $32.67 $31.15
Consensus Fwd P/BV multiple for peers 0.79 0.82 0.73 0.72
(Diversified for Max, short-tail centric for Validus)
Estimated FY09 value per share $24.64 $23.65 $23.76 $22.52
Add cash merger consideration $2.50 $3.75 $2.50 $3.75
Total estimated value per IPC share $27.14 $27.40 $26.26 $26.27
Source: Risk Metrics report dated June 2, 2009 $0.27 $0.01
(1) IPC BVPS adjusted to be consistent with adjustments to Max and Validus BVPS
(2) Based on 10.42% ROE for Max’s diversified peers per RiskMetrics report dated June 2, 2009; share count and book value per share statistics per RiskMetrics report and $400million of excess capital
(3) Based on 10.42% ROE for Max’s diversified peers and 9.23% ROE for Validus short tail peers per RiskMetrics report dated June 2, 2009
(4) Adjusted for revised proxy filing; 2010 adjusted for increase in fair value of loss reserves reversing through earnings
(5) Per the revised proxy filing
RiskMetrics Framework (Adjusted)
2009 estimates 2010 estimates
(All values are in $ millions, except per share data) Max Validus Max Validus
Counterparty consensus BVPS 24.27 27.88 26.53 31.56
Add dividends 0.38 0.82 0.40 0.87
Counterparty Adjusted BVPS 24.64 28.70 26.93 32.43
Counterparty share outstanding 56.68 76.14 56.68 76.14
Counterparty estimated book value (year end) $1,397 $2,185 $1,526 $2,469
IPC Consensus BVPS 35.68 35.68 39.45 39.45
Add dividends 0.91 0.91 0.97 0.97
IPC Adjusted BVPS 36.59 36.59 40.42 40.42
IPC Share outstanding 56.48 56.48 56.48 56.48
IPC book value1 $2,066 $2,066 $2,283 $2,283
Incremental earnings on deployment of excess capital2 $42.0 $0.0 $42.7 $0.0
Foregone earnings on cash paid out3 ($18.3) ($19.5) ($18.3) ($19.5)
Combined book value w/o purchase accounting adj $3,487 $4,232 $3,833 $4,732
Purchase accounting adjustments4 ($114.6) $0.0 ($95.5) $0.0
Cash payments ($175.8) ($211.9) ($175.8) ($211.9)
Transaction costs5 ($20.0) ($20.0) ($20.0) ($20.0)
Termination fee $0.0 ($50.0) $0.0 ($50.0)
Combined book value after purchase accounting ad $3,176 $3,950 $3,541 $4,450
Fully diluted shares outstanding post merger 93.56 145.37 93.56 145.37
Pro forma adjusted BVPS (post merger) $33.95 $27.17 $37.85 $30.61
Exchange ratio 1.0000 1.1234 1.0000 1.1234
IPC BVPS (post merger) $33.95 $30.52 $37.85 $34.39
Consensus Fwd P/BV multiple for peers 0.79 0.82 0.73 0.72
(Diversified for Max, short-tail centric for Validus)
Estimated FY09 value per share $26.73 $24.94 $27.53 $24.86
Add cash merger consideration $2.50 $3.75 $2.50 $3.75
Total estimated value per IPC share $29.23 $28.69 $30.03 $28.61
($0.55) ($1.42)
IPC
HOLDINGS, LTD.
MAX
5
Max Provides IPC Shareholders More Value than Validus
As of December 31, 2008
Diluted Tangible Book Value per IPC Share
$40.00
$36.33
$35.00
$30.00 $28.19
$25.00
$20.00
Max Validus
Max delivers 29% more value to IPC’s shareholders vs. Validus
As a multiple of IPC 1.11x 0.86x
Diluted Book Value per IPC Share
$40.00 $37.43
$35.00
$30.21
$30.00
$25.00
$20.00
Max Validus
Max delivers 24% more value to IPC’s shareholders vs. Validus
As a multiple of IPC 1.14x 0.92x
Note: See appendix for book value per share calculations included herein. Max value delivered includes $2.50 cash dividend, and Validus value delivered includes $3.75 cash consideration.
IPC
HOLDINGS, LTD.
MAX
6
Max is Accretive to IPC Shareholders – Validus is Dilutive
Diluted Tangible Book Value per IPC Share (12/31/08)
Combined (1)
$35.00
$33.83
$32.85 9.2% dilutive to IPC shareholders
$2.50
$30.00 $29.83
$32.85
$31.33 $3.75
$25.00 $26.08
IPC Standalone Max Validus
As a multiple of IPC 1.03x 0.91x
Pro Forma for PGAAP
$35.00
$32.26
No higher than $29.52
$2.50
$30.00
$29.76 $3.75
$25.00 ?
Max Validus
As a multiple of IPC 0.98x Less than 0.90x
Diluted Book Value per IPC Share (12/31/08)
Combined (1)
$35.00 $34.27
5.7% dilutive
$32.85 $2.50 to IPC shareholders
$30.97
$30.00
$32.85 $3.75
$31.77
$27.22
$25.00
IPC Standalone Max Validus
As a multiple of IPC 1.04x 0.94x
Pro Forma for PGAAP
$35.00
$32.57
No higher than $30.66
$2.50
$30.00
$3.75
$30.07
$25.00 ?
Max Validus
As a multiple of IPC 0.99x Less than 0.93x
Note: Max book value includes the impact of $2.50 dividend per share to IPC shareholders. Validus book value includes the impact of $3.75 per share consideration.
(1) Excludes purchase accounting adjustments and transaction expenses. For more information, see joint proxy statement/prospectus filed with the SEC by IPC on May 7, 2009.
IPC
HOLDINGS, LTD.
MAX
7
Appendix - Book Value Calculations
IPC
HOLDINGS, LTD.
MAX
8
Calculation of Combined Book Value Per Share (IPC / Max)
As of December 31, 2008
Shares outstanding
Basic shares
Warrants (net)
Stock options (net)
Restricted stock awards
Diluted shares outstanding(1)
Book value per share
Shareholders’ equity
Book value per share(2)
Diluted book value per share
Shareholders’ equity
Proceeds from exercise of
Warrants and stock options(3)
Diluted book value
Diluted book value per share(4)
Tangible book value per share
Shareholders’ equity
Goodwill and other intangible assets
Tangible shareholders’ equity
Tangible book value per share(5)
Diluted tangible book value per share
Diluted book value
Goodwill and other intangible assets
Diluted tangible book value
Diluted tangible book value per share(6)
IPC
55,855,103 (7)
0
18,608 (8)
474,987 (8)
56,348,698
$1,850,947 (9)
$33.14
$1,850,947 (9)
0
$1,850,947
$32.85
$1,850,947 (9)
0
$1,850,947
$33.14
$1,850,947
0
$1,850,947
$32.85
Max
55,805,790 (10)
635,728 (11)
120,685 (12)
447,195 (12)
57,009,398
$1,280,331 (13)
$22.94
$1,280,331 (13)
0
$1,280,331
$22.46 (14)
$1,280,331 (13)
(40,488) (15)
$1,239,843
$22.22
$1,280,331
(40,488) (15)
$1,239,843
$21.75
Share Translation per IPC Share (0.6429) (a)
35,877,542
408,710
77,589
287,502
36,651,342
$1,103,341
$30.75
$1,103,341
0
$1,103,341
$30.10
$1,103,341
(40,488)
$1,062,853
$29.62
$1,103,341
(40,488)
$1,062,853
$29.00
Combined (b) (per IPC share)
91,732,645
408,710
96,197
762,489
93,000,040
$2,954,288
$32.21
$2,954,288
0
$2,954,288
$31.77
$2,954,288
(40,488)
$2,913,800
$31.76
$2,954,288
(40,488)
$2,913,800
$31.33
+ $2.50 cash = $34.27 4.3% accretive
+ $2.50 cash = $33.83
3.0% accretive
(a) Includes the impact of a cash dividend of $1.50 per share to IPC shareholders and a cash dividend of $1.00 per share of IPC to all shareholders following the closing of the transaction.
(b) “Combined” figures exclude impact of purchase accounting adjustments.
IPC HOLDINGS LTD
Max
9
Calculation of Combined Book Value Per Share (IPC / VR)
As of December 31, 2008
IPC
Validus
Share Translation per IPC Share (1/1.1234)(a)
Termination Fee
Combined (b) (per IPC share)
Shares outstanding
Basic shares 55,855,103 (7) 75,624,697 (16) 67,317,694 123,172,797
Warrants (net) 0 2,856,884 (16) 2,543,069 2,543,069
Stock options (net) 18,608 (8) 848,758 (16) 755,526 774,134
Restricted stock awards 474,987 (8) 2,986,619 (16) 2,658,553 3,133,540
(1)
Diluted shares outstanding 56,348,698 82,316,958 73,274,842 129,623,540
Book value per share
(9) (16)
Shareholders’ equity $1,850,947 $1,938,734 $1,727,496 $(50,000) $3,528,443
(2)
Book value per share $33.14 $25.64 $25.66 $28.65
Diluted book value per share
(9) (16)
Shareholders’ equity $1,850,947 $1,938,734 $1,727,496 $(50,000) $3,528,443
Proceeds from exercise of
(3)
Warrants and stock options 0 0 0 0
Diluted book value $1,850,947 $1,938,734 $1,727,496 $(50,000) $3,528,443
Diluted book value per share(4) $32.85 $23.55 $23.58 $27.22
Tangible book value per share
(9) (16)
Shareholders’ equity $1,850,947 $1,938,734 $1,727,496 $(50,000) $3,528,443
(17)
Goodwill and other intangible assets 0 (147,610) (147,610) (147,610)
Tangible shareholders’ equity $1,850,947 $1,791,124 $1,579,886 $(50,000) $3,380,833
(5)
Tangible book value per share $33.14 $23.68 $23.47 $27.45
Diluted tangible book value per share
Diluted book value $1,850,947 $1,938,734 $1,727,496 $(50,000) $3,528,443
(17)
Goodwill and other intangible assets 0 (147,610) (147,610) (147,610)
Diluted tangible book value $1,850,947 $1,791,124 $1,579,886 $(50,000) $3,380,833
Diluted tangible book value per share(6)
$32.85 $21.76 $21.56 $26.08
+ $3.75 cash
= $30.97 5.7% dilutive
+ $3.75 cash
= $29.83 9.2% dilutive
(a) In order to place figures on a comparative basis, “combined” figures are shown per share of IPC by converting the exchange ratio of 1.1234 VR shares per IPC share to 0.8902 (1 ÷ 1.1234) IPC shares per VR share, including the impact of $3.75 per share of cash consideration.
(b) “Combined” figures exclude impact of purchase accounting adjustments.
IPC HOLDINGS LTD
10
Max
Purchase Accounting Adjustments
Reserve adjustment of $130 million does not represent a change in the amount of reserves established by Max
Represents fair value purchase accounting adjustment, solely as a result of the merger
Discount rates are applied to the underlying cash flows, combined with an estimated risk premium
Reserve adjustment will be reversed into income each year, increasing net income
Increases net income by $13 million (10% of total) in year one
Cumulative increase of $130 million over the payout period
Reserve adjustment has no economic impact – represents only a timing difference
IPC 12/31/08 shareholders’ equity $1,850.9
Plus: Max 12/31/08 shareholders’ equity 1,280.3
Less: Dividend 177.0
Combined 12/31/08 shareholders’ equity $2,954.3
Purchase accounting adjustments
Less: Adjustment to reserves ($130.0)
Less: Transaction expenses (40.0)
Plus: Other purchase accounting adjustments 12.1
Total purchase accounting adjustments ($157.9)
Pro forma 12/31/08 shareholders’ equity $2,796.4
Less: Goodwill and intangibles (28.5)
Pro forma 12/31/08 tangible shareholders’ equity $2,767.9
IPC 12/31/08 fully diluted book value per share $32.85
Pro forma 12/31/08 fully diluted book value per share $30.07
Pro forma 12/31/08 fully diluted tangible book value per share $29.76
Does not impact ultimate losses and loss adjustment expenses
IPC HOLDINGS, LTD.
11
Max
Footnotes
Note: Book value per share, diluted book value per share, tangible book value per share, and diluted tangible book value per share are all “non-GAAP financial measures” as defined in Regulation G. Combined figures exclude purchase accounting adjustments. For more information on GAAP purchase accounting adjustments, see the joint proxy statement/prospectus filed with the SEC by IPC on May 7, 2009.
1. Calculations are based on treasury stock method for warrants and stock options; and includes all restricted stock and RSUs outstanding as of the 12/31/2008 balance sheet date. Validus’ publicly disclosed calculations are based on the “as-if-converted” method, assuming all proceeds received upon exercise of warrants and stock options will be retained by the Company, and the resulting common shares from exercise remain outstanding.
2. Shareholders’ equity divided by basic shares outstanding.
3. Calculations are based on treasury stock method, assuming the proceeds received upon exercise of warrants and stock options are used to repurchase shares at the 12/31/2008 closing market price.
4. Diluted book value divided by diluted shares outstanding as of the 12/31/2008 balance sheet date.
5. Tangible shareholders’ equity divided by common shares outstanding as of the 12/31/2008 balance sheet date.
6. Diluted tangible book value divided by diluted shares outstanding as of the 12/31/2008 balance sheet date.
7. Common shares outstanding as of 12/31/08 per the IPCR Consolidated Balance Sheet contained within the IPC 2008 Form 10-K. Adjusted to exclude certain restricted stock awards included in shares outstanding.
8. Note 7 in the IPC 2008 Form 10-K Notes to the Consolidated Financial Statements. Adjusted to exclude certain restricted stock awards included in shares outstanding.
9. Per the IPC Consolidated Balance Sheet included in the IPC 2008 Form 10-K.
10. Common shares outstanding as of 12/31/08 per the MXGL Consolidated Balance Sheet contained within the Max 2008 Form 10-K filed 2/19/2009.
11. Note 12 in the Max 2008 Form 10-K Notes to the Consolidated Financial Statements. Based on the treasury stock method.
12. Note 13 in the Max 2008 Form 10-K Notes to the Consolidated Financial Statements. Based on the treasury stock method. 2,021,631 non-vested restricted stock awards included in basic shares outstanding.
13. Per the Max Consolidated Balance Sheet included in the 2008 Form 10-K.
14. As disclosed in Max’s fourth quarter 2008 earnings press release, dated 2/11/2009.
15. Note 5 in the Max 2008 Form 10-K Notes to the Consolidated Financial Statements.
16. Based on page 6 of the Validus Investor Financial Supplement as of 12/31/2008 filed 2/12/2009.
17. Note 6 in the Validus 2008 Form 10-K Notes to the Consolidated Financial Statements.
IPC HOLDINGS, LTD.
12
Max