Brit Insurance shares rise 20% after refusing takeover

Shares in Brit Insurance were trading more than 20% higher this morning after the company said it had rebuffed an unwanted takeover approach, thought to be from US private equity firm Apollo. The bid is reportedly worth £10 a share in cash, valuing the business at about £570m, but the Lloyds of London insurer, which sponsors the England cricket team, rejected it as too low. The shares were the biggest riser on the FTSE 250 index this morning, jumping 151p to 880p, a gain of 20.7%. Brit Insurance, which specialises in property and casualty insurance, said in a statement to the London stock exchange last night: "The board of Brit Insurance confirms that it recently received an unsolicited indicative proposal from a private equity group regarding a potential cash offer for the group. "The board of Brit Insurance reviewed this proposal and concluded that it significantly undervalues the group and has accordingly advised the potential offeror that it does not represent a basis on which the board is prepared to engage in any further discussions." A year ago, the insurer ditched an all-share merger with rival Chaucer after four months of discussions. Thomas Dorner, an analyst at Oriel Securities, said: "We expect M&A to become an increasingly important theme for the sector and could provide a positive catalyst. We note that the offer did not come from a trade buyer. Last year several players considered an offer for Chaucer (including Brit and Novae) and, even if no M&A transactions actually complete, this should remind investors of the value in the sector. "In our view, Brit is considerably undervalued relative to our forecast returns which already factor in softening rates and lower investment returns. Management have taken significant action to improve returns on equity – targeting top quartile underwriting returns, redomiciling to the Netherlands – and we think the shares should re-rate as the benefits emerge. In the short term, we think this bid will provide a catalyst for Brit's shares." However, Eamonn Flanagan at Shore Capital was sceptical about takeover hopes for the insurance industry, saying: "Be warned, we are rapidly approaching the hurricane season which has, in the past, impacted potential M&A activity in the sector."