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Hostile takeover litigation involving the Bermuda insurance and reinsurance market

There has been an increasing amount of M&A transaction activity in the Bermuda re/insurance market in recent years.

As part of that M&A activity, the Bermuda market has witnessed a notable increase in 'hostile' takeover activity, whereby activist investors or rival companies have made unsolicited offers to acquire target Bermuda re/insurance companies.

In some cases, the target company's Board has no intention of promoting a sale of the target company (whether to that particular bidder, or at that particular time). In other cases, the target company's Board does have an interest in promoting and effecting a sale of some sort, but it will have already identified what it considers to be the most suitable purchaser in the market. The transaction might then be in an advanced stage of negotiations with the preferred purchaser, when the emergence of a rival, hostile bid may undermine the successful completion of those negotiations.

Hostile takeover attempts are often pursued in conjunction with active litigation strategies, which are designed to put pressure on the target company's Board of Directors to accept the merits of the hostile bid and to recommend it to the company's shareholders, or to put the hostile bid to a full shareholder vote in a general meeting, regardless of the Board's own view of its merits.

The Bermuda Court has significant experience of managing and resolving hostile takeover litigation, as well as other corporate disputes involving Bermuda companies.

The Bermuda Court's experience has included:

  • Applications for sanction to promote, and seek Court approval for, a binding Scheme of Arrangement (whereby, if successful, the target company could be required to complete an M&A transaction if supported by a majority of shareholders, notwithstanding opposition by the Board of Directors and a minority of shareholders);
  • Claims against directors, alleging breaches of fiduciary and statutory duty, conflicts of interest, and applications for associated injunctive relief;
  • Consideration of the validity of 'poison pill' provisions in Bermuda company Bye-Laws;
  • Applications for disclosure of company information, including details of the target company's ultimate beneficial owners for the purpose of communicating with shareholders and gathering the necessary shareholder support; and
  • Applications for the appraisal of the value of minority shares that are the subject of compulsory acquisition notices.

The Bermuda Court has recognized that hostile takeover litigation strategies face considerable obstacles, both legally and practically.

In its judgment in the case of Validus Holdings Ltd v IPC Holdings Ltd and Max Capital Group Ltd [2009] Bda LR 30, the Bermuda Court noted the various "practical difficulties with a hostile [Scheme of Arrangement] process", and it also indicated that "as a matter of principle, [the Court] should not initiate [the Scheme of Arrangement] process on the application of a bidder without some real and solid indication of independent shareholder support to show that it has some reasonable hope of success".

The Bermuda Court has recognized, however, the theoretical possibility that a hostile takeover, might succeed in exceptional circumstances by way of a Scheme of Arrangement under Bermuda's Companies Act 1981. As a result, hostile takeover strategies continue to be actively considered and explored in Bermuda.

There is a risk that hostile takeover litigation strategies might be implemented in ways which amount to an abuse of the Court's process. For example, a hostile takeover bid (and associated Court proceedings) might be entirely frivolous or speculative, or motivated by a desire to delay, disrupt, or extract confidential information about another pending transaction.

Fortunately, the Bermuda Court has a wide range of rules and powers that enable it to strike out or summarily dismiss unmeritorious applications, and to make appropriate costs orders (thereby deterring the pursuit of frivolous proceedings, and enabling the pursuit of meritorious claims). The Commercial Court has also indicated a willingness to deal with corporate disputes on an expedited basis, if the parties and the commercial circumstances so require.