Endurance Specialty Holdings Ltd’s proposed merger with Aspen Insurance Holdings Ltd makes strategic sense — but Endurance should raise its offer, given the strength of Aspen’s latest financial results.

That is the view of analysts at UBS, detailed in a research note entitled “The Best Defence is Good Earnings”, issued last Friday.

Meanwhile ISS Proxy Advisory Services recommended that Aspen shareholders should reject Endurance’s plans to shake up their company’s board.

In a report issued on Friday, ISS M&A Edge said Endurance’s proposals would “would incur costs without allowing shareholders any additional leverage not already available to them”.

In June, Endurance made a cash-and-stock offer valued at $49.50 a share — or about $3.2 billion — which was firmly rejected by the Aspen board. That followed its original $47.50 per share offer in April. Aspen’s board is determined to continue as a stand-alone company.

The UBS report, authored by analysts Brian Meredith and Marie Lunackova, states: “Strategically, we continue to believe a combination of AHL [Aspen] and ENH [Endurance] makes sense given the benefits of a larger balance sheet (particularly in the increasingly competitive reinsurance business), and the capital and expense efficiencies that would likely be generated.”

The analysts argue that a fair takeout value for Aspen would be in the range of $53 to $58 per share — equating to 1.2 to 1.3 times diluted book value per share. They add that this takes into account Aspen’s pre-announced second-quarter results, declared last Thursday night by the company, which showed operating earnings per share of between $1.30 and $1.35, exceeding Wall Street’s consensus forecast of $1.22.

UBS adds that Aspen’s expected annualised operating return on equity for the second quarter of 12 percent to 12.8 percent, exceeding its ten percent target, while diluted book value per share will be up $1.88 to $2.08 from the end of the first quarter to $44.60 to $44.80.

“The higher BVPS and improved ROE will likely put pressure on ENH to once again raise its offer price from the current $49.50 per share, in our view,” the UBS analysts state.

UBS recommends buying shares of Aspen with a 12-month target of $50.

Shares of Aspen fell 65 cents, or 1.45 percent, to close on Friday at $44.19, while Endurance rose 89 cents, or 1.7 percent to close on $53.34.

Meanwhile, corporate advisory service Institutional Shareholder Services (ISS) is recommending that Aspen shareholders vote against the two proposals that Endurance has made to Aspen shareholders, which are aimed at expanding the board of directors from 12 to 19 directors, easing the takeover.

ISS points out that Aspen shareholders can tender their shares if they favour the merger, while the Endurance proposals would incur legal costs.

ISS said its opinion on the proposals did not imply any opinion on the merits of Endurance’s takeover offer.

Aspen issued a press release on Friday evening, which stated that Egan-Jones Proxy Services had also advised Aspen shareholders against voting for the Endurance proposals.

An interesting aspect of the battle between the two companies is that four of the top five shareholders in Aspen also make up the top four shareholders in Endurance. All of them are investment advisory firms.

FMR LLC is the biggest single shareholder in both companies, holding a 6.9 percent stake in Aspen and an 8.9 percent stake in Endurance.

Vanguard, Dimensional and Sterling Capital between them own a further 15.8 percent of Aspen and also 18.1 percent of Endurance.