Validus Holdings Ltd., the Bermuda-based reinsurer, said it will seek to replace the board of competitor IPC Holdings Ltd. if it's unable to reach a merger agreement with IPC in a "timely manner".

Validus chief executive officer Ed Noonan said he was "optimistic" his firm could earn the support of at least 10 percent of IPC shareholders needed to call a special meeting to vote on new board members. The majority of IPC shareholders rejected a combination with a third Bermuda-based reinsurer, Max Capital Group Ltd., last Friday after Validus submitted a competing bid.

"Following the overwhelming rejection of the Max transaction on Friday, we are taking steps to enable IPC's shareholders to receive the superior value offered by Validus," Mr. Noonan said in a statement.

IPC began seeking partners last year to expand beyond its business of reimbursing insurance companies after natural disasters. IPC earlier yesterday said it entered into a confidentiality agreement with Validus to examine its rival's financial statements as part of its effort to evaluate the merger offer.

IPC chairman Kenneth Hammond said in a separate statement that Validus can "expedite" a sale by increasing its offer to a figure closer to IPC's book value, or assets minus liabilities, of about $35 a share as of May 31. Under the current Validus proposal, IPC shareholders would get $29.28 a share in cash and Validus stock, based on the closing price of Validus shares June 12.

"The termination of the Max-IPC agreement does not necessarily indicate a Validus-IPC deal," Citigroup Inc. analyst Josh Shanker wrote in a note to clients after last week's vote. "While we expect IPC's board to consider Validus's offer as part of the process, we believe it will consider amalgamations with other suitors as well."

Validus said it was filing a proxy with the US Securities and Exchange Commission to solicit shareholder approval to call the special meeting to elect its slate. The three candidates Validus said it would nominate are Raymond Groth, an adjunct professor at the Fuqua School of Business at Duke University; Paul Haggis, chairman of Alberta Enterprise Corp.; and Thomas Wajnert, a senior adviser to Irving Place Capital Partners.

Validus said that around 72 percent of IPC shareholders voted against a merger with Max Capital Group Ltd. at the company's annual general meeting on Friday.

Max shareholders voted overwhelmingly in favour of the deal.

Validus, who came in with a hostile bid of $1.68 billion to take over IPC at the end of March and upped its offer for the company to $1.72 billion in stocks and cash last week, now appears to be in pole position to step into the breach, but there could be other insurers also interested in acquiring IPC.

The Validus offer would see IPC shareholders receive $3.75 per share plus 1.1234 Validus voting common shares, compared to the proposed IPC-Max merger, which would have resulted in $2.50 per share for IPC shareholders and a cash dividend of $1 per share for Max shareholders for each IPC share following the closing of the transaction.

Had the IPC shareholders backed the merger, it would have created the Island's sixth biggest global underwriter with shareholders' equity of $3 billion and total assets of around $10 billion.

IPC's board, which was re-elected by approximately 92 percent of shareholders, immediately said it would now consider the Validus deal, despite resisting the company's latest offer only a matter of days ago, claiming it would not be in the best interests of IPC shareholders.

Kenneth Hammond, chairman of IPC, said: "We have heard the message sent by IPC shareholders regarding the Max transaction.

"We also note the overwhelming support our shareholders have shown for re-electing IPC's board of directors.

"Consistent with our fiduciary duties, the board will review all strategic alternatives to maximise shareholder value, including sale of the company, and as part of this review will give consideration to Validus."

Marston Becker, chairman and CEO of Max Capital, said: "The board, employees and shareholders of Max were excited about the deal with IPC, and we are, of course, disappointed that IPC's shareholders did not approve it.

"We believed and continue to believe that the combination of Max and IPC would have created significant value for both companies' shareholders.

"However, we also believe that maintaining our perspective and discipline as a participant in this process was in the best interest of our shareholders."

In a letter to Max Capital shareholders, Mr. Becker thanked them for voting for the deal — 90 percent were in favour of the transaction — but said in the end the board did not believe raising its offer would be "advantageous" for shareholders.

"While a majority of IPC shareholders did not recognise the value creation of the combined entity, the voting returns from Max shareholders were overwhelmingly positive — with over 90 percent in favour of the transaction," the letter read.

Ed Noonan, Validus's chairman and CEO, said: "By rejecting the Max amalgamation by an overwhelming margin, IPC shareholders have clearly spoken.

"We now expect IPC's board to heed the message sent by IPC's shareholders by agreeing to Validus' pending amalgamation agreement without delay so that IPC's shareholders can receive the superior value offered by Validus promptly."