Proxy advisory firm RiskMetrics Group is recommending that IPC Holdings Ltd. shareholders vote against a merger with fellow Bermuda company Max Capital Group Ltd. next week.

And RiskMetrics believes that an offer by another Bermuda insurance company, Validus Holdings Ltd., will offer better shareholder value for this year and 2010, according to a press release from Validus yesterday.

IPC and Max shareholders vote at the companies' annual general meetings in Bermuda next week on their amalgamation agreement, the details of which were announced in early March.

Validus is trying to derail the deal and has made an offer of $3.00 in cash and 1.1234 Validus shares for each IPC share. The IPC board has rejected the deal. Validus says the offer amounts to a 14.4 percent premium above IPC's closing share price on Tuesday.

Validus chairman and chief executive officer Ed Noonan said: "We are gratified but not surprised by RiskMetrics' recommendation in light of the inferior value of the Max transaction and the disregard the IPC board has shown for its shareholders and its fiduciary obligations.

"IPC shareholders have a clear path to receiving the higher value of Validus' superior offer with or without the support of the IPC Board following the rejection on June 12 of the proposed amalgamation with Max."

The news is the latest in a stream of press releases from all three companies in the tug of war between Max and Validus over IPC.

On Tuesday, IPC announced that two proxy advisory firms, Glass Lewis & Co. and Proxy Governance Inc., had advised its shareholders to back the merger with Max.

According to yesterday's release, RiskMetrics found "an IPC/Validus transaction is likely to be more value accretive in FY09 and FY10" than the proposed amalgamation with Max.

"Our analysis suggests that at least in terms of current valuation, an IPC/Max merger does not maximise shareholder value," the RiskMetrics report added.

The firm added that the recent Bermuda Supreme Court ruling, which turned down Validus's attempt to convene a meeting of IPC shareholders, "appears to confirm the feasibility of a court-ordered process, provided IPC shareholders vote down the Max deal".

And RiskMetrics added that the "no talk" and $50 million termination fee provisions in the Max-IPC agreement were "not shareholder friendly". Validus's attempt to sue IPC and Max over these provisions in the Supreme Court was also unsuccessful.

"IPC and Max did not have an adequate rationale in our opinion for this array of deal protection provisions," the RiskMetrics report stated. "By itself, these provisions would not cause us to recommend against a transaction.

"Coupled with the existence of a higher bid, however, such provisions help to tip the balance against the proposed Max transaction."

In a statement issued shortly after the Validus press release, Max chairman and CEO Marston Becker said: "The conclusion reached by RiskMetrics appears to be at odds with the reasoned analysis of Proxy Governance and Glass Lewis, as well as the positive feedback we have received from investors.

"RiskMetrics places no value on diversification and appears to favour an illusory market premium for a deal that may never happen over the creation of a platform that will create significantly more value for shareholders over time through more stable and consistent performance.

"We remain focused on closing our transaction with IPC shortly after our respective June 12 shareholder meetings."