Validus Holdings Ltd. has emerged on top in the protracted bidding war for IPC Holdings Ltd. after reaching an agreement to buy IPC in a sweetened cash-and-shares deal worth $1.67 billion.

Provided the shareholders of the two reinsurers approve the deal, IPC shareholders will receive 0.9727 of a Validus share and $7.50 in cash for each of their shares — a revised deal that doubled the cash component. That values IPC at $29.48 per share, or 6.8 percent above its Wednesday closing price.

The acquisition will boost Validus's capital base, with the combined company having shareholders' equity of $3.4 billion.

Validus beat out a rival bid from Bermuda rival Flagstone Reinsurance Holdings Ltd., while IPC revealed it had also been negotiating with several other parties in recent weeks.

Last week Flagstone offered 2.638 of its common shares and $5.50 in cash for each IPC share.

Flagstone chairman Mark Byrne said yesterday: "We are surprised and disappointed that the IPC board chose the Validus offer over our proposal, which we felt offered superior economics in the short term, and better prospects in the long term.

"As we close the file on this matter, we wish the board, shareholders, and employees of IPC well."

Validus shares fell 83 cents, or 3.7 percent, to $21.77 in New York trading yesterday, while IPC shares rose nine cents, or 0.3 percent, to $27.70.

Flagstone shares enjoyed a boost, rising 43 cents, or 4.4 percent, to $10.16.

The deal looks set to end a four-month period of uncertainty for IPC, which began in early March with the announcement of an agreement to merge with Max Capital Group Ltd. IPC shareholders voted against the deal last month, after Validus had come in with a hostile takeover bid. Validus said yesterday it had already paid the required $50 million termination fee to Max, relating to the derailed merger deal, on IPC's behalf.

Sources at both Validus and IPC said the future of the 31 employees based at IPC's offices in the American International building was not yet clear.

"This is a compelling strategic combination that positions us well exceptionally well to build on our solid track record of underwriting performance and book value growth," said Ed Noonan, chairman and chief executive officer of Validus.

"We are confident that it will generate superior value for both Validus and IPC shareholders. Validus will have significantly greater size and scale to take advantage of attractive rate trends across our business lines and growing overall demand for reinsurance from capital-constrained businesses."

Validus shareholders will own 62 percent of the combined entity and IPC shareholders 38 percent.

IPC chairman Kenneth Hammond said his board's number on priority had always been to maximise shareholder value.

"Over the past several weeks, we conducted a thorough and intensive process that included negotiations with and offers from multiple parties," Mr. Hammond said. "We believe that the agreement we announced today represents the best outcome for our shareholders."

Rating agency AM Best cut IPC's financial strength rating to A- after the deal was announced, and Validus, which is rated A-, had its ratings put under review with negative implications.

After the widespread capital destruction in the reinsurance industry caused by investment losses and catastrophe claims, merger and acquisitions activity has increased, as companies seek to shore up their balance sheets and boost their creditworthiness.

Earlier this week, Bermuda-based PartnerRe announced it had agreed to acquire Paris Re in a deal that will make it the fourth largest reinsurer in the world by shareholders' equity.

IPC and Validus have similar origins, in that they were both founded in response to a need for extra reinsurance capacity following a devastating hurricane season.

IPC was founded 16 years ago after Hurricane Andrew, while Validus, like Flagstone, was a Class of 2005 start-up, formed just three months after Hurricane Katrina. Both specialise in "short-tail" business, in which claims are generally paid quickly after an event.

Citigroup analyst Joshua Shanker told Bloomberg that the deal did not offer the tail-length diversification that IPC had originally sought

"The Validus offer gave the most amount of cash back to shareholders," Mr. Shanker said. "The view that IPC is not a forward-going concern and now they have a business strategy going forward, that is a benefit to shareholders. It's not the benefit necessarily or the full benefit IPC's management was seeking in the long run for their shareholders."

IPC has remained true to its property-catastrophe reinsurance roots and has diversified geographically rather than in business lines. Validus's focus is on short-tail property-related business, primarily in North America. It also writes short-tail insurance lines through Lloyd's underwriter Talbot Underwriting.

Mr. Noonan, who will remian in charge of Validus on the closure of the deal, said yesterday that the acquisition of IPC would allow Validus to expand its international footprint.

He added that Validus had experienced a 15 percent, year-over-year increase in rates for the renewal of July reinsurance contracts. IPC interim CEO John Weale told this newspaper on Wednesday that his company had seen similar increases for its US business, but rates elsewhere had remained generally flat.

Greenhill & Co advised Validus, while Skadden, Arps, Slate, Meagher & Flom LLP, Cahill Gordon & Reindel LLP and Appleby provided legal advice. JPMorgan and the law firms Sullivan & Cromwell LLP and Mello Jones & Martin advised IPC.