Max Capital Group Ltd. yesterday defended its merger deal with IPC Holdings Ltd., saying via a statement it is a better value for shareholders than the proposed move by Validus Holdings Ltd. to take over IPC, as a war of words erupted between the two bidders.

Validus, who last week made a bid to acquire IPC for $1.68 billion in an all-stock deal after IPC had already reached a deal to combine with Max Capital, sent a letter to the Board of Directors of IPC alleging that Max Capital had made a "substantial error" in its calculation of pro forma tangible book value under the terms of Validus' proposed plan of amalgamation with IPC, undervaluing its proposal for the insurance company.

But Max Capital hit back at Validus' statement, claiming it was incorrect and misleading and affirmed that its planned deal with IPC provides shareholders 29 percent more tangible book value than Validus' offer. Max also asserted that its deal would provide a 23 percent premium on IPC's diluted book value compared with the offer by Validus.

Late yesterday, Validus responded to Max Capital's latest statement, setting out its position in another letter to IPC's board of directors, and describing the analytical framework it believes was appropriate to the deal.

Max Capital said that the calculations it presented accurately represent what an IPC shareholder would receive on a stand-alone basis from either Max or Validus, without including what IPC itself would contribute to a transaction, and would allow IPC shareholders to compare the value received under each transaction on a like-for-like basis.

Meanwhile, it claimed that the pro forma calculations Validus used included the additional benefit derived from issuing Validus' shares to buy IPC at a discount to book value.

"One has to question whether the IPC shareholders are being well served by the non-substantive claims being initiated by Validus," said Marston Becker, Max chairman and CEO.

"They have made certain statements that completely misrepresent and falsely characterise the information presented by Max. Since Validus initially made its below book value, unsolicited takeover offer for IPC, it has demonstrated a lack of understanding of what is important to the shareholders of IPC in allowing them to assess the relative value being delivered by Max versus Validus."

In his letter to IPC Board members, Ed Noonan, chairman and CEO of Validus, refuted the claims that Max delivers 29 percent more tangible book value per share to IPC, adding that his company, its financial advisors and the Securities and Exchange Commission (SEC) counsel had reviewed the calculation and found that Mr. Becker's calculation understated the pro forma IPC share of Validus tangible book value per share by $2.74, resulting in overstating the premium calculated on that basis quite significantly.

"Our SEC counsel has advised us that this error is material and that Max will be required to amend its SEC filings to correct its error," the letter read.

"As we noted in our letter dated April 2, 2009, putting aside this error, we believe that this measure is the wrong framework on which to analyse whether the IPC/Max plan is superior to the IPC/Validus plan, and refer you to the analysis in our earlier letter. We remain confident that the IPC board will agree the Validus Proposal is a "Superior Proposal" as defined in your Amalgamation Agreement."

Early last month, IPC reached an agreement to acquire Max Capital in an all-stock deal worth about $912 million. Once the deal closes, IPC shareholders will own about 58 percent of the combined company and Max shareholders will own about 42 percent, with the new company will operating under the name Max Capital Group Ltd.

The IPC and Max Capital deal is expected to be completed late in the second quarter or early in the third quarter.

Last week, Validus delivered a binding offer to the IPC Board of Directors for the amalgamation of the two companies, with each IPC share being exchanged for 1.2037 Validus shares. The offer valued IPC shares at $29.98 per share based on Validus' closing stock price on March 30, 2009, the day prior to the Validus offer, representing an 18 percent premium to IPC's closing price the same day and a total value of $1.68 billion for IPC's common equity.