The board of IPC Holdings has rejected a sweetened offer from its determined suitor and fellow Bermuda reinsurer Validus Holdings Ltd.

IPC urged its shareholders not to sell their stock to Validus, which has mounted a $1.69 billion hostile takeover bid, and instead to back a merger with Max Capital Group Ltd., also based on the Island.

And IPC chairman Kenneth Hammond suggested that if shareholders were to vote next month against the merger with Max, Validus's intended takeover might not happen anyway.

Earlier this week, Validus improved on its earlier offer for IPC, offering $3 in cash and 1.1234 Validus shares for each IPC share.

"We are disappointed but not surprised by the IPC board's decision, given that it has taken every opportunity to try to deprive IPC shareholders of the benefits of a transaction with Validus," said Validus chief executive officer Ed Noonan last night.

He added that Validus was still committed to its "superior offer" and urged IPC shareholders to vote against the Max merger.

IPC said in a statement yesterday it believed a deal with Validus was not in the best interests of the company.

The bid's implied value of $30.14 per share represents 16 cents per share, or less than one percent, increase over the value of the original offer of $29.98 per share, IPC said.

The new offer is also a 14 percent discount to IPC's book value per share based on Wednesday's closing stock prices, it added.

Mr. Hammond said: "We believe that Validus' completion of its exchange offer or scheme of arrangement is highly contingent.

"IPC shareholders need to be aware that, despite what Validus implies in its public statements, if the combination with Max is not approved, there may not be an alternative transaction at all."

In a second statement last night, IPC gave more details, as it outlined key points made in a letter sent to Validus yesterday.

Under IPC's bye-laws, Validus would be unable to obtain registration as legal owner of 10 percent or more of IPC's common shares pursuant to the exchange offer, the company said.

IPC also said that its bye-laws would also mean Validus would be unable to exercise voting control over IPC by virtue of the voting cutback applicable to persons having more than 10 percent of IPC's shares - even if Validus were to receive tenders of a majority of common shares.

"IPC does not accept that under Bermuda law, even if Validus were to acquire 90 percent beneficial ownership of IPC through Cede & Co., Validus would be entitled to compulsorily acquire the remaining minority shareholders who do not tender their shares by using Section 102 of the Bermuda Companies Act 1981," the IPC statement added.

Mr. Hammond added: "In rejecting the amended Validus proposal, our board's decision was that, even as amended, the Validus proposal would not have the same potential for delivering shareholder value as the amalgamation with Max."