Shares in British reinsurance broker Benfield rose up to 13 percent on Friday after a report it had received an unsuccessful 700 million pound ($1.42 billion) bid approach from Goldman Sachs revived takeover speculation.
The Daily Telegraph, citing unidentified executives close to the matter, said Benfield directors and the bank's private equity arm held talks for weeks, but said discussions broke down after Goldman found it difficult to secure debt financing.
A Benfield spokesman said the British group did not comment on market rumour and speculation. He added the group has been buying back shares on the market at around 270 pence -- below the level of the reported approach, around 313 pence a share.
But the report revived speculation around the fate of Benfield, the fourth-largest reinsurance broker, boosting it in early trade. Benfield later pared gains, trading up 6 percent at 286.25 pence at 1447 GMT, valuing it at 640 million pounds.
Further stoking speculation, U.S. hedge fund Deccan Value Advisors raised its stake to 9.24 percent, according to a regulatory filing on Friday, from 6.3 percent.
Benfield's position as the last independent global reinsurance broker has made it a prime target for rivals such as Willis Group Holdings Ltd and Aon Corp. and Marsh & McLennan Cos Inc.
David Spiller, head of Marsh reinsurance arm Guy Carpenter, said in Monte Carlo this month further consolidation was possible, even with the big four dominating the market.
In an interview with Reuters earlier this year, Benfield Chief Executive Grahame Chilton said the firm had been approached by major broking rivals in the past but said potential suitors had champagne tastes and beer money.
The management control roughly 24 percent of Benfield.
Benfield's cash generation has made it an attractive target for private equity firms. The insurance industry has also seen an increased convergence between reinsurance and investment banking, as insurers use capital markets to buy reinsurance cover -- either via catastrophe bonds or via contingent deals which allow them to raise capital in the event of a large loss.
Analysts at Seymour Pierce, however, cautioned against speculation the reported Goldman move would spark an auction, with private equity players squeezed by the credit crunch.
Our view is that if GS can't raise the cash required, then most other potential private equity players won't be able to, analyst Gerald Farr at Seymour Pierce said in a note.
He added the company's management were also unlikely to accept an offer at 313 pence just as the reinsurance market enters a growth phase, indicating a level closer to 400p.
Although it is clear that Benfield is a potential bid candidate, the fact that the three most likely buyers have so far failed to agree a deal doesn't inspire confidence in the probability of a fully fledged offer, brokerage Numis said, referring to interest from Aon and Marsh.
Benfield shares have fallen over 20 percent from the start of the year, due to worries about falling reinsurance prices, the weak dollar, the effect of an expansion of Florida's state-backed catastrophe reinsurance scheme and anxieties over the firm's start-up insurance broking unit. (Additional reporting by Mark Potter)