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(Reuters) - Lloyd's of London insurer Novae Group Plc (NVA.L) has agreed to be taken over by Axis Capital Holdings Ltd (AXS.N), a Bermuda-based specialty insurer and reinsurer, for 467.6 million pounds ($605.07 million) in cash, sending its shares soaring over 20 percent.
The 700 pence per share offer for Novae represents a premium of over 20 percent to the London-based insurer's closing price on Wednesday, and shares were up 22.1 percent at the close on Thursday.
Axis Chief Executive Albert Benchimol said the acquisition of Novae, which covers property, casualty, marine, aviation and political risk, would create a roughly $2 billion player in the London specialty market.
The deal, expected to close in the final quarter of the year, will add to Axis' earnings in the first year and allow it to bulk up in the Lloyd's insurance market.
"It (Novae) remains a relatively small player in a global industry. Axis is a substantial and successful business which represents an excellent partner for the Novae business, its customers and employees," John Hastings-Bass, chairman of Novae, said.
Axis operates in the United States, Europe, Singapore, the Middle East, Canada and Latin America.
The deal has no termination fee, implying confidence from both parties that a counterbid was unlikely, Eamonn Flanagan, analyst at Shore Capital, said.
But top Novae shareholder Neptune said the offer undervalued the company, and a fair offer would be at least 5 or 6 percent higher than the Axis bid.
Neptune, which held 16 percent of Novae at the close of business on Wednesday, said Axis had bid after a "torrid" nine months for the company.
"The buyer has approached at a time of short-term weakness in the share price," Neptune's Mark Martin, head of UK equities, said, suggesting there could be other potential suitors in private equity or corporate entities.
Novae's shares have fallen 26 percent over the past nine months, hurt by lower than expected underwriting contributions and changes to Britain's Ogden rule, a tool for calculating personal injury and accident claims, which hit its full-year profit.
Novae did not respond to an emailed request for comment on Neptune's view.
Insurers have been preparing for a wave of mergers and acquisitions, as valuations in the Lloyd's insurance market became more attractive to overseas buyers due to a fall in the value of the pound after Britain voted to leave the European Union.
Lloyd's companies such as Hiscox (HSX.L), Lancashire (LRE.L) and Beazley BEZG.L have long been seen as acquisition targets, and insurers Amlin, Brit and Catlin have all been snapped up by overseas insurers in recent years.
Credit Suisse International and Fenchurch Advisory Partners LLP are the financial advisers to Axis, while Evercore is advising Novae.
Simpson Thacher & Bartlett LLP and Willkie Farr & Gallagher LLP are the legal advisers to Axis. Slaughter and May is providing legal advice to Novae.
($1 = 0.7728 pounds)
Reporting by Noor Zainab Hussain in Bengaluru, Helen Reid and Carolyn Cohn in London; Editing by Amrutha Gayathri and Susan Thomas