Tuesday, a subsidiary of Eurohold Group, Euroins Insurance Group, announced a $3.75 bid for Tower Group. ?I think it is bogus. ?Here’s why:

• At the price they are paying, they are offering more than their net worth to buy Tower Group $215MM vs $190MM.
• They would pay a 2x+ premium over book to buy Tower when they trade at ~70% of book.
• They have no overlapping lines, geographically. ?It would be cheaper for Eurohold to buy a Bermuda shell and poach some talent, if what they want to do is diversify.
• TWGP isn’t even worth the $2.50 that ACP Re is offering.
• The language in the “offer” is weaker than that of many “letters of intent” I have read, much less a binding offer.

Now, let me take one step back, and say that the numbers I calculated above derive from documents written in Bulgarian that I have translated mechanically. ?I may have made mistakes.

Also, a fool and his money are soon parted. ?If Eurohold is foolish, a bid could be made where economics doesn’t matter. ?After all of my dealings with foreign insurers, I have seen many ill-thought-out deals.

Kudos to the guy who sold near $3 on Tuesday. ?He got the best outcome out of this sordid mess. ?Opposite for the one that bought.

As for me, I have no position. ?I rarely short, and there is no significant margin of safety in owning TWGP. ?The odds of the operating subsidiaries as a group?having not enough surplus?to exceed?the?relevant company action level risk based capital??for the group as a whole is not high, but is not zero. ?That is the one condition that can break the $2.50 deal with ACP Re.

Now let’s see how the first quarter earnings come in. ?That will say a lot.

As an aside, the bonds of Tower Group offer about as much upside, and less downside than the equity does, if the ACP Re deal is the only real deal.