UPDATE 4-Validus to buy IPC for $1.65 bln, beats Flagstone

* Validus says wins bidding war against Flagstone

* Validus offer sweetened with more cash

* IPC shrs up slightly midday, Validus shrs down 3.6 pct
(Adds comments from investor call, Flagstone comment, rating
agency action, bylines, updates share activity,)

By Jonathan Stempel and Lilla Zuill

NEW YORK, July 9 (Reuters) - Validus Holdings Ltd (VR.N)
said it agreed to buy Bermuda reinsurance rival IPC Holdings
Ltd (IPCR.O) for $1.65 billion in cash and stock, beating
another rival, Flagstone Reinsurance Holdings Ltd (FSR.N), and
likely ending a months-long bidding war.

On a conference call with investors held by both companies,
Validus management said they expected the acquisition to close
before the end of the third quarter, and as early as late next
month.

IPC accepted Validus' offer after months of rebuffing the
company, as it was sweetened to give its shareholders 0.9727 of
a Validus share for each of their shares and $7.50 in cash.
That values IPC at $29.48 per share, or 6.8 percent above its
Wednesday closing price.

Validus' previous offer included more shares but only half
as much cash. The company's shares were down 3.6 percent at
$21.79 at midday on the New York Stock Exchange. IPC shares
were up 21 cents at $27.82 and Flagstone shares were up 7.4
percent at $10.45.

The deal looks set to end four months of uncertainty for
IPC, which had initially planned a tie-up with Max Capital
Group (MXGL.O), only to have it derailed by Validus' unfriendly
rival offer.

Flagstone, the third bidder to emerge, on July 1 offered
2.638 of its common shares and $5.50 in cash for each IPC
share. That valued IPC at about $1.74 billion, or $31.17 per
share, based on Wednesday's close. The company said it was
"surprised and disappointed" in a statement issued after
Validus and IPC's joint agreement was announced.

Buying IPC gives the buyer more capital, allowing it to
sell more property catastrophe reinsurance just as rates are
rising. Validus will have about $3.4 billion in shareholders'
equity after the purchase closes.

TARGET COMPANY

IPC's board entertained a number of suitors' offers before
agreeing to be bought by Validus, interim CEO John Weale told
investors. He added that a variety of factors, not solely
price, were considered in deciding which deal was best for
shareholders over time.

IPC shareholders will have roughly one-third ownership of
Validus after the deal.

A.M. Best, a rating agency that carries clout with
insurance buyers, cut IPC's rating to "A-" after the deal was
announced, and Validus, which is rated "A-," had its ratings
put under review with negative implications.

"We don't expect anything imperiling the A- rating," said
Validus Chief Executive Ed Noonan.

Validus was created in 2005, less than two months after
Hurricane Katrina, which led to contraction in the
property-catastrophe reinsurance market. It was backed by
Aquiline Capital Partners LLC, a private equity firm run by
former Marsh & McLennan Cos (MMC.N) Chief Executive Jeffrey
Greenberg, who remains on Validus' board.

Greenhill & Co advised Validus, while Skadden, Arps, Slate,
Meagher & Flom LLP, Cahill Gordon & Reindel LLP and Appleby
provided legal advice. JPMorgan and the law firms Sullivan &
Cromwell LLP and Mellon Jones & Martin advised IPC.
(Reporting by Jonathan Stempel and Lilla Zuill; editing by
John Wallace, Maureen Bavdek and Matthew Lewis)