Blog Coverage Fairfax Financial to Acquire Swiss Insurance Company Allied World Assurance

Upcoming AWS Coverage on Sun Life Financial Post-Earnings Results

LONDON, UK / ACCESSWIRE / December 20, 2016 / Active Wall St. blog coverage looks at the headline from Swiss insurance company Allied World Assurance Co. Holdings, AG (NYSE: AWH) (“Allied World”). Canadian Insurance Group Fairfax Financial Holdings Ltd (“Fairfax”) announced the acquisition of Allied World Assurance Company Holdings, AG. The all cash and stock deal is valued at $4.9 billion. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

One of Allied World Assurance’s competitors within the Property & Casualty Insurance space, Sun Life Financial Inc. (NYSE: SLF), reported on November 09, 2016, its results for the third quarter ended September 30, 2016. AWS will be initiating a research report on Sun Life Financial in the coming days.

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Commenting on the merger announcement, Prem Watsa, Chairman and CEO of Fairfax said:

“Allied World is a high-quality company with an excellent long-term track record and an outstanding management team led by Scott Carmilani.”

Scott Carmilani, President, CEO and Chairman of Allied World added:

“Fairfax provides a great home for Allied World to continue to build a strong business for our customers, business partners and employees.”

The current acquisition is one of the biggest purchases made by Prem Watsa, in the last 31 years. He said that the acquisition was not made with the aim of cutting costs, but due to Scott Carmilani’s track record with his management team.

The highlights of the merger agreement

The merger agreement states that Fairfax will acquire all the outstanding shares of Allied World. In exchange, shareholders of Allied World will receive $54 in a combination of cash plus stock with dividend for each share they hold. Based on the offer price the equity value of the transaction is approximately $4.9 billion. The offer price is at a premium of 18% of the closing price of $45.77 for Allied World shares as on December 16, 2016, the last day before the merger announcement was made. Of the offer price, $10 is cash component – $5 will be contributed by Fairfax and Allied World will pay the remaining $5 as pre-closing cash dividend. The balance of $44 will be in the form of Fairfax’s share. At the close of the transaction, Allied World’s shareholders will hold approximately 27% in the new merged entity.

Fairfax has retained the option of paying up to $30 in cash instead of its shares. Fairfax will raise funds to pay the $30 cash component by way of equity stake sale or undertaking fresh debt from third party partners. Fairfax is known to take on investors when acquiring a new company and a few years down the lane it buys back the stake from the investors. For this acquisition, too, it is speculated that Prem Watsa has initiated sovereign wealth and pension funds to increase the cash portion of its offer.

The transaction is expected to close in Q2 2017 subject to approvals from regulators and fulfillment of other closing conditions.

Prem Watsa and The Sixty Two Investment Company Limited, a company controlled by Prem Watsa, control together 43% voting interest in Fairfax. Prem Watsa and Sixty Two Investment have already signed a voting agreement supporting the merger decision.

Post-merger, Allied World will become a part of the Fairfax organization and operate on a decentralized basis. Scott Carmilani and his management team will continue to grow the business of Allied World with support from Fairfax.

Benefits of the acquisition

The merger between Fairfax and Allied World will create one of the biggest companies dealing in property, casualty and speciality insurance, and reinsurance. Allied World’s business and operation is complementary to Fairfax’s existing business. Allied World’s business and network will add to Fairfax’s existing operations and expand its global reach and portfolio of product offerings. On the other hand, Allied World will be able to take advantage of Fairfax’s knowledge and presence in the US, Canada, and other international markets for insurance and reinsurance. This will help Allied World to expand opportunities in underwriting and support for its product portfolio. Fairfax’s decentralised approach and investment philosophy will lead to the empowering of Allied World’s management team and motivate them to perform better.

Acquisitions route to drive expansion

Fairfax has been acquiring strategic insurance companies for expansion and growth. Fairfax has made a couple of other strategic acquisitions in the current year. In October 2016, Fairfax Holdings acquired the insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela, and Turkey from American International Group, Inc. (NYSE: AIG). In July 2016, Fairfax acquired Zurich Insurance Company’s complete operations in South Africa and Botswana.

In 2015, Fairfax acquired an 80% interest in Eurolife ERB Insurance Group Holdings S.A. It also completed the acquisition of Brit PLC. Fairfax had also acquired the Ukrainian operations from QBE Management (Ireland) Ltd.

Stock Performance

Allied World Assurance’s share price finished yesterday’s trading session at $51.76, surging 13.09%. A total volume of 9.46 million shares exchanged hands, which was higher than the 3 months average volume of 488.81 thousand shares. The stock has rallied 45.60% and 45.11% in the last six months and past twelve months, respectively. Furthermore, since the start of the year, shares of the company have soared 39.18%. The stock is trading at a PE ratio of 15.66 and has a dividend yield of 2.01%.

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