Canadian Insurer Fairfax to Acquire Switzerland's Allied World in $4.9 Billion Deal -- Update
December 19 2016 - 10:39AM
Dow Jones News
By Jacquie McNish and Joanne Chiu
Fairfax Financial Holdings Ltd. is in discussions to raise as
much as $2.7 billion from investors to partner in its $4.9 billion
cash-and-stock agreement to acquire Allied World Assurance Co.
Prem Watsa, chairman and chief executive of Toronto-based
Fairfax, said in an interview that he has approached a variety of
sovereign wealth and pension funds to increase the cash portion of
its offer, which is currently valued at $54 a share.
The offer includes $10 a share cash, half of which will be paid
in the form of a dividend by Allied World ahead of the deal's
planned closing. Another $30 a share in cash would be added if
Fairfax raises a maximum of $2.7 billion from investors.
Under terms of its agreement with Allied, Fairfax has 75 days to
secure the investments. Following a pattern set in other European
insurance acquisitions, Fairfax initially partners with investors
on acquisitions and buys back their shares over a five- to
seven-year period.
Allied is based in Zug, Switzerland, but generates nearly 80% of
its insurance premiums from North America.
The proposed Allied acquisition marks the biggest expansion in
Fairfax's 30-year history into the U.S. market and a dramatic
about-face in Mr. Watsa's bearish outlook for the U.S. economy. In
his annual letter to investors in March, Mr. Watsa warned "much
pain" was coming to financial markets primarily because the
prospects for U.S. economic growth were grim.
Mr. Watsa said he is much more optimistic because of the "very
smart" policies of President-elect Donald Trump, who is backing
lower corporate tax rates, heavy infrastructure spending and
deregulation.
These policies will release "the animal spirits" and "economic
growth in the largest economy in the world will be significant," he
said.
As of the third quarter of 2016, Fairfax reported $9.5 billion
in gross insurance premiums written, and the addition of Allied
would raise the premiums to $12.5 billion.
Write to Jacquie McNish at Jacquie.McNish@wsj.com and Joanne
Chiu at joanne.chiu@wsj.com
(END) Dow Jones Newswires
December 19, 2016 11:24 ET (16:24 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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