Fairfax Financial Holdings to acquire Brit PLC for US$1.88 billion

Fairfax Financial Holdings Limited of Toronto has reached an agreement with Brit PLC to acquire for an estimated US$1.88 billion all of the outstanding shares of Brit, a global Lloyd’s of London specialty insurer and reinsurer.

“With the acquisition of Brit, Fairfax will have a significant top-five position at Lloyds of London,” Prem Watsa, chairman and CEO of Fairfax Financial Holdings, notes in a statement issued Tuesday by Fairfax, a financial services holding company that, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management.

Fairfax’s subsidiaries include Toronto-based Northbridge Insurance and Stamford, Conn.-based  Odyssey Reinsurance Company.

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Under the terms of Fairfax’s offer for the Brit shares, shareholders will be entitled to receive 305 pence in cash per share, inclusive of any final dividend for the year ended Dec. 31, 2014, Fairfax reports in the statement. Fairfax will receive about 294 million Brit shares representing approximately 73% of the company’s issued share capital.

“The Brit offer price represents a premium of 11.2% to the closing price of 274.2 pence per Brit share on Feb. 16, 2015, being the last full business day prior to this announcement. The aggregate purchase price payable by Fairfax for the offer is approximately US$1.88 billion,” the company statement adds.

The offer is subject to customary closing conditions, including customary competition and merger conditions, and the approval of the Prudential Regulation Authority in the United Kingdom, Lloyd’s of London and the Financial Services Commission of Gibraltar.

“We welcome Mark Cloutier and his market-leading specialty insurance and reinsurance team at Brit to our expanding global specialty platform,” Watsa says. “Brit has an outstanding track record over the last 10 years and will continue to operate on a decentralized basis once owned by Fairfax,” he notes, adding that Fairfax looks forward to working with the “Brit team to further develop their business over the longer-term.”

Brit’s growing United States and international reach are highly complementary to Fairfax’s existing worldwide operations and the acquisition further diversifies the company’s group risk portfolio, the statement says. As for Brit, the company will be able to leverage Fairfax’s expertise in the U.S. and international insurance and reinsurance markets, thus enhancing Brit’s global product offering and providing it with expanded underwriting opportunities and support, it adds.

Fairfax reports that on Feb. 12, the company announced 2014 earnings of approximately US$1.6 billion.

Excluding the final dividend expected to be declared by the Brit Board of Directors for the year ended Dec. 31, 2014 in an amount of 25 pence per Brit share, “Fairfax’s purchase price of 280 pence per Brit share is less than 10 times the company’s earnings based on the company’s annualized net earnings for the six months ended June 30, 2014. The acquisition is accretive to Fairfax on several metrics, including gross revenue per share and investments per share.”