Fairfax Financial to increase cash consideration component in proposed acquisition of Allied World

Fairfax Financial Holdings Limited and Allied World Assurance Company Holdings jointly announced Friday that the former has exercised its option to increase the cash consideration component of its US$4.9 billion cash and stock offer to Allied World shareholders.

In exercising the option, Fairfax Financial Holdings has upped the cash consideration component of its offer by US$18.00 out of a possible increase of US$30.00 per ordinary share, the joint statement notes.

“As a result, the cash consideration component of the offer will increase from US$5.00 per ordinary share to US$23.00 per ordinary share, together with the US$5.00 special dividend that, subject to Allied World shareholder approval, will be payable in connection with the transaction, for total cash consideration of US$28.00 per Allied World ordinary share,” the statement explains.

Related: Fairfax-Allied World deal among the ‘most noteworthy’ of recent insurance M&A announcements: Willis Re

Fairfax Financial Holdings is a holding company that, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management; Allied World, through its subsidiaries and brand known as Allied World, is a global provider of property, casualty and specialty insurance and reinsurance solutions.

Related: Fairfax reports 2016 combined ratio for insurance and reinsurance operations of 92.5%

Fairfax Financial Holdings was able to increase the cash consideration through US$1.6 billion of investments by minority co-investors in the Allied World acquisition vehicle that will be about 67% owned by Fairfax, the companies report.

This includes “the previously announced US$1 billion commitment from OMERS, a US$500 million commitment from Alberta Investment Management Corporation (AIMCo), on behalf of certain of its clients, as well as certain other third-party commitments,” the joint statement adds.

Related: Ontario Municipal Employees Retirement System agrees to buy minority stake in Allied World

Prem Watsa, chairman and CEO of Fairfax Financial Holdings, explains that Allied World shareholders “will now receive total cash consideration of US$28.00 per ordinary share in connection with our transaction and Fairfax will be able to minimize the dilution to Fairfax shareholders, while having the flexibility to buy back the minority investments from OMERS, AIMCo and others over five to seven years’ time.”

Related: Allied World acquisition would allow ‘further diversification’ of Fairfax’s insurance business: A.M. Best

As a result of the support of co-investing partners, including OMERS and AIMCo, Fairfax Financial Holdings “will not need to issue approximately 3.5 million Fairfax shares, based on the March 9 closing price of our shares,” Watsa reports.

“By working with Fairfax to provide additional time to increase the cash consideration component of its offer, we were able to maximize the amount of cash our shareholders would receive, making the offer even more attractive,” says Scott Carmilani, Allied World’s president, CEO and chairman.

Related: Allied World combined ratio up 2.8% in fourth quarter of 2016