Canadian Underwriter

‘Significantly more’ than 90% of Allied World Assurance shareholders expected to tender stock for Fairfax merger

July 5, 2017   by Canadian Underwriter

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Officials with Allied World Assurance Company Holdings AG “fully expect” that all closing conditions for the merger with Toronto-based Fairfax Financial Holdings Limited will be met by Thursday, Allied World suggested in Wednesday in a press release.

A deadline, for 90% of Allied World shares to be tendered, has been extended to 5:00 p.m. Wednesday, from 11:59 p.m. June 30.

If the deal closes, then Fairfax – the corporate owner of OdysseyRe and Northbridge Insurance – will own most of Zug, Switzerland-based Allied World.

The agreement was valued at nearly US$5 billion when it was announced Dec. 18, 2016. It requires, among other things, that 90% of Allied World shares be tendered.

As of 11:59 p.m. June 30, about 88.1% of Allied World shares had been tendered “and not properly withdrawn from the exchange offer,” Allied World said July 3.

On June 26, the companies said they “expect that all regulatory approvals that are conditions to completion” of the deal, “other than the 90% minimum tender condition, would be satisfied” on or before June 30, the original deadline.

Since then, “Fairfax has spoken with an Allied World shareholder group representing more than 3% of the outstanding Shares that has indicated it will now tender before the Extended Tender Deadline” by end of day July 5.

Related: ‘All regulatory approvals’ received for Fairfax-Allied World merger but deal still not complete

“As a result, we fully expect to have significantly more than 90% of the Shares tendered by the Extended Tender Deadline and to accept the tendered Shares for payment on Thursday, July 6, 2017,” Allied World said July 5.

If the deal closes, Allied World shareholders would receive a combination of Fairfax shares and cash equal to $US54 per share of Allied World, which trades on the New York Stock Exchange.

In addition to OdysseyRe and Northbridge, Fairfax also owns London-based Brit PLC, Morristown, N.J.-based specialty insurer Crum & Forster and California workers’ compensation insurer Zenith National.

Fairfax reported net premiums written of $8.1 billion in 2016, up from $7.52 billion in 2015. Fairfax reports its results in U.S. dollars. Of $2.17 billion in net premiums written during the first quarter of 2017, Fairfax reported that $555 million was from OdysseyRe, $451 million was from Crum & Forster, $394 million was from Brit, $214 million was from Northbridge, $332 million was from Zenith National and $82 million was from Fairfax Asia, with another $140.5 million from other insurers.

Fairfax’s non-insurance operations include a 56.6% interest (as of March 27) in Cara Operations, whose restaurant brands include Harvey’s, Swiss Chalet, Milestone’s, Kelsey’s Casey’s, East Side Mario’s and Bier Markt. restaurant franchises, among others. In addition to retailers Golf Town, Sporting Life and William Ashley China, Fairfax also owns The Keg chain of steak restaurants.

Allied World was formed in Bermuda in 2001 and redomesticated to Switzerland in 2010. In 2016, Allied World reported net premiums written of US$2.26 billion, of which $1.22 billion was in North American insurance, $664.9 million was in reinsurance and $367.5 million in global markets insurance.

Fairfax earlier announced that Ontario Municipal Employees Retirement System (OMERS) plans to contribute $1 billion to the cash component of Fairfax’s offer. As a result, OMERS will take a 21% ownership stake in Allied World.

Related: Fairfax-Allied merger offer expires Friday night

Allied World’s North American insurance arm, which focusses on special liability, has a Toronto office plus an additional 11 offices in the United States and Bermuda, Allied World said in an earlier filing with the U.S. Securities and Exchange Commission. Its coverages include professional liability, environmental liability, product liability, healthcare liability and commercial general liability, as well as directors and officers, employment practices, fiduciary liability insurance and mergers and acquisitions.

Allied World’s global markets insurance operations include Allied World Managing Agency Limited, the managing agent of Lloyd’s Syndicate 2232, whose offerings include property, professional liability, marine, aviation and on-shore construction. The global markets operations have offices in Zug, London, Dublin, Hong Kong, Singapore and Sydney as well as Labuan, Malaysia.

Shortly before the merger agreement was initially announced in December, 2016, Fairfax completed its US$128-million acquisition of Bryte Insurance Company Limited, formerly known as Zurich Insurance Company South Africa Limited, which provides property and casualty insurance South Africa and Botswana.

Also in 2016, Fairfax agreed to buy American International Group Inc.’s local commercial and consumer insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey.

In February, 2017 Fairfax announced an agreement to acquire Auckland-based Tower Limited, an insurer that provides coverage in New Zealand, the Cook Islands, Fiji, Papua New Guinea, Samoa and Vanuatu.

On May 27, 2017, Fairfax announced it agreed to sell 12.18% of the fully diluted shares of ICICI Lombard General Insurance Company Ltd., a Mumbai-based joint venture Fairfax and ICICI Bank that writes auto, home, bicycle, travel and health insurance. That deal is subject to government and regulatory approval and expected to close during the third quarter of this year. If it closes, Fairfax would own 22% of ICICI Lombard.

Fairfax is traded on the Toronto Stock Exchange. As of March 10, Fairfax had 22.3 million subordinate voting shares and 1.548 million multiple voting shares, Fairfax said in its management proxy circular released earlier this year. The multiple voting shares have 41.8% of votes and all multiple voting shares are owned by Sixty Two Investment Company Limited, a firm controlled by Prem Watsa, Fairfax’s founder, chairman and CEO.

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