Arch agrees to buy Watford in $622m deal
Arch Capital Group Ltd has struck a $622 million deal to acquire fellow Bermudian re/insurer Watford Holdings.
After closing, which is expected to occur in the first quarter of 2021, Watford will continue to operate as a stand-alone business and remain consolidated within Arch’s financials.
Under the terms of the agreement, Watford shareholders will receive $31.10 in cash for each common share they hold.
Arch’s offer edged out a $31-per-share bid by Enstar Group, another Bermudian-based company earlier this month.
The price represents a premium of about 74 per cent to Watford’s unaffected closing common share price on September 8, the last trading day before media reports surfaced about the possibility of an Arch-Watford deal.
The independent members of Watford’s board of directors have unanimously approved the agreement and recommended that Watford’s shareholders vote in favour of the transaction. The agreement requires approval by holders of the majority of Watford’s outstanding shares.
Arch, which currently owns approximately 13 per cent of Watford’s outstanding shares, has committed to vote in favour of the transaction. In addition, Arch’s directors and executive officers own about 2 per cent of Watford’s outstanding shares.
Watford was spun off by Arch six years ago.
Several American law firms, including Halper Sadeh LLP, Levi & Korsinsky, and Bragar Eagel & Squire, have announced they are investigating the deal on behalf of investors.
They will be looking at whether the deal process was fair to Watford shareholders and whether they should take legal action to try to secure a higher purchase price.
Jon Levy, Watford’s chief executive officer, said: “This represents a clear path forward for Watford, while also delivering an attractive premium to shareholders in a transaction with a high degree of certainty to close.
“We believe that Watford will be better positioned as a stand-alone business within Arch to execute its strategic priorities and growth plans. Importantly, we expect a seamless transition for our clients, trading partners and policyholders, who we think will benefit from Watford becoming part of a larger organisation with greater resources.”
Marc Grandisson, Arch’s CEO, said: “Since we launched Watford in 2014, the company has been a valued part of the Arch story and we are pleased to deepen our existing strategic and financial investment.
“Our longstanding contractual partnership with and financial consolidation of Watford expedited the due diligence process and should give all stakeholders confidence in our ability to close this transaction quickly.
“Watford’s policyholders and trading partners will benefit from the continued underwriting strength and service they have come to expect from Watford and Arch.”
Watford’s 8.5 per cent preference shares, which trade on the Nasdaq Stock Exchange under the ticker symbol “WTREP” will remain outstanding, Arch stated.
The transaction, which will be funded through cash from Arch’s balance sheet, is subject to regulatory and shareholder approval.