Watford to continue to operate as an independent business upon completion of the acquisition
Arch Capital Group has agreed to acquire property and casualty (P&C) insurance and reinsurance company Watford in an all-cash deal worth nearly $622m.
The Bermuda-based company already owns a stake of around 13% in Watford. It will acquire the remaining stake for $31.1 per share.
Additionally, Arch Capital’s directors and executive officers hold nearly 2% of Watford’s outstanding shares.
Apart from Arch Capital, another Bermuda-based firm Enstar Group expressed interest in acquiring Watford through an offer of $31 per share, which was made in late September.
Arch Capital announced the launch of Watford in 2014
In 2014, Arch Capital announced the launch of Watford and its subsidiary Watford Re as a multi-line Bermuda reinsurance company with $1.13bn of capital. Arch Capital’s share in the capital was $100m.
Arch Capital president and CEO Marc Grandisson said: “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 operates across Bermuda, the US, and also Europe. As of 30 June 2020, the company has approximately $1bn in the capital, which includes $172.6m of senior notes, $52.4m of contingently redeemable preference shares, and common shareholders’ equity worth $776.2m.
Commenting on the acquisition, Arch Capital Group President and CEO Marc Grandisson 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.”
The consideration represents a premium of around 74% to Watford’s closing common share price on 8 September 2020, which was the last trading day before media reports emerged regarding its potential transaction with Arch Capital.
The deal will not change Watford’s operations as a standalone business and will continue to be consolidated within Arch Capital’s financials.
Watford president and CEO Jon Levy 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 standalone 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 organization with greater resources.”
Arch Capital also retains the option to get in additional investment partners as co-investors in the acquisition.
The deal will be subject to approvals from regulators and shareholders, and meeting of other customary closing conditions, upon which it could close in the first quarter of next year.