Canadian Insurer Fairfax to Acquire Switzerland's Allied World in $4.9 Billion Deal -- Update

By Jacquie McNish and Joanne Chiu 

Fairfax Financial Holdings Ltd. is in discussions to raise as much as $2.7 billion from investors to partner in its $4.9 billion cash-and-stock agreement to acquire Allied World Assurance Co.

Prem Watsa, chairman and chief executive of Toronto-based Fairfax, said in an interview that he has approached a variety of sovereign wealth and pension funds to increase the cash portion of its offer, which is currently valued at $54 a share.

The offer includes $10 a share cash, half of which will be paid in the form of a dividend by Allied World ahead of the deal's planned closing. Another $30 a share in cash would be added if Fairfax raises a maximum of $2.7 billion from investors.

Under terms of its agreement with Allied, Fairfax has 75 days to secure the investments. Following a pattern set in other European insurance acquisitions, Fairfax initially partners with investors on acquisitions and buys back their shares over a five- to seven-year period.

Allied is based in Zug, Switzerland, but generates nearly 80% of its insurance premiums from North America.

The proposed Allied acquisition marks the biggest expansion in Fairfax's 30-year history into the U.S. market and a dramatic about-face in Mr. Watsa's bearish outlook for the U.S. economy. In his annual letter to investors in March, Mr. Watsa warned "much pain" was coming to financial markets primarily because the prospects for U.S. economic growth were grim.

Mr. Watsa said he is much more optimistic because of the "very smart" policies of President-elect Donald Trump, who is backing lower corporate tax rates, heavy infrastructure spending and deregulation.

These policies will release "the animal spirits" and "economic growth in the largest economy in the world will be significant," he said.

As of the third quarter of 2016, Fairfax reported $9.5 billion in gross insurance premiums written, and the addition of Allied would raise the premiums to $12.5 billion.

Write to Jacquie McNish at [e-mail] and Joanne Chiu at [e-mail]

(END) Dow Jones Newswires

December 19, 2016 11:24 ET (16:24 GMT)

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