Alterra set to be acquired by Markel

Bermuda-based re/insurer, Alterra has announced that is to be acquired by US-based specialty insurer, Markel in a deal that will create a company that is expected to write $4.4 billion of premium annually.
According to analysis by John Hall, managing director at Wells Fargo Securities, the deal will likely prove beneficial to Alterra shareholders, with the company valued at 1.05x current book value and expected to “reach positively following the deal announcement and to trade up towards the deal value”.
It will also prove a positive move for those reinsurers presently trading below book value in the Bermuda market, said Hall, with Wells Fargo Securities predicting that they would “strengthen following on this announcement.”
Alterra will remain a wholly-owned subsidiary of Markel, with Markel acquiring Alterra for $3.13 billion and the transaction valuing each Alterra share at $31. Hall said that the combined company is expected to write a mixed portfolio that is divided fifty percent short-tail and fifty percent long-tail, 67 percent insurance and 33 percent reinsurance, and 74 percent North American and 26 percent international business.
Following the deal Markel shareholders will hold approximately 69 percent of the shares in the combined company, while Alterra shareholders will hold approximately 31 percent of the company.
Alterra is the latest Bermuda reinsurer to be acquired in recent years, with Flagstone Re being acquired by Validus earlier in the year and Goldman Sachs completing its acquisition of Ariel Re in March of 2012. What will be interesting is if other suitors appear to challenge Markel’s offer.
What will likely act as a block on future suitors is a clause in the agreement between Markel and Alterra outlined in its SEC filing. In its Agreement and Plan of Merger, the wording stipulates that the non-terminating party would be obliged to pay the terminating party a $94.5 million termination fee should the deal collapse. Such a road-block should act as a ward against rival suitors.