Arch Capital Group has entered into a definitive agreement with Watford Holdings that will see Arch acquire all the common shares of Watford in an all-cash transaction valued at approximately $622 million.
The deal is expected to close in Q1 2021 and will be funded with cash from Arch’s balance sheet. Watford will continue to operate as a standalone business and remain consolidated within Arch’s financials.
Watford shareholders will receive $31.10 in cash for each Watford common share they hold. This consideration represents a premium of approximately 74 percent to Watford’s unaffected closing common share price on September 8, 2020, which was the last trading day before media reports about the possibility of a transaction between the two re/insurers.
Watford's 8.5 percent cumulative redeemable preference shares will remain outstanding and will be entitled to the same dividend and other rights and preferences as are now provided to the preference shares.
The independent members of Watford’s board of directors have unanimously approved the agreement and recommended that Watford’s shareholders vote in favor of the transaction.
The agreement requires approval by holders of the majority of Watford’s outstanding shares. Arch, which already owns approximately 13 percent of Watford’s outstanding shares, has committed to vote in favor of the transaction. In addition, Arch’s directors and executive officers own approximately 2 percent of Watford’s outstanding shares.
Jon Levy, Watford’s president and chief executive officer, said: “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 organisation with greater resources.”
Marc Grandisson, Arch’s president and chief executive officer, highlighted the shared history of the two companies.
“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,” he said.
The transaction is subject to customary closing conditions, including regulatory and shareholder approval. Arch also retains the flexibility to bring in additional investment partners as co-investors in the transaction.
Arch, Watford, Jon Levy, Marc Grandisson