Arch and Watford revise their merger agreement

Arch Capital Group and Watford Holdings have revised their definitive agreement under which Arch will acquire all of the common shares of Watford for an increased price of $35.00 per share.

This revised all-cash consideration is valued at approximately $700 million. This represents a premium of approximately 96 percent to Watford’s unaffected closing common share price on September 8, 2020, the last trading day prior to media reports about a possible deal.

The transaction is expected to close in the first quarter of 2021 and remains subject to customary closing conditions, including regulatory and shareholder approval.

Arch will assign its interests and obligations under the merger agreement to a newly formed entity of which Arch will own approximately 40 percent. Funds managed by Warburg Pincus and Kelso & Company will each own approximately 30 percent.

The agreement requires approval by holders of a majority of Watford’s outstanding shares. The independent members of Watford’s board of directors have unanimously approved the revised agreement and recommended that Watford’s shareholders vote in favor of the transaction.

Arch owns approximately 13 percent of Watford’s outstanding shares, with Arch’s directors and executive officers owning approximately 2 percent more. Enstar Group, which holds 9.1 percent of Watford common shares, has entered into a voting support agreement with Watford and Arch pursuant to which it has committed to vote all of its Watford shares in favor of the transaction.

Marc Grandisson, president and chief executive officer of Arch, said: “The increased premium and the addition of Warburg Pincus and Kelso as active investment partners will position Watford to capitalise on its significant value generation potential while ensuring continuity of service for all policyholders.”

Jon Levy, president and chief executive officer of Watford, said the deal delivers an attractive premium to Watford’s shareholders, and allows Watford to fulfill its potential.

“This is a significant milestone for us, both in our pursuit of shareholder value as well as for our strategic growth plans,” he added.

Dan Zilberman, managing director and executive management group member at Warburg Pincus, a founding investor in Arch in 2001, said: “Arch has a compelling plan in place to enable Watford’s continued performance for its policyholders and trading partners”

“Watford is a strong platform, and we believe that Arch is uniquely qualified to augment its position with its clients and counterparties,” added Chris Collins, managing director of Kelso.