Validus sources have indicated that the company intends to purchase all issued and outstanding shares from Flagstone Re, with Flagstone shareholders receiving 0.1935 of voting common shares and $2 in cash for each Flagstone share.
The transaction represents an aggregate equity value of $623.2 million for Flagstone Re’s shareholders. The transaction provides Flagstone shareholders with a 19.4 percent premium and $8.43 of value per share based on the closing share price for each of Validus and Flagstone as of August 29, 2012.
The deal will enable Validus to continue its pursuit of scale following its failed bid for Transatlantic. Its IPC Holdings deal proved a shrewd move back in 2009 and acquiring Flagstone Re may yet prove another, although some commentators have questioned how complementary Flagstone Re’s book of business will be to Validus’ existing portfolio.
Finalisation of the deal is subject to approval from Flagstone Re’s shareholders. Validus has already obtained approval for the deal from Lightyear Capital and Trilantic Capital Partners, investment funds associated with Flagstone Re, which collectively own 22.5 percent of outstanding shares in the reinsurer. The company will be hoping that further approvals are a formality.
Ed Noonan, chairman and CEO of Validus, stated: “This is a compelling transaction for Validus that allows us to build upon our market-leading position in catastrophe risk. Flagstone brings a strong client base that will add scale to our business. Validus has an established track record of integrating acquisitions quickly and effectively with a focus on the needs of our clients and intermediaries. We are conﬁ dent that this transaction will generate excellent value going forward for Validus and Flagstone shareholders.”
David Brown, Flagstone’s CEO, said: “We believe this transaction offers a signiﬁ cant premium and immediate value for our shareholders, and provides a more stable capital base with which to underwrite over the long term. Over the past 10 months, we at Flagstone have taken steps to strategically shift our business model, becoming a more focused and efﬁ cient underwriter and we believe this transaction reﬂ ects our progress.
“Further, we believe that Flagstone and Validus share a strong technical, analytical approach and a commitment to providing exemplary service for our clients. We look forward to working with Validus to complete this combination and create shareholder value. The transaction, which our Board of Directors has unanimously concluded is in the best interest of Flagstone, concludes a lengthy and extensive process in which the board carefully considered a broad range of strategic alternatives.”