Irish re-insurer XL Group Plc (XL) said Friday that it has agreed to acquire Catlin Group Ltd. (CGL.L), a Lloyd's of London underwriter, for about 2.79 billion pounds, or $4.1 billion, in cash and stock. The deal will provide XL Group with an enlarged Lloyd's platform, with Catlin having a leading Lloyd's presence.
Under the terms of the deal, XL Group will acquire all of Catlin's common shares for consideration of 388 pence in cash and 0.130 new XL share for each Catlin common share.
In addition, Catlin shareholders will receive a final dividend of 22 pence per share to be paid in the first quarter of 2015. Based on XL's closing price on January 8 of $35.42, the acquisition together with the expected 2014 final dividend values Catlin at about 715.3 pence per share.
The transaction represents a 23.5 percent premium to Catlin's closing share price on December 16, 2014, the date prior to each company having publicly confirmed talks regarding a transaction.
XL Group noted that the transaction is structured as a scheme of arrangement and is expected to close in mid-2015, subject to approval by Catlin shareholders and sanction by the Supreme Court of Bermuda, among others.
Following completion of the transaction, the name of the parent company of the combined group will remain XL Group plc, and the newly combined company will be marketed as XL Catlin.
Bermuda-based Catlin was founded by CEO Stephen Catlin in 1984 as a Lloyd's underwriting agency formed to manage a new underwriting syndicate. During the past 30 years, the company has grown to become an international specialist insurer and re-insurer that includes the largest underwriting syndicate at Lloyd's and reinsurance companies based in Bermuda, the U.S., the UK, Switzerland and Singapore.
Meanwhile, XL Group, under CEO Mike McGavick, has been revamping itself. The company exited a life reinsurance business in June 2014, and recently agreed to sell a stake in a home insurer to Progressive Corp.
The combined company will have total capital of $17 billion and about $10 billion of net premium, based on the December 31, 2013 audited financials of each company.
XL Group said that McGavick will continue as CEO of the combined company, while Stephen Catlin is expected to join the company as executive deputy chairman upon the closing of the transaction.
In addition, Catlin is expected to serve on the board of directors, while Peter Porrino will continue as chief financial officer.
XL Group expects the transaction to be accretive to both earnings per share and return on equity in 2016, the first full year of combined operation, with double-digit earnings per share accretion in 2017 upon full phase-in of expected synergies.
XL Group said it expects to issue about $1.8 billion of its new shares in connection with the acquisition.
The combined company is expected to achieve annual cost synergies of at least $200 million, with the full level of these recurring synergies being achieved by the end of 2017.
However, the cost synergies are expected to result in one-time integration costs of about $250 million, which are all anticipated to be incurred by the end of 2017.
In a separate statement, Catlin said that subject to completion of the sale of its investment in Box Innovation Group Ltd. or ITB and the receipt of proceeds, its board may declare and pay a special dividend to Catlin shareholders of 12 pence per share.
Catlin's board expects to complete the sale of ITB during the first quarter of 2015 and, accordingly, to declare and pay the ITB special dividend promptly thereafter. The company's board intends to recommend that Catlin shareholders vote in favor of the transaction.
Catlin expects to hold a meeting of its shareholders in the second quarter of 2015 in order to approve the merger. In addition, Catlin's directors have irrevocably undertake to vote their shares, representing about 2.18 percent of Catlin's issued share capital, in favor of the transaction.
Catlin noted that in specialty insurance, the enlarged XL Group will benefit from Catlin's core Lloyd's businesses, such as aviation, marine and energy, and expects to be among the world's largest writers in many lines.
XL closed Thursday's trading at $35.42. In Friday's pre-market activity, the stock is down $0.41 or 1.16 percent to $35.01.
On the London Stock Exchange, CGL.L is trading at 691.00 pence, up 30.50 pence or 4.62 percent on a volume of 5.34 million shares.
For comments and feedback contact: editorial@rttnews.com
Business News