Enstar Group Limited recently delivered a letter to the Board of Directors of Watford Re indicating its desire to acquire all of the company’s outstanding shares, after raising its stake in the reinsurer in the third-quarter.
According to a recent sec filing, on September 30th, 2020, Enstar sent a letter to Watford Re’s Board proposing to buy the firm outright for $31 per ordinary share at closing, which represents a premium to current market price of 365.1%.
As we discussed previously, Arch Capital Group Ltd., Watford’s largest shareholder with a 12.6% stake, reportedly led a consortium of private equity firms to offer around $26 a share for Watford. So, at $31 per share, the Enstar proposal is a significant $5 per share higher.
Currently, Enstar holds a 9.1% stake in total-return reinsurer Watford after recently increasing its share from the 5% acquired in the first-quarter of 2020.
Back in May, A.M. Best placed the credit ratings of Watford Re Ltd. and its subsidiaries under review with negative implications after the company warned of substantial COVID-19 impacts.
Shortly after this, the principal of investment firm Capital Returns Management, Ronald Bobman, called for the company to be sold, citing a lack of “inherent strengths or core competencies”.
Enstar notes that it’s aware that Morgan Stanley has been appointed to help evaluate strategic options for Watford, and expresses its desire to engage with Watford and its Board to help provide a solution. Adding that it is “pleased to provide you with our non-binding indicative proposal (“Proposal”) for the acquisition of 100% of the ordinary share capital of Watford.”
The form of consideration will be 100% in cash, and, the purchase price is based on the assumption that the key contracts with both Arch Capital Group and HPS Investment Partners would remain in place, although Enstar is open to discussing the early termination of those agreements.
Furthermore, explains Enstar, the acquisition would be completed by a wholly-owned direct or indirect subsidiary of Enstar. The company also highlights its acquisition and integration experience, having completed more than 100 transactions in its history.
This proposal to acquire Watford outright remains subject to customary due diligence and the negotiation of definitive agreements. And, Enstar notes that there can be no guarantees that it will reach an agreement with Watford over the acquisition.
