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Fairfax to tap Omers pension fund, other investors, to finance Allied World buy

25th January 2017 - Author: Steve Evans

Fairfax Financial Holdings Limited is close to securing as much as $1 billion from Canada’s OMERS pension fund to help finance its acquisition of Allied World Assurance Company Holdings, AG, according to reports.

Prem Watsa’s Canadian property & casualty insurance and reinsurance group Fairfax is set to acquire Switzerland headquartered specialty insurance, reinsurance and investments player Allied World in a $4.9 billion deal announced in December.

Watsa’s Fairfax Financial is often said to have Berkshire Hathaway ambitions, with the premium float based investment style a key strategy if the firm. Hence, the fact Watsa is open to being helped to close the acquisition by bringing other large investors on-board is no surprise, as Fairfax would still manage the float.

Bloomberg reported yesterday that one of Canada’s largest pension funds the Ontario Municipal Employees Retirement System (OMERS) is set to contribute as much as $1 billion to help finance the Allied World deal. Bloomberg said an announcement about the OMERS contribution could be made soon.

Fairfax is also said to be putting together another group of investors who could take as much as another $1.7 billion of Allied World in the acquisition.

Prem Watsa had said that other investors could be brought into the deal in order to limit dilution of Fairfax shares, and Bloomberg reports that if the $2.7 billion of extra investment contributions are received Allied World shareholders would only receive 10% of his firm.

But of course for Watsa and Fairfax, having assistance to finance the acquisition that will add significant investment float to his group is an attractive proposition, minimising dilution and effectively lowering the outlay for the said $9.4 billion of Allied World assets the deal would bring, adding significant scale to Prem Watsa’s Warren Buffett style investment strategy.

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