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Bermuda-based Endurance Specialty Holdings Ltd. and Montpelier Re Holdings Ltd. announced a merger today, in which Endurance will acquire Montpelier in a stock-cash deal for roughly $1.8 billion.

Specifically, the deal consideration consists of 0.472 shares of Endurance and $9.89 in cash for each Montpelier common share, which represents $40.24 per Montpelier common share, or $1.83 billion in aggregate, based on Endurance’s closing price on March 30, 2015.

Based on gross premiums for 2014, the two companies had $3.6 billion together.

The deal will increase Endurance common shareholders’ equity from $2.8 billion to $4.1 billion, and total capital $3.7 billion to $5.5 billion

John R. Charman, Endurance’s chairman and chief executive officer, characterized the acquisition as a “compelling value creation opportunity for Endurance’s shareholders.” He also highlighted expectations for “meaningful transaction synergies through cost savings and greater capital efficiencies.”

Charman said the acquisition increases Endurance’s breadth of distribution with the addition of a good-sized and scalable Lloyd’s platform.

It also adds “an attractive property catastrophe business,” which complements Endurance’s existing reinsurance book, providing Endurance “with a natural introduction to the business of managing insurance and reinsurance investment products for third-party capital investors,” he said.

Endurance failed to complete an acquisition of Aspen Insurance Holdings last year, after putting in a $3.2 hostile bid for the competitor, which also has a Lloyd’s platform and ties to the management of third-party capital.

Charman added that “Montpelier’s historic high quality portfolio reflects a disciplined approach to underwriting that is consistent with Endurance’s strong risk management and underwriting culture.”

Following completion of the transaction, Montpelier’s existing shareholders will own approximately 32 percent of Endurance’s outstanding ordinary shares. The acquisition price of $40.24 per Montpelier common share, based on Endurance’s closing price on March 30, 2015, represents a 19 percent premium to Montpelier’s unaffected closing price per common share as of the close of business on Dec. 10, 2014.

The deal price also represents a multiple of 1.21x Montpelier’s fully converted book value per common share as of Dec. 31, 2014.

Christopher Harris, Montpelier’s president and CEO, said, “This transaction with Endurance provides significant value for Montpelier shareholders through upfront cash and an equity interest in a combined Endurance with enhanced scale, greater market presence and substantial product and geographic diversity.

“The combination of our balance sheets, our diverse underwriting platforms and high-quality books of business is a compelling opportunity for our shareholders, customers and distribution partners.”

Endurance expects to achieve more than $60 million of annual run-rate cost savings and to realize meaningful capital efficiencies from the acquisition. The transaction is expected to be immediately accretive to earnings per share and return on equity,excluding non-recurring integration and transaction costs.

The deal has been unanimously approved by both companies’ boards of directors. It is expected to be completed in the third quarter of 2015 and is subject to the approval of both companies’ shareholders, regulatory approvals and the satisfaction of customary closing conditions.

Endurance’s board of directors will be expanded at closing to include three of Montpelier’s current directors.

Endurance’s senior management team will lead the combined company from its Bermuda headquarters.

Source: Endurance Specialty Holdings Ltd., Montpelier Re Holdings Ltd.

Topics Mergers & Acquisitions