Warburg Pincus and Kelso & Company to Join
Arch Capital Group as Investment Partners in Watford Holdings
Transaction
Watford Shareholder Enstar Group to Support
Revised Transaction
Arch Capital Group Ltd. (NASDAQ: ACGL) (“Arch” or “the Company”)
and Watford Holdings Ltd. (NASDAQ: WTRE) (“Watford”) today
announced a revised definitive agreement under which Arch will
acquire all of the common shares of Watford for an increased price
of $35.00 per share. This revised all-cash consideration is valued
at approximately $700 million and represents a premium of
approximately 96% to Watford’s unaffected closing common share
price on September 8, 2020, the last trading day prior to media
reports about the possibility of a transaction between Watford and
Arch. The transaction is expected to close in the first quarter of
2021 and remains subject to customary closing conditions, including
regulatory and shareholder approval.
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Following this announcement, Arch will assign its interests and
obligations under the merger agreement to a newly formed entity of
which Arch will own approximately 40%, and funds managed by Warburg
Pincus LLC (“Warburg Pincus”) and Kelso & Company (“Kelso”)
will each own approximately 30%.
“We continue to believe in the merits of this compelling
opportunity and are pleased to be making this revised offer,” said
Marc Grandisson, President and Chief Executive Officer of Arch.
“The increased premium and the addition of Warburg Pincus and Kelso
as active investment partners will position Watford to capitalize
on its significant value generation potential while ensuring
continuity of service for all policyholders.”
“This transaction delivers an attractive premium to our
shareholders, and offers Watford the opportunity to fulfill its
potential as a private company,” said Jon Levy, President and Chief
Executive Officer of Watford. “This is a significant milestone for
us, both in our pursuit of shareholder value as well as for our
strategic growth plans. We look forward to deepening our longtime
relationship with Arch, and collaborating with our new partners,
Kelso and Warburg Pincus.”
Dan Zilberman, Managing Director and Executive Management Group
member at Warburg Pincus, added, “We were a founding investor in
Arch in 2001 and have followed the company’s development closely
since our investment. We are excited to partner once again with
Arch’s talented management team in a new endeavor. Arch has a
compelling plan in place to enable Watford’s continued performance
for its policyholders and trading partners. We are excited to
participate in this plan, and believe that we can be a value added
partner by applying our operating and industry resources to enhance
Watford’s inherent value proposition.”
Chris Collins, Managing Director of Kelso, said, “We have a
successful history of partnering with Arch and are excited to be
joining them in the acquisition of Watford. Watford is a strong
platform, and we believe that Arch is uniquely qualified to augment
its position with its clients and counterparties. We look forward
to leveraging our industry expertise and capabilities to support
Watford in its next phase of growth.”
The agreement requires approval by holders of a majority of
Watford’s outstanding shares. The independent members of Watford’s
Board of Directors have unanimously approved the revised agreement
and recommended that Watford’s shareholders vote in favor of the
transaction. Arch owns approximately 13% of Watford’s outstanding
shares, and Arch’s directors and executive officers own
approximately 2% of Watford’s outstanding shares. In addition,
Enstar Group Limited (NASDAQ: ESGR) (“Enstar”), which holds 9.1% of
Watford common shares, has entered into a voting support agreement
with Watford and Arch pursuant to which it has committed to vote
all of its Watford shares in favor of the transaction.
Goldman Sachs is acting as financial advisor to Arch, and Cahill
Gordon & Reindel LLP is serving as the Company’s legal advisor.
Morgan Stanley & Co. LLC is acting as financial advisor to
Watford, and Clifford Chance US LLP is serving as Watford’s legal
advisor. Wachtell, Lipton, Rosen & Katz is serving as legal
advisor to Warburg Pincus and Debevoise & Plimpton LLP is
serving as legal advisor to Kelso.
About Arch Capital Group Ltd.
Arch Capital Group Ltd., a Bermuda-based company with
approximately $15.2 billion in capital at September 30, 2020
provides insurance, reinsurance and mortgage insurance on a
worldwide basis through its wholly owned subsidiaries.
About Watford Holdings Ltd.
Watford Holdings Ltd. is a global property and casualty
insurance and reinsurance company with approximately $1.1 billion
in capital as of September 30, 2020, comprised of: $172.6 million
of senior notes, $52.4 million of contingently redeemable
preference shares and $866.92 million of common shareholders’
equity, with operations in Bermuda, the United States and Europe.
Its operating subsidiaries have been assigned financial strength
ratings of “A-” (Excellent) from A.M. Best and “A” from Kroll Bond
Rating Agency. On May 1, 2020, A.M. Best announced that it had
placed under review with negative implications the financial
strength ratings of Watford's operating subsidiaries. On May 7,
2020, Kroll Bond Rating Agency affirmed the “A” insurance financial
strength ratings of Watford's operating subsidiaries as well as the
“BBB+” credit rating of Watford Holdings Ltd, with the outlook for
all ratings revised to negative.
About Warburg Pincus LLC
Warburg Pincus LLC is a leading global private equity firm
focused on growth investing. The firm has more than $56 billion in
private equity assets under management. The firm’s active portfolio
of more than 190 companies is highly diversified by stage, sector,
and geography. Warburg Pincus is an experienced partner to
management teams seeking to build durable companies with
sustainable value. Founded in 1966, Warburg Pincus has raised 19
private equity funds, which have invested more than $86 billion in
over 910 companies in more than 40 countries. The firm has been an
active investor in the reinsurance sector globally, with
investments in companies such as Aeolus Re, Arch Capital, Cox
Insurance Holdings, Foundation Risk Partners, McGill and Partners,
and RenaissanceRe. The firm is headquartered in New York with
offices in Amsterdam, Beijing, Berlin, Hong Kong, Houston, London,
Luxembourg, Mumbai, Mauritius, San Francisco, São Paulo, Shanghai,
and Singapore. For more information please visit
www.warburgpincus.com.
About Kelso & Company
Kelso is one of the oldest and most established firms
specializing in private equity investing. Since 1980, Kelso has
invested approximately $14 billion of equity capital in over 125
transactions. Kelso was founded by the inventor of the Employee
Stock Ownership Plan (“ESOP”) and, as a result, the principles of
partnership and alignment of interest serve as the foundation of
the firm’s investment philosophy. Kelso benefits from a successful
investment track record, deep sector expertise, a long-tenured
investing team, and a reputation as a preferred partner to
management teams and corporates. Kelso has significant experience
investing in financial services, having deployed approximately $3
billion of equity capital in the sector. For more information,
please visit www.kelso.com.
Cautionary Note Regarding Forward-looking Statements
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward−looking statements. This release or any
other written or oral statements made by or on behalf of Arch
Capital Group Ltd. and its subsidiaries or Watford and its
subsidiaries may include forward−looking statements, which reflect
Arch's or Watford's current views with respect to future events and
financial performance. All statements other than statements of
historical fact included in or incorporated by reference in this
release are forward−looking statements, including statements
regarding the expected timing of the closing of the merger; the
ability of the parties to complete the merger considering the
various closing conditions; the expected benefits of the merger;
and any assumptions underlying any of the foregoing.
Forward−looking statements can generally be identified by the
use of forward−looking terminology such as "may," "will," "expect,"
"intend," "estimate," "anticipate," "believe" or "continue" or
their negative or variations or similar terminology.
Forward−looking statements involve Arch’s or Watford’s current
assessment of risks and uncertainties. Actual events and results
may differ materially from those expressed or implied in these
statements. A non-exclusive list of the important factors that
could cause actual results to differ materially from those in such
forward-looking statements includes the following: one or more
closing conditions to the merger, including certain regulatory
approvals, may not be satisfied or waived, on a timely basis or
otherwise, including that a governmental entity may prohibit, delay
or refuse to grant approval for the consummation of the merger, or
that the required approval of the merger agreement by the
shareholders of Watford may not be obtained; the business of
Watford may suffer as a result of uncertainty surrounding the
merger and there may be challenges with employee retention as a
result of the pending merger; the merger may involve unexpected
costs, liabilities or delays; legal proceedings may be initiated
related to the merger; an event, change or other circumstance may
occur that could give rise to the termination of the merger
agreement (including circumstances requiring a party to pay the
other party a termination fee pursuant to the merger
agreement);adverse general economic and market conditions;
increased competition; pricing and policy term trends; fluctuations
in the actions of rating agencies and the Company’s or Watford’s
ability to maintain and improve its ratings; investment
performance; the loss of key personnel; the adequacy of the
Company’s or Watford’s loss reserves, severity and/or frequency of
losses, greater than expected loss ratios and adverse development
on claim and/or claim expense liabilities; greater frequency or
severity of unpredictable natural and man-made catastrophic
events, including pandemics such as COVID-19; the impact of
acts of terrorism and acts of war; changes in regulations and/or
tax laws in the United States or elsewhere; the Company’s or
Watford’s ability to successfully integrate, establish and maintain
operating procedures as well as integrate the businesses the
Company or Watford has acquired or may acquire into its existing
operations (including in connection with the merger);; changes in
accounting principles or policies; material differences between
actual and expected assessments for guaranty funds and mandatory
pooling arrangements; availability and cost to the Company or
Watford of reinsurance to manage the Company’s or Watford’s gross
and net exposures; the failure of others to meet their obligations
to the Company or Watford; changes in the method for determining
the London Inter-bank Offered Rate (“LIBOR”) and the potential
replacement of LIBOR and other factors identified in the Company’s
and Watford’s filings with the U.S. Securities and Exchange
Commission (“SEC”).
The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with
other cautionary statements that are included herein or elsewhere.
All subsequent written and oral forward−looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Neither
the Company nor Watford undertakes any obligation to publicly
update or revise any forward−looking statement, whether as a result
of new information, future events or otherwise.
Additional Information and Where to Find It
In connection with the proposed merger, Watford intends to file
relevant materials with the SEC, including a preliminary proxy
statement on Schedule 14A, and Watford and certain other persons,
including Arch, intend to file a Schedule 13E-3 transaction
statement with the SEC. Following the filing of the definitive
proxy statement with the SEC, Watford will mail the definitive
proxy statement and a proxy card to each shareholder entitled to
vote at the special meeting relating to the proposed merger.
INVESTORS ARE URGED TO READ THE PROXY STATEMENT AND THE SCHEDULE
13E-3 WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. Investors may obtain the proxy statement, as
well as other filings containing information about Watford, free of
charge, from the SEC’s web site (www.sec.gov). Investors may also
obtain Watford’s SEC filings in connection with the transaction,
free of charge, by directing a request to Watford Holdings Ltd.,
Waterloo House, 1st Floor, 100 Pitts Bay Road, Pembroke HM 08,
Bermuda.
Participants in the Solicitation
Watford and its directors, executive officers and employees and
certain other persons may be deemed to be participants in the
solicitation of proxies in respect of the transaction. Information
regarding Watford’s directors and executive officers is available
in its definitive proxy statement for its 2020 annual meeting of
shareholders filed with the SEC on April 14, 2020. This document
can be obtained free of charge from the sources indicated above.
Other information regarding the interests of the participants in
the proxy solicitation will be included in the proxy statement
relating to the transaction when it becomes available. This
document does not constitute a solicitation of a proxy, an offer to
purchase or a solicitation of an offer to sell any securities.
arch-corporate
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Arch Capital Group Ltd. Greg Hare 678.462.8647
ghare@archcapservices.com
Watford Holdings Ltd. Laurence B. Richardson
LBR@WatfordHoldings.com
Warburg Pincus LLC Kerrie Cohen 917.887.9184
Kerrie.cohen@warburgpincus.com
Kelso and Company Lynn Alexander 212.350.7707
lalexander@kelso.com
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