It is set to be one of the year’s biggest deals involving a major insurance firm – the $4.9 billion takeover of
Allied World Assurance by Fairfax Financial Holdings has been in the pipeline for weeks (as we reported
here).
However, where is the money going to come from?
According to a
Bloomberg report, Prem Watsa’s Fairfax is now in talks with the Ontario Municipal Employees Retirement System (OMERS) to see if the pension fund can help finance the deal. The source, who did not want to be identified, told the newswire that OMERS could potentially take a minority stake in the Switzerland-based firm – but added that other potential backers have also been contacted.
Should a partnership be struck, Fairfax would be able to reduce the amount of stock Watsa needs to fund the transaction – under terms announced on December 18 the Toronto-based company would pay out $900 million in cash alongside $4 billion in Fairfax stock.
“Doing it from an equity perspective ensures that we meet the rating agency requirement, so we wanted to be sure it was fully funded with equity,” outlined Paul Rivett said in a conference call with investors held on December 19. “But that said, we want to also do the best we can for our Fairfax shareholders. So, that is why we will be looking for these third-party equity providers like we did find for Brit and Eurolife, to reduce the dilution to our shareholders.”
The move comes almost two years on from Watsa’s deal to buy Brit Plc back in February 2015 which saw it turn to OMERS to buy a 30% stake in the Lloyd’s of London insurer, helping cut the financial costs.
An OMERS spokesman declined to comment, and a representative for Fairfax didn’t immediately respond to a message from the newswire.
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