Insurer XL Group acquires rival Catlin for $4.1 bn

New York-listed insurance and reinsurance major XL Group Plc has struck a deal to buy London-listed rival Catlin Group Plc, insurer of Lloyd's of London, for approximately $4.1 billion (£2.7 billion), aiming to create a global leader in specialty insurance and reinsurance market, the company said in a statement.

Under the agreed terms of the cash-and-stock deal, Dublin, Ireland-based XL will acquire all of Catlin's common shares for a consideration of 388 pence in cash and 0.130 shares of XL per Catlin share. On the basis of the closing price of XL share on 8 January of $35.42, the offer values Catlin at 693 pence per share. 

Additionally, Catlin shareholders will receive a 22-pence final dividend to be paid in Q1 2015.

The transaction represents a 23.5-per cent premium to Catlin's closing price as of 16 December 2014, prior to disclosure of a potential deal by the companies.

Following the announcement, shares in Catlin rose 5.6 per cent to 697 pence in trading in London on Friday while XL's shares closed up 1.3 per cent at $35.88 in New York.

Bermuda-based Catlin is a global specialty property and casualty insurer founded by Stephen Catlin and a colleague three decades ago. The group operates six underwriting hubs in London, Bermuda, US, Asia Pacific, Europe and Canada writing more than 30 lines of business and has presence in 25 countries.

Catlin owns the largest syndicate at Lloyd's of London, the world's leading specialist insurance market, which has business from over 200 countries and territories worldwide. Catlin's gross written premiums were $5.3 billion last year and the firm has around 2,300 employees.

XL CEO Mike McGavick said, "We are delighted to announce this compelling combination which positions us strongly to provide more - and even better - answers for the world's most complex risks while enhancing our opportunities to create value for shareholders and better serve clients and brokers.'' 

''We believe the transaction will accelerate each company's strategy, and address the meaningful structural changes we see shaping the property and casualty sector,'' McGavick added.

The transaction is expected to close mid-2015 subject to regulatory approvals and customary closing conditions.

Catlin CEO Stephen Catlin commented, ''We expect the enlarged business to benefit from increased diversification, significant further economies of scale, strengthened franchises in each of its markets and an improved standing with intermediaries.''

Further to the closing, XL Group Plc will remain the parent company of the combined entity, while the combination will become XL Catlin reflecting the strong reputation of both the brands, the statement said.

McGavick will continue as CEO of XL Catlin while Stephen Catlin will join as its executive chairman and a board member.

The combined business will have $17 billion of total capital and approximately $10 billion of net premiums. It is expected to become the top 10 global reinsurer with net premiums of over $3 billion.

The transaction is expected to be accretive to the company's earnings in the first full year with double digit earnings in 2017. The combined entity is expected to yield cost synergies to the tune of $200 million, through consolidation of the infrastructure, business and support functions, the statement said.

XL expects to issue approximately $1.8-billion worth of new shares in connection with the purchase. XL has arranged bridge facility to fund the cash portion of the deal.

About $250 million is anticipated in integration costs to be incurred by the end of 2017, XL said.

XL is a global insurance and reinsurance company having executive offices in Hamilton, Bermuda and Stamford, Connecticut, US. The company has about 60 offices spread across Africa, Asia, Australia, Europe and the Americas employing around 4,000 people.

The insurer's total assets stand at approximately $46 billion and its 2013 revenue was $7.5 billion.

Morgan Stanley and Goldman Sachs served as financial advisors to XL on the deal while Catlin was advised by JP Morgan Chase, Barclays and Evercore.