* To pay 0.1935 Validus shares, $2 for each Flagstone share
* Purchase price represents 19 pct premium
* Deal to boost Validus property reinsurance business
By Jochelle Mendonca and Ashutosh Pandey
Aug 30 Reinsurer Validus Holdings Ltd
said it will buy Flagstone Reinsurance Holdings for
about $600 million in cash and stock to boost its property
The deal comes after Validus unsuccessfully tried to buy
another reinsurer Transatlantic Holdings Inc last
year. Transatlantic's board, which repeatedly rebuffed Validus,
accepted a $3.4 billion stock-and-cash offer from property and
casualty insurer Alleghany Corp in November.
Validus will pay $8.43 per Flagstone share - a 19 percent
premium to the stock's Wednesday close. Flagstone shareholders
will receive $2 in cash and 0.1935 Validus shares for each share
they tender in the offering.
Flagstone's stock was up 19 percent at $8.39 in late-morning
trading on the New York Stock Exchange. Validus shares were
marginally up at $33.38.
Validus said it expected the deal to immediately add to its
The company will assume $250.2 million of Flagstone hybrid
junior subordinated deferrable interest debentures, Validus said
on a conference call with analysts.
The deal has a break-up fee of $24.2 million, it said.
Flagstone had a diluted book value of $11.52 per share when
it reported second-quarter results earlier this month.
Insurers like SeaBright Holdings Inc and
Transatlantic have sold for less than book value as the industry
evaluates future profitability in the light of low investment
returns and increasing competition.
"The price seems very reasonable, possibly enough to attract
other bids, and Validus has proven to be a successful acquirer
that should benefit from increasing scale and diversification,"
Stifel Nicolaus analyst Meyer Shields wrote in a note to
Bermuda-based Validus said Lightyear Capital and Trilantic
Capital Partners, which together own more than a fifth of
Flagstone, have agreed to the deal.
Hedge fund firm Elliott Associates, run by Paul Singer,
owned about 8.7 percent of the reinsurer as of June 30. Elliott,
which sometimes takes activist stances in its portfolio
companies, held 6,158,490 shares at the end of the second
quarter, according to a filing with the U.S Securities and
Elliott declined to comment.
Analyst Shields added that he was not worried that Validus
was using its own modestly discounted shares to pay for the
transaction. Validus is currently trading at a 10 percent
discount to book value, according to Thomson Reuters StarMine.
"The transaction ... concludes a lengthy and extensive
process in which the Board carefully considered a broad range of
strategic alternatives," Flagstone Chief Executive David Brown
said in a statement.
Flagstone has been selling non-core businesses to focus on
property and casualty reinsurance. The reinsurer sold its
Lloyd's operations and Island Heritage unit in April.
Deutsche Bank advised Validus, while Evercore Partners