Arch Capital to acquire Watford Re after increasing offer

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Arch Capital Group Ltd. said today that it has reached an agreement with Watford Holdings Ltd., the holding company of total-return reinsurance company Watford Re to acquire the company for $31.10 per share, that values it at roughly $622 million.

HandshakeArch had previously been reported to have offered $26.00 per share to buy-out the rest of Watford Re’s share capital recently.

The company is already involved in Watford Re, of course, as Arch Capital Group was a founding partner in the launch of Watford Re and also its largest shareholder already, while providing underwriting management services to the total-return reinsurer.

Just the other week it was reported that legacy insurance and reinsurance specialist underwriter and investor Enstar Group had made an offer of $31.00 per share to buy-out Watford Re entirely.

Now, it transpires that Arch has sealed the deal with this increased offer and after it closes the deal in the first quarter of 2021, Watford will continue to operate as a standalone business that is consolidated within Arch’s financials.

“This represents a clear path forward for Watford, while also delivering an attractive premium to shareholders in a transaction with a high degree of certainty to close,” explained Jon Levy, Watford’s President and Chief Executive Officer. “We believe that Watford will be better positioned as a standalone business within Arch to execute its strategic priorities and growth plans. Importantly, we expect a seamless transition for our clients, trading partners and policyholders, who we think will benefit from Watford becoming part of a larger organization with greater resources.”

“Since we launched Watford in 2014, the company has been a valued part of the Arch story and we are pleased to deepen our existing strategic and financial investment,” added Marc Grandisson, Arch’s President and Chief Executive Officer. “Our longstanding contractual partnership with and financial consolidation of Watford expedited the due diligence process and should give all stakeholders confidence in our ability to close this transaction quickly. Watford’s policyholders and trading partners will benefit from the continued underwriting strength and service they have come to expect from Watford and Arch.”

It’s not surprising that Arch has won the right to the acquisition, as this will likely be a much smoother transition for the company than an external acquirer would have been.

Enstar had been pressuring the Watford board to allow it to enter due-diligence on the company, hinting also at the potential for an increased offer. But it seems the board has, unsurprisingly, opted for the simpler option of letting Arch buy them out.

Arch is funding the acquisition from its balance-sheet and Watford Re will now become an extension of its own business, albeit following a differentiated investment strategy.

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