The reinsurance sector merger & acquisition rumour mill has been on overtime this year, due to increasing pressure on profits and pricing. Now the first landmark deal has been announced, as RenaissanceRe Holdings is set to buy Platinum Underwriters for $1.9 billion.
RenaissanceRe, the Bermuda domiciled reinsurer and third-party reinsurance capital and insurance-linked securities (ILS) manager, has entered into a definitive merger agreement with Platinum to acquire it.
Under the terms of the deal, the common shareholders of Platinum will receive $76.00 per common share in stock and cash, or approximately $1.9 billion.
Kevin J. O’Donnell, President and Chief Executive Officer of RenaissanceRe, commented on the deal; “We are very pleased to have entered into the definitive agreement to acquire Platinum. It is a well-run company and its integration with RenaissanceRe will benefit our combined companies’ clients through an expanded product offering and broker relationships. It will also accelerate the growth of our U.S. specialty and casualty reinsurance platform and as a result, create enhanced value for our shareholders.”
“Platinum is a company we know well as we supported its formation and initial public offering in 2002. Platinum’s disciplined approach to underwriting and risk management is a strategic and cultural fit for RenaissanceRe and its book of business will be integrated within our risk management framework. After the transaction closes, we anticipate our combined company will continue to have the very strong capital and liquidity position you have come to expect from RenaissanceRe,” O’Donnell continued.
RenaissanceRe says that it expects the transaction to be accretive to book value per share and earnings per share and that the combined company will have substantial financial strength and flexibility post-closing.
Aggregate consideration for the deal will consist of 7.5 million RenaissanceRe common shares, valued at approximately $761 million, and $1.16 billion of cash, according to the announcement. The cash consideration will be funded through a pre-closing dividend from Platinum, RenaissanceRe available funds and the proceeds from the issuance of new senior debt as well.
The acquisition price of $76.00 represents a 24% premium to Platinum’s closing price per common share as of November 21, 2014, which is attractive and shows the value placed on acquiring more scale at reinsurers.
Platinum shareholders will receive a $10.00 per share special pre-closing dividend and will be entitled to elect to receive, for each Platinum share held, either (i) $66.00 in cash, (ii) 0.6504 RenaissanceRe common shares or (iii) 0.2960 RenaissanceRe common shares and $35.96 in cash, once the deal closes. As a result, following completion of the transaction, Platinum’s existing shareholders will own approximately 16% of RenaissanceRe’s outstanding shares.
RenRe’s senior management team, led by CEO Kevin O’Donnell, and eleven member Board of Directors will remain in place. The combined company will retain RenaissanceRe’s name and headquarters meaning that the Platinum brand will no longer exist.
For the twelve months ended September 30, 2014, the two companies had gross premiums written of $2.0 billion. The combined firm, as a larger RenaissanceRe, will have shareholders equity of $4.5 billion (up from $3.7B) and total cash and invested assets will increase from $7.0 billion to $9.4 billion on a pro forma basis.
RenaissanceRe expects to achieve approximately $30 million of run-rate annual cost savings and to realize meaningful capital efficiencies from the combination, according to the release.
The agreement has been unanimously approved by both companies’ Boards of Directors. The transaction is expected to close in the first half of 2015 and is subject to customary regulatory approvals as well as the approval of Platinum’s shareholders.
Michael D. Price, President and Chief Executive Officer of Platinum, said; “We are pleased to have entered into the definitive merger agreement with RenaissanceRe. RenaissanceRe supported our formation and initial public offering in 2002 and has a demonstrated track record of underwriting excellence. We firmly believe this transaction is in the best interests of our shareholders and beneficial to our clients and brokers.”
It’s extremely likely that the shareholders will approve this transaction, which seems beneficial for both parties. Platinum had always been thought to be one of the Bermudian reinsurers most at risk of being acquired, given its size and scale which perhaps restricted its access to some business.
RenaissanceRe has been busily building out a more diverse platform for itself in recent quarters, adding operations at Lloyd’s of London and its specialty business, to complement its core catastrophe reinsurance focus. With the addition of Platinum, RenRe will gain additional scale and even more diversity, as well as key staff to assist its further growth.
RenaissanceRe has one of the most established reinsurer owned ILS and third-party capital asset management units as well, so this unit will no doubt also benefit from the added scale and access to business that such an M&A deal can bring. Platinum did not have a third-party capital unit.
As an accretive acquisition this is a shrewd move by RenaissanceRe. Being the first to get an M&A deal done between Bermuda-based reinsurers it positions RenRe ahead of the game and should position it well for 2015 when competitors may increasingly begin to look at M&A as an option themselves.