Fairfax nears deal to buy Allied World for $4.9B

[valuesource]

Apparently, they are just waiting for Delaware.

[nwoodman]

Apparently, they are just waiting for Delaware.

 

Thanks, for the update.  Do you have a reference for the other jurisdictions mentioned?

 

Arkansas Approval

http://www.insurance.arkansas.gov/news/2017/jun/19/kerr-approves-1b-acquisition/

 

New Hampshire Approval

http://www.nh.gov/insurance/legal/documents/order_alliedworldacquisition06.22.17.pdf

 

 

OMERS - not related to the above

https://www.nh.gov/insurance/legal/documents/nh_forma_omers_alliedwld.pdf

 

 

Looks like the Delaware hearing is scheduled for next Tuesday

 

http://insurance.delaware.gov/wp-content/uploads/sites/15/2017/05/public-hearing-regarding-individual-licensee-fairfax-UPDATED.pdf

 

Cheers

 

nwoodman

[valuesource]

Cannot site a source.

[nwoodman]

Nice summary and worth a read

 

Fairfax Financial’s Evolution to Global Player

 

http://www.economicswire.net/fairfax-financials-evolution-to-global-player.html

 

[nwoodman]

Closed

 

http://www.fairfax.ca/news/press-releases/press-release-details/2017/Fairfax-Financial-Successfully-Completes-Acquisition-of-Allied-World-and-Closes-Exchange-Offer/default.aspx

[obtuse_investor]

Any disclosures or estimates on the pro-forma book value now that the deal is closed?

[gary17]

i get roughly $ 338 USD or $ 436 CAD per share.

 

total equity from Q1 of the two companies = 12B

less the special dividend and cash payout to existing AWH holders ... equity left is about $9.5B

 

fairfax closing price is about $444 usd so the ratio is 0.027 + the fix ratio .030392 = about 5M new FFH shares being issued

Q1 outstanding shares = 23M so now 28M share out

 

 

$9.5B / 28M shares = $338 usd/share for book value.

 

 

That's interesting earlier this year fairfax was trading about 1.25 xbook & the $52 buyout is also about 1.25book

 

right now it's trading around 1.3 book      30% premium

 

just as a perspective,  I looked at AWH a few years ago when it was trading at a discount to book.    It wanted to buy Transatlantic    and BRK came in with a similar offer too - interesting back then these were 0.7 ~ 0.8 to book.  It's been great for AWH shareholders to see growth in book value and an increase on valuation

 

http://www.reuters.com/article/us-alliedworld-idUSTRE78F1V120110916

 

[racemize]

Are you sure on that BVPS?  The previous value was $361 and they are issuing shares above book value, so I would not expect it to go down.

[gary17]

they are issuing shares based on the formula

according to the presentation updated in March 

http://s1.q4cdn.com/579586326/files/doc_downloads/2017/2017_03-Investor-Presentation.pdf

 

Fixed exchange ratio of 0.030392 shares of Fairfax per Allied World share (~$14.00 per Allied World share)

Floating exchange ratio representing a fixed value of $12.00 per Allied World share between Fairfax share prices of

US$435.65 and US$485.65 per share; fixed exchange ratios of 0.027545 below US$435.65 and 0.024709 above

US$485.65

 

Since on July 5  FFH closing was $444 usd    that's  floating ratio of $ 12 / 444 = 0.027027

 

So 0.027027 + 0.030392 = .057419

 

AWH had about 86M shares out so * 0.057419 = 5M new shares of FFH after conversion

 

23M + 5M = 28M shares

 

 

[A_Hamilton]

they are issuing shares based on the formula

according to the presentation updated in March 

http://s1.q4cdn.com/579586326/files/doc_downloads/2017/2017_03-Investor-Presentation.pdf

 

Fixed exchange ratio of 0.030392 shares of Fairfax per Allied World share (~$14.00 per Allied World share)

Floating exchange ratio representing a fixed value of $12.00 per Allied World share between Fairfax share prices of

US$435.65 and US$485.65 per share; fixed exchange ratios of 0.027545 below US$435.65 and 0.024709 above

US$485.65

 

Since on July 5  FFH closing was $444 usd    that's  floating ratio of $ 12 / 444 = 0.027027

 

So 0.027027 + 0.030392 = .057419

 

AWH had about 86M shares out so * 0.057419 = 5M new shares of FFH after conversion

 

23M + 5M = 28M shares

 

Gary,

 

They provided the final ratio in the press release below.

http://www.fairfax.ca/news/press-releases/press-release-details/2017/Fairfax-and-Allied-World-Announce-Final-Exchange-Ratio-for-Exchange-Offer/default.aspx

 

[gary17]

they are issuing shares based on the formula

according to the presentation updated in March 

http://s1.q4cdn.com/579586326/files/doc_downloads/2017/2017_03-Investor-Presentation.pdf

 

Fixed exchange ratio of 0.030392 shares of Fairfax per Allied World share (~$14.00 per Allied World share)

Floating exchange ratio representing a fixed value of $12.00 per Allied World share between Fairfax share prices of

US$435.65 and US$485.65 per share; fixed exchange ratios of 0.027545 below US$435.65 and 0.024709 above

US$485.65

 

Since on July 5  FFH closing was $444 usd    that's  floating ratio of $ 12 / 444 = 0.027027

 

So 0.027027 + 0.030392 = .057419

 

AWH had about 86M shares out so * 0.057419 = 5M new shares of FFH after conversion

 

23M + 5M = 28M shares

 

Gary,

 

They provided the final ratio in the press release below.

http://www.fairfax.ca/news/press-releases/press-release-details/2017/Fairfax-and-Allied-World-Announce-Final-Exchange-Ratio-for-Exchange-Offer/default.aspx

'

 

LOL i didn't see.  i'm not far off - if anything  with their final ratio  there's even lower bvps

[gokou3]

Company estimated the new BVPS = US$384.98 per page 21 of the attached March 24th presentation.  Any major change since then?

2017_03-Investor-Presentation.pdf

[racemize]

So I just did the math and got a similar number to what Gary did, but I think it is missing some accounting minutia (if anyone can jump in on that, I would appreciate the explanation), so I don't think the new book value will be $338. 

 

If you apply the same math to the presentation Goku just posted, you would have gotten $342; instead, presentation lists total equity value of $10,855 rather than $9,587.  I imagine this has to do with some combination of 1) issuing shares above book value as FFH is doing should increase book value per share; 2) there are a lot of minority shareholders that will own a portion of Allied, and they are pitching in money that isn't coming out of FFH balance sheet; and 3) other accounting rules. 

 

Anyway, if you use their reported total equity value from the presentation (and I think it should be close, given the small changes from end to Q1 of the two companies) and the new number of shares (which is higher than when the presentation was provided), you get pro forma book value of $385.

 

Would really appreciate any people with know-how on this to help correct the math/process for getting the value.

 

TIA.

[racemize]

I'm obviously still sick--all these calculations are tangible ones that exclude goodwill that will be added to FFH asset side.  Still not sure how to go through all the calculations to figure this out by hand, if that is possible from the information we have.

[gary17]

why should AWH have any good will 

 

I guess if people want to value it that way  OK... LOL      it all comes down to how many times book

[benhacker]

Race, be sure you are counting "common" book, you can't include preferred equity (or if you do, the number means something else).

[racemize]

My numbers came in low, the same way Gary's did.  I believe the reason is because neither of us included any goodwill for the acquisition on the books.

 

Anyway, the FFH presentation is the one with the higher common equity and projected book value per share, so I don't think there's any preferred equity in there.  I believe my updated value just adjusts their calculation slightly, so it should treat it the way FFH did in the first place.

 

Edit: Oh, I see, I used the word "total" in my post--the presentation says "common equity" and then also says BVPS is ~$385.  Sorry my language wasn't too clear there.

[nwoodman]

FWIW revised ratings on Allied World post merger

 

Moody's

https://www.moodys.com/research/Moodys-downgrades-Allied-Worlds-ratings-following-acquisition-by-Fairfax-outlook--PR_368998

 

S&P

http://www.intelligentinsurer.com/news/s-p-cuts-allied-world-post-acquisition-by-fairfax-12487