Fairfax buys remaining Advent shares

[omagh]

http://www.reuters.com/article/mergersNews/idUSBNG39720620090717

 

* Cash offer at 76 pct premium to Advent's Thursday close * Fairfax already owns about two-thirds of Advent

 

* Fairfax plans to delist Advent (Adds details)

 

July 17 (Reuters) - Toronto-based Fairfax Financial Holdings Ltd (FFH.TO) said it agreed to buy the remaining stake in British insurer Advent Capital (Holdings) Plc (ADV.L) for 220 pence per share, valuing Advent at about 94 million pounds ($153.9 million).

 

The insurance holding company said it would buy the shares of the Lloyd's of London [LOL.UL] insurer that it does not already own and the offer represents a 76 percent premium to the stock's closing price on Thursday.

 

In July 2008, Fairfax had offered to buy Advent for 165 pence each.

 

As a result of the prior offer and subsequent market purchases of Advent shares, Fairfax owns about 66.7 percent of the company's shares, it said.

 

Fairfax plans to buy out the minority investors in Advent and delist the company.

 

Merrill Lynch International is Fairfax's financial advisor, the insurer said.

 

Advent shares were indicated up 72 percent at 215 pence at 0704 GMT. Shares of Fairfax closed at C$292 on Thursday on the Toronto Stock Exchange. ($1=.6106 Pound)

[Vinayd]

Well, this is interesting in many respects.

 

FFH is paying $50M to buy the rest of Advent for 220pence/share.  In reading the 2008 Annual, Advent had issued a lot of shares in 2005 in the 20 and 25 pence range.  So, quite a price jump to buy them back!  I'm guessing FFH is trying to access Advents reserves, as there may be substantial gains there.  The big question is was paing $50M for the rest of Advent a better deal than buying either more FFH shares back or committing the $50M towards the purchase of ORH.  Unlike many of the Asian and eastern European insurance purchases, it doesn't look that Advent is a growth business. Also, their CR doesn't look stellar either.  So, I'm guessing FFH has made a strong gain on their reserves, and are looking to annex them for dividend capacity back to FFH holding.  Hopefully, this dividend capacity is equal or greater than the $50M spent. 

[Viking]

I also took a quick look at Advent and wondered why FFH would spend their scarce resources here instead of other places. The two things that stood out to me were:

1.) they already own 66%; they can now run it as they see fit

2.) re-insurance operations: this is the part of the insurance business where pricing appears to be improving first

[JEast]

Don't get too excited as Advent had a 10/1 reverse stock split in 2008.

 

On 23 June 2008, the Company's ordinary shares of 5p each were consolidated on a ratio of 1 new ordinary share of 50p each for 10 old ordinary shares of 5p each approved by shareholders at the Annual General Meeting. Outstanding shares, as options and per share amounts have been retroactively restated to present the comparative information on a consistent basis

 

 

Cheers

JEast

[Vinayd]

Whew!  Thanks, JEast.  I didn't see the reverse stock split. The high price was troubling me, as I didn't see a strong reason to purchase at 10X the price they issued shares in 2005/06.

[oldye]

In '06 and '07 this company had CR's of 83% and 79% and Roe north of 20%.  They will be fully consolidating 64.7 million in long term debt and 96 million in shareholder capital.  They're paying 50 million for the last 32 million of shareholder equity they didn't own.  The savings from not being a public company should be substantial.  Keep bringing them home!

 

[benhacker]

Interesting move... I wouldn't have guessed they would pay so much... but this may have something to do with it; similar to the Northbridge purchase:

 

http://finance.yahoo.com/q/bc?s=GBPUSD=X&t=2y&l=on&z=m&q=l&c=

 

Cheers,

 

Ben

[Guest Dazel]

 

We looked at buying Advent (I stated this on the old board) because their entire portfolio consisited of short term US Treasuries. As we know short term US Treasuries have held their gains and are highly liquid. I believe you will find your answer there. We are not disappointed we did not buy the shares because we could not buy enoguh to make it worth while. You will be interested to know that the minority holders include Peter Cundill among others we know. (It was last fall that we did this research so it may have changed a little).

 

Dazel.