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Prem Watsa is significantly expanding the reach of insurer Fairfax Financial Holdings Ltd. in the United States with his largest deal – a US$4.9 billion cash and stock acquisition of Allied World Assurance Co.
On a conference call to discuss the transaction, Watsa said he views the purchase as a bet on economic growth under U.S. president-elect Donald Trump and Republican majorities in Congress.
The new regime “has the strong potential to make the business climate for growth in the United States great again, relative to the rest of the world,” he said. “Our businesses in the U.S., including Allied World, will benefit from any such positive economic development.”
Switzerland-based Allied World, which was founded 15 years ago, focuses on specialty insurance and reinsurance.
Watsa, Fairfax’s intensely private chief executive who is nevertheless known for some successful plays in down markets, called Allied World “a high-quality company with an excellent long-term track record and an outstanding management team.”
He said the plan is for the company to operate within the Fairfax group, but on a “decentralized basis.”
The US$54 a share value of the deal consists of U$10 in cash, including a $5 special dividend from Allied World to its shareholders, and $44 in Fairfax stock. Toronto-based Fairfax has the option to boost the cash portion by up to US$30 a share.
The offer represents an 18 per cent premium to the closing price of Allied World on the last trading day before the deal was announced. It is expected to close in the first quarter of 2017.
Fairfax is primarily a property and casualty insurer, but Watsa is better known as a deal maker and value investor.
The often contrarian investor’s holdings include restaurants, sporting goods stores, newspapers, and smartphone makers.
During the 2008 financial crisis, he profited handsomely from a timely purchase of well-structured credit default swaps, with ultimate gains of more than $2 billion. He then led investments in troubled banks such as Bank of Ireland that paid off when their fortunes rebounded.
He has also ventured into the restaurant business with members of the Phelan family, through the purchase of Cara Operations Ltd. Cara, which counts Swiss Chalet among its holdings, went public last year. Shares jumped 43 per cent on the first day of trading, making the IPO the most successful debut since 2007.
Watsa has had less success with his purchase of media companies. He bought shares in CanWest Media, former owner of many Postmedia titles including the National Post, which filed for protection from creditors in 2009 and sold off its assets. Watsa also owns a substantial stake in Torstar Corp., buying some shares for as much more than $19 a share. Torstar shares were trading at $1.65 at mid-day Monday.
Another controversial play for Watsa was his investment in BlackBerry Ltd., the smartphone maker that has struggled to reinvent itself in the growing shadows of Apple Inc. and Google Inc.’s Android.