RenaissanceRe Holdings Ltd. (RNR) recently entered into a definitive agreement to acquire Platinum Underwriters Holdings, Ltd. (PTP) for a consideration of $1.9 billion. The deal is pending regulatory approval and is scheduled to close in the first half of 2015.
The aggregate consideration comprises cash and stock components worth $1.16 billion and $0.76 billion, respectively. RenaissanceRe will fund the cash consideration with a pre-closing dividend, RenaissanceRe available funds and proceeds from the latest debt issuance.
As per the terms of the transaction, shareholders of Platinum Underwriters will receive $76.00 per share in stock and cash. This $76.00 per share value represents a 24% premium to the $61.27 per share closing price of Platinum Underwriters as of Nov 21. At the time of closing, shareholders of Platinum Underwriters will receive a $10.00 per share special pre-closing dividend. Shareholders can choose to receive the remaining consideration as $66.00 per share in cash, 0.6504 RenaissanceRe shares per Platinum Underwriters share or as a combination of $35.96 in cash and 0.2960 RenaissanceRe shares per Platinum Underwriters share.
Management of RenaissanceRe expects the deal to enhance book value per share and earnings per share. Moreover, the deal should improve its financial strength and flexibility.
Since Platinum Underwriters is a well-run company, its integration with RenaissanceRe will create an entity that will create a vast product portfolio and broker relationships, thereby benefiting the existing clients of both companies. Moreover, being a leading name in casualty reinsurance, the acquisition is expected to help RenaissanceRe strengthen its U.S. specialty and casualty reinsurance platform. Management of RenaissanceRe considers the deal to be a strategic fit as Platinum Underwriters has a strong underwriting and risk management business that should complement the risk management framework of the former.
As for the numeric benefits of the transaction, upon closure, shareholders’ equity of RenissanceRe will increase from $3.7 billion to $4.5 billion while total cash and invested assets will increase to $9.4 billion from $7 billion. Moreover, the deal is expected to lead to run-rate annual cost savings of $30 million and significant capital efficiencies.
RenaisanceRe currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the property and casualty space include AmTrust Financial Services, Inc. (AFSI) and Arch Capital Group Ltd. (ACGL). Both stocks sport a Zacks Rank #1 (Strong Buy).
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