Toronto-based insurance and investment company Fairfax Financial Holdings has gotten more financial support for what may be the largest acquisition in its history.
The firm has announced an additional US$500 million worth of capital contributed by Alberta Investment Management Corporation (AIMCo), according to the Globe and Mail. The amount will go toward Fairfax’s previously announced US$4.9-billion acquisition of Swiss insurer Allied World Assurance Company Holdings AG. With its contribution, AIMCo’s stake in Allied World will exceed 10% of the insurer’s shares.
Fairfax had already gotten $1 billion in capital from the Ontario Municipal Employees Retirement System (OMERS) and approximately $100 million from other unnamed backers. With AIMCo pitching in, Fairfax can boost the cash portion of its cash-and-stock offer, helping it avoid selling 3.5 million Fairfax shares to finance the deal.
“Fairfax will be able to minimize the dilution to Fairfax shareholders, while having the flexibility to buy back the minority investments from OMERS, AIMCo and others over five to seven years’ time,” said Fairfax founder and CEO Prem Watsa in a statement, adding that the company is grateful for the support from its co-investing partners.
In a recent letter to shareholders, Watsa called the deal “the most significant acquisition in our history.” He also explained that because of the Trump administration’s promised corporate tax cuts and measures to stimulate the US economy, the company has abandoned a hedging strategy it had been using in its common-stock portfolio since 2010.
After its 2016 announcement of the Allied World acquisition, Fairfax declared plans to raise its “threshold for acquisitions now so as to benefit from the ones we have already made – and to buy back our stock.”
The company also announced another first in its history by introducing two new directors to its stable. Lauren Templeton founded and currently runs Tennessee-based Templeton and Philips Capital Management in the US; she is also related to Sir John Templeton, who pioneered the value-investing principles that inspired Watsa’s approach. The second new board member, Karen Jurjevich, has been the principal at Branksome Hall, a private girls’ school in Toronto, since 1998.
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