Arch seals $700m Watford deal with rival bidder Enstar's backing

Re/insurer Arch Capital Group has agreed a revised deal with Watford Holdings to acquire the reinsurer for an increased price of $35 per share, valuing at approximately $700 million, having gained the support of key shareholder and rival bidder  Enstar, and additional backing from private equity houses Warburg Pincus and Kelso.

The new offer represents a 12.5 percent increase over the prior agreement of $31.00 per share price, which valued the company at approximately $622 million.

Enstar, which also made an indicative non-binding takeover bid to acquire Watford, criticised the earlier deal as being "well below the fair value of Watford Re". Enstar had accused Watford of rushing into a deal with Arch and of not acting in the best interest of the company.

Enstar, which holds 9.1 percent of Watford common shares, has now agreed to vote in favor of the revised transaction, which is taking place at a higher price than its latest indicative non-binding proposal of $34.50 per share.

Under the new deal, Arch will own approximately 40 percent of the newly formed entity, and funds managed by Warburg Pincus and Kelso & Company will each own approximately 30 percent.#

The transaction is expected to close in the first quarter of 2021, but remains subject to customary closing conditions, including regulatory and shareholder approval.

“We continue to believe in the merits of this compelling opportunity and are pleased to be making this revised offer,” said Marc Grandisson, president and chief executive officer of Arch. “The increased premium and the addition of Warburg Pincus and Kelso as active investment partners will position Watford to capitalize on its significant value generation potential while ensuring continuity of service for all policyholders.”

Jon Levy, president and chief executive officer of Watford, said: “This transaction delivers an attractive premium to our shareholders, and offers Watford the opportunity to fulfill its potential as a private company. This is a significant milestone for us, both in our pursuit of shareholder value as well as for our strategic growth plans. We look forward to deepening our longtime relationship with Arch, and collaborating with our new partners, Kelso and Warburg Pincus.”

Dan Zilberman, managing director and executive management group member at Warburg Pincus, added: “We were a founding investor in Arch in 2001 and have followed the company’s development closely since our investment. We are excited to partner once again with Arch’s talented management team in a new endeavor. Arch has a compelling plan in place to enable Watford’s continued performance for its policyholders and trading partners. We are excited to participate in this plan, and believe that we can be a value added partner by applying our operating and industry resources to enhance Watford’s inherent value proposition.”

Chris Collins, managing director of Kelso, said: “We have a successful history of partnering with Arch and are excited to be joining them in the acquisition of Watford. Watford is a strong platform, and we believe that Arch is uniquely qualified to augment its position with its clients and counterparties. We look forward to leveraging our industry expertise and capabilities to support Watford in its next phase of growth.”