Enstar slams Arch-Watford Re deal; proposes higher takeover bid

Bermuda-based re/insurer Enstar has made a second indicative non-binding offer to acquire Watford Re, which has already struck a  $622m all-cash deal with Arch Capital Group, while expressing its forthright criticism and accusing Watford's board of not acting in the best interest of the company.

On October 15, Enstar sent a third letter to Watford Re's board of directors expressing its "strong disappointment" for striking a deal with Arch while ignoring Enstar's interest and initial indicative bid to acquire the company in a "mutually beneficial transaction that provides a fair price to Watford’s shareholders".

Enstar believes that Arch's offer - a per share price of $31.10 - is "well below the fair value" of Watford Re.

Enstar has now increased its proposal to $34.50 per share from its initial $31.00 per share offer, and requested Watford's board to engage with it instead.

The company has also accused Watford of rushing into a deal with Arch and accepting a bid that represented less than a 1 percent increase in price from its own offer. In its second letter sent to Watford Re's board on October 5, Enstar had indicated that it may be able to increase its offer on satisfactory completion of its due diligence.

"The Board did not return to Enstar to explore whether it was prepared to increase its bid above $31.10, or even respond to Enstar’s request for expedited diligence to allow for an increased offer," said the letter sent to Watford's board.

"In light of Enstar’s $5.00 per share increased offer and the clear signal in its second letter, the Board’s decision to ignore Enstar and execute the Agreement with Arch raises very serious and troubling questions, including whether the Board properly discharged its fiduciary duties to act in the best interest of the company."

Enstar also criticised Watford's board for executing an agreement that includes a “no-shop” provision without conducting a reasonable pre-signing market check.

The letter said that Watford's board rushed to "prematurely and inexplicably sign an agreement with its controlling shareholder, while refusing to engage with Enstar."

According to the letter, Watford has agreed to pay an $18.66 million “break up” fee to Arch if the Board rightfully terminates the agreement.

Enstar believes that Watford is worth more than $31.10 per common share.

"As the second largest shareholder in Watford, Enstar will not accept the current Arch offer of $31.10 per common share," it said, adding that the company has "retained legal advisors to advise us in connection with next steps, including litigation if it becomes necessary. Our sole interest is to see that shareholder value is maximized."