Watford to mull 'superior proposal' from Enstar in potential merger U-turn

The unsolicited, non-binding proposal from Enstar Group to acquire Watford Holdings could reasonably be expected to lead to a “ superior proposal”, the company's board of directors has determined.

The news follows Bermuda-based re/insurer Enstar's increased second indicative non-binding bid of $34.50 per share – up from its initial $31.00 a share offer, as well as from Arch Capital Group's $31.10 per share offer, which it believes was "well below the fair value" of Watford Re.

On October 15, Enstar sent a third letter to Watford Re's board of directors expressing its "strong disappointment" for rushing into a deal with Arch Capital Group and accepting a bid that represented less than a 1 percent increase in price from its own offer.

Enstar also accused Watford's board of not acting in the best interest of the company and in line with their fiduciary duties, and warned of legal action if necessary.

Watford entered into a definitive merger agreement with Arch Capital on October 9 in an all-cash deal valued at approximately $622 million.

In a statement, Watford Holdings' board of directors said that in its good faith judgment, after consultation with the company’s financial advisors and outside legal counsel, it has determined that Enstar's offer could reasonably be expected to lead to a “superior proposal” as defined in the company's merger agreement with Arch.

"and that the failure to take such action would be inconsistent with the directors’ exercise of their fiduciary duties under applicable law."

"Under the merger agreement with Arch, the determination by the Company's Board allows the Company, subject to Enstar entering into an Acceptable Confidentiality Agreement with the Company, to provide information to and conduct discussions and negotiations with Enstar," it said.

Watford also noted that "the company’s board has not determined that Enstar’s proposal in fact constitutes a Superior Proposal under the current provisions of the merger agreement with Arch and has not changed its recommendation in support of the merger with Arch.

"There can be no assurance that the discussions with Enstar will result in the Company's Board’s determination that the Enstar proposal is a Superior Proposal or the consummation of a transaction that is superior to the pending transaction with Arch or that the terms of any new transaction will be the same as those reflected in Enstar's proposal."