Expected to Create a Leader in Global Specialty Insurance and Reinsurance Markets
Expected to Create Double Digit EPS and Meaningful ROE Accretion
Fri Jan 9, 2015, Dublin, Ireland: #xl Group plc (NYSE: XL) today announced that it has entered into an agreement under which XL will offer to acquire all of the capital stock of Catlin Group Limited (LSE: CGL) to form a combined business which is expected to have a leading presence in the global specialty insurance and reinsurance markets. Under the terms of the transaction, XL will acquire all of Catlin’s common shares for consideration of 388 pence in cash and 0.130 share of XL for each Catlin common share. On the basis of the closing price of an XL share on 8, January of $35.42 the offer values Catlin at 693 pence per share. This represents a transaction equity value of approximately $4.1 billion dollars. In addition, Catlin shareholders will receive a 22p final dividend to be paid in Q1 2015.
The transaction represents a premium of 23.5% to Catlin’s closing share price as of December 16, 2014 the date prior to each company having publicly confirmed discussions regarding a transaction. The transaction is structured as a scheme of arrangement and is expected to close mid-2015, subject to approval of Catlin shareholders and sanction by the Supreme Court of Bermuda, customary regulatory approvals and anti-trust clearances, and other customary closing conditions. Following the completion of the transaction, the name of the parent company of the combined group will remain XL Group plc, and the newly combined company will be marketed as XL Catlin, reflecting the strong reputation of both brands.
XL CEO Mike McGavick commented: “We are delighted to announce this compelling combination which positions us strongly to provide more – and even better – answers for the world’s most complex risks while enhancing our opportunities to create value for shareholders and better serve clients and brokers. We believe the transaction will accelerate each company’s strategy, and address the meaningful structural changes we see shaping the P&C sector. Specifically, the combination will add immediate scale in specialty insurance, it will create a more efficient and more capable global network by bringing our two infrastructures together, and it creates a top 10 reinsurer with expanded alternative capital capabilities.”
McGavick continued, “This is an extraordinary opportunity to bring together two innovators with roots in disciplined underwriting, industry leadership and business vision, and strong cultural alignment. I am especially pleased that Stephen Catlin will continue on with the combined company and, on closing of the acquisition, is expected to serve on our Board. We will benefit enormously from Stephen’s input in all strategic decisions and through our ability to leverage his vast market network as we implement the strategy of the new combined company. With the combination of our talented teams, we expect to maintain strong financial fundamentals while generating attractive economics and long-term value for shareholders including double-digit EPS and meaningful ROE accretion.”
Catlin CEO Stephen Catlin said, “XL is a compelling partner for the Catlin business. Both businesses have been built on underwriting excellence and benefit from strong cultural compatibility. Together, the combined entity will be a market leading global specialty and property catastrophe insurer which will be far better positioned to respond to the changing dynamics that are impacting the broader insurance and reinsurance markets. We expect the enlarged business to benefit from increased diversification, significant further economies of scale, strengthened franchises in each of its markets and an improved standing with intermediaries. As a result, XL Catlin will be better equipped to serve its clients across a range of distribution channels and geographies with an enhanced suite of capabilities and products.”
With $17B of total capital and approximately $10B of net premium, based on the December 31, 2013 audited financials of each company, the combined company will achieve significant scale within its core competencies of global specialty insurance and reinsurance. Additionally, the combination of XL’s and Catlin’s business platforms is expected to generate compelling benefits:
* Increased relevance with brokers through greater premium volume, broader product offering and an expanded global network, particularly given an enlarged Lloyd’s platform with Catlin having a leading Lloyd’s presence
* Top tier in many of the specialty lines in which XL has recently invested including Political Risk and Crisis Management, will add to leading positions in Aerospace, Fine Art & Specie, and will have a best-in class Aviation, Marine and Energy Platform
* More effectively leveraging investments in technology and data analytics, as well as a larger dataset to build out predictive modelling and analytics
* Approximately $2.8B of ceded reinsurance to allow for increased purchasing power and further optimization
* Top 10 global reinsurer with multi-line capabilities, with net premiums written nearly doubling to over $3B
* Top three broker market property cat writer with enhanced third party opportunities – leveraging talent and relationships from each company to optimize combined platform
Leadership and Integration
Mike McGavick will continue as CEO and it is expected that Stephen Catlin will join the combined company as Executive Deputy Chairman upon the closing of the transaction. It is also expected that Mr. Catlin will serve on the Board of Directors. Peter Porrino will continue as Chief Financial Officer. An additional Catlin director who meets applicable independence and other qualifications is also expected to join the XL board of directors in connection with the closing of the transaction.
Having, over the last few years, led XL’s Insurance operations to profitability, Greg Hendrick, currently XL’s Chief Executive Insurance Operations, will have the role of Chief Executive of Reinsurance, assuming responsibility for the combined reinsurance business and leading all alternative capital strategies. Until the transaction closes, John Welch, currently Chief Executive of XL’s North America Reinsurance operations, will lead reinsurance operations at XL, given Jamie Veghte’ s recent retirement.
Paul Brand, Catlin’s Chief Underwriting Officer, will have the position of Chair Insurance Leadership Team and Chief Underwriting Officer Insurance and will have responsibility for capital allocation and purchasing outward reinsurance for the group. Additionally, Kelly Lyles, currently XL’s Head of Professional Insurance will assume the position of Deputy Chair Insurance Leadership Team and Chief Regional Officer Insurance. Mr. Brand and Ms. Lyles will both report to Mike McGavick and together will lead all aspects of insurance for the combined company.
The integration planning team will be led by Myron Hendry, XL’s Chief Platform Officer, with support from the extended leadership teams of XL and Catlin. The combined company will identify additional roles for many of Catlin’s senior management team post-integration, and plans to create an organization that draws upon the talent of both XL and Catlin’s functional teams.
The transaction is expected to create an attractive return profile with earnings per share and return on equity accretion in 2016, the first full year of combined operation, and double-digit earnings per share accretion in 2017 upon full phase-in of expected synergies. XL expects to issue approximately $1.8 billion of new XL shares in connection with the acquisition. To satisfy the U.K. market practice of transactions being “funds certain,” XL has put in place a bridge facility to backstop the funding of the cash elements of the consideration.
It is expected that the combined entity will be able to achieve annual cost synergies of at least $200 million, with the full level of these recurring synergies being achieved by the end of 2017. The primary sources of these cost synergies are expected through the consolidation of the combined infrastructure related to technology, real estate, and operational overlap as well as the consolidation of business and central support functions. It is expected that the realization of these cost synergies will result in one-time integration costs of approximately $250 million which are all anticipated to be incurred by the end of 2017.1
1 We are applying the Code but this is not pursuant to the Code or for the purposes of Rule 28. The basis of belief, principal assumptions and related reports in respect of any “quantified financial benefits statement” or statement on synergies is set out in the offer announcement published on 9 January 2015.