Enstar Group ups its offer as Bermuda bidding war over Watford Holdings continues

October 15, 2020.

Group is redoubling its efforts to acquire property and casualty insurer and reinsurer Watford with an increased bid, despite the company already agreeing to a sale to Group last week.

Arch Capital spokesperson Greg Hare told Fastinform on Thursday that the insurer is "aware of Enstar’s contingent proposal and remain fully committed to our announced definitive agreement with Watford.”

Arch Capital, a Bermuda-based global provider of insurance, reinsurance and mortgage offerings with around $14.7 billion in capital as of June 30, agreed to purchase Watford on Oct. 8 for $31.10 per share, or approximately $622 million.

Arch had previously offered $500 million in September, only to be topped by Enstar, which came back with a bid of $617 million. Undeterred by the announced agreement with Arch, Enstar wrote to Watford’s board of directors, according to Reinsurance News on Thursday, offering $686 million, or $34.50 per share. 

Arch initially launched Watford in 2014, in partnership with subsidiary Principal Strategies.

Bermuda-based Enstar hinted at legal action in its communication to Watford, saying, "In light of Enstar’s $5 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.”

Both companies hold significant stakes in Watford already, with Arch the largest shareholder with 12.6%, and Enstar recently boosting its stake to 9.1%. 

Watford CEO Jon Levy seemed to brush off the bidding war, saying the deal with Arch “represents a clear path forward for Watford, while also delivering an attractive premium to shareholders in a transaction with a high degree of certainty to close.” He added that, “Watford will be better positioned as a standalone business within Arch to execute its strategic priorities and growth plans.” 

Arch already underwrites Watford’s policies, an arrangement that Enstar was willing to leave in place or renegotiate when it made its previous offer.

“Our longstanding contractual partnership with and financial consolidation of Watford expedited the due diligence process and should give all stakeholders confidence in our ability to close this transaction quickly,” noted Arch Capital CEO Marc Grandisson.

The rapid increase in offers on both sides shows both a renewed appetite for mergers and acquisitions, which were down over the summer, and the challenge in accurately pricing Watford Holdings, which has struggled to turn a profit. 

The company, which went public in March 2019, had combined ratios over 100% in the first halves of 2019 and 2020. It lost $63 million in investments in the first half of 2020. Watford had around $1 billion in capital as of June 30. Investors urged Watford to sell back in May.