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Fairfax and Catalina strike agreement to carve up ASI

Catalina, Fairfax Financial Holdings and Tower Group have reached an agreement under which Fairfax will buy American Safety Insurance (ASI) and Catalina will purchase American Safety Re to end the bidding war for the US insurer.

Under the deal, Catalina has withdrawn its offer to acquire ASI and has agreed to vote its shares in favour of the Fairfax acquisition.

The final acquisition price is unknown. However, Fairfax's last bid for ASI was put forward at $30.25 per fully diluted share, suggesting a consideration of around $320mn.

In its first proposed bid, Fairfax had agreed to sell ASI's Bermuda-based subsidiary American Safety Re to Tower Group International for $59mn so that it could be integrated with the latter's Bermudian reinsurer Tower Re.

However, Fairfax will now sell the reinsurer to legacy player Catalina for cash. This is subject to regulatory approval from the Bermuda Monetary Authority.

Catalina CEO and chairman Chris Fagan said: "We expressed our strong interest in acquiring American Safety, but it became clear to us that a better option for all was to enter into the agreement with Fairfax to acquire AS Re."

Catalina had increased its bid for ASI for the second time on 14 August to $30.75 per fully diluted share after Fairfax had raised its offer to $30.25 per share the previous week.

Catalina first bought a 5.6 percent stake in ASI in March, and announced that it was considering an acquisition.

However, a bidding war ignited in early June after a $29.25 per share proposal from Fairfax was recommended to shareholders.

Catalina retaliated with a $29.75 bid the following month and accused ASI's board of running the original sale process to ensure that its favoured bidder, Fairfax, won.

Despite receiving a $200mn cash injection from private equity firm Apollo and other existing institutional shareholders, Catalina has now decided not to continue the battle.

"After our recent announcement of further equity capital commitments from our three future institutional shareholders, Catalina is very well positioned to continue developing its portfolio through further acquisitions," Fagan said.

The legacy firm will nevertheless benefit from the deal with Fairfax through its near-6 percent stake in American Safety. The 548,000 shares were bought for $11mn, equating to roughly $20.07 per share.

American Safety reported gross written premium of $319.2mn in 2012 - up 6.9 percent year-on-year. However, Fairfax will not take on all of this due to the circa $40mn in premium attributed to American Safety Reinsurance and other reductions.

At the time of its first bid, Fairfax said that the transaction would boost its investable assets by $480mn from $24.4bn at present.

Meanwhile, several of ASI's specialty lines groups had been expected to move to Fairfax's New Jersey-based subsidiary Crum & Forster and to New York-based specialty insurer Hudson Insurance Group.

ASI shares closed at $31.06 per share on 16 August but dropped to $30.15 in early morning trading on the New York Stock Exchange on 19 August.

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