XL Group has confirmed that it is in preliminary discussions with Catlin “regarding a potential transaction to acquire the company and form a combined entity”.
XL's chief executive, Mike McGavick, commented in a statement: “Both XL and Catlin – respected, innovative, global P&C firms - are well positioned on their own. However, we both believe that we will be far better positioned and stronger together. We see this transaction as deeply accelerating the strategies of both companies.
“Specifically, the combined entity would be a leader in the global specialty and property cat markets and would make greater and more efficient use of both companies’ global networks and infrastructure.
“As Catlin is the leading presence at Lloyd’s, the combination would immediately expand many of the lines of business in which XL has recently invested. In the increasingly competitive reinsurance market, the combined company would be a top 10 player, thereby increasing alternative capital opportunities and overall relevance to clients and brokers.
“The proposed transaction is expected to result in attractive economics starting in the first year and long-term value for shareholders.
“For these reasons, and crucially, for the deep cultural and strategic alignment we see between XL and Catlin, with both built on disciplined underwriting, we see meaningful opportunity in this transaction,” McGavick said in the statement.
The deal comes in Catlin’s 30 year anniversary: Stephen Catlin, now 60, formed Catlin Underwriting Agencies Ltd at Lloyd’s in 1984. A source said that Catlin, who has around a 4% stake in his company, would stay on with the combined business with the title executive deputy chairman.
This week the International Insurance Society announced that Catlin will be its 2015 Insurance Hall of Fame Award recipient.
Dublin-based XL Group has around 4,000 employees compared with Catlin’s 2,400. In 2013, XL’s net earned premiums were $6.3bn, compared with Bermuda-based Catlin’s $3.95bn. At year-end 2013, XL Group’s total stockholders equity was $11.3bn, compared with Catlin’s $3.8bn.
Under the indicative terms of the possible offer, XL would acquire 100% of Catlin for consideration of 410 pence in cash and 0.130 shares of XL for each Catlin common share. On the basis of the closing price of an XL share on 16 December of $35.01, an exchange rate of $1.573:£1 and a fully diluted share count of 386 million shares, the possible offer values each Catlin share at 699 pence.