Insurance risk

19 December 2016 By Antony Currie Follow @AntonyMCurrie

Prem Watsa has drafted an airtight policy for Fairfax’s $4.9 bln offer for Swiss insurer Allied World, keeping close control of his company. Meanwhile BlackBerry, where he is lead director and a big investor, is trying to parlay its smartphone history into hands-off driving.

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Insurance group Fairfax Financial agreed on Dec. 18 to buy Swiss insurer Allied World for $4.9 billion, or $54 a share. The Canadian holding company's offer includes paying $44 a share in stock and $10 a share in cash, although Allied will finance half of the cash portion with a special dividend to its shareholders before the deal closes.

Of the stock component of the deal, $14 a share is payable at the fixed exchange ratio of 0.030392 Fairfax shares per Allied share.

The rest of the stock payment will equate to however much Fairfax stock is required to pay $30 a share. The buyer can, however, impose a fixed ratio if the weighted average price of Fairfax stock in the 20 trading days before the deal closes is $25 or more above or below its closing price on Dec. 16 of $460.65.

Fairfax can also opt to replace some or all of the $30-a-share portion with cash.

A majority of Fairfax shareholders need to approve the deal as it requires the company to issue stock that exceeds 25 percent of the current outstanding shares. Chairman and Chief Executive Prem Watsa controls 43 percent of the company and is voting in favor of the deal. Fairfax will now try to persuade enough shareholders to provide written support of the transaction to tip approval over 50 percent so that it can ask the Toronto Stock Exchange to allow it to forego a shareholder vote.

BlackBerry on Dec. 19 opened an autonomous driving research center in Waterloo, Ontario. The software company is expanding its QNX division, which already works on driverless technology, with Ford as its main client. Fairfax subsidiary Hamblin Watsa is BlackBerry's second-largest shareholder. Fairfax is also BlackBerry's "leading lender," according to the software company's CEO John Chen.

Watsa once made an offer for BlackBerry in 2013 and currently serves as its lead director.

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