And, they had the foresight to reinsure much of their underpriced, poorly-underwritten business with a subsidiary of theirs. Kind of doubling down. Emphasis on the word "down".
I don't think regulatory approval is an impediment to the deal closing; regulators have incentive to approve reasonable efforts to keep Tower out of receivership.
The challenge will be what AFSI's reaction is to almost certainly deteriorating results as well as any new reserve deficiencies causing them to not close or retrade the deal at a lower price.
Speaking of which, any idea where/when their 3Q earnings (using the term loosely here) are? 4Q?
Ferris? Bueller? Bueller?
Press release said expect to close by June 2014.
Nothing is done till its done.
Wait for 3Q, and 4Q results.....
One additional scenario:
Further adverse information surfaces (more reserve strengthening, deterioration in operating results, regulatory action, for example and AmTrust pulls out of the deal citing "material change in condition of Tower"
No, that is not the absolute minimum, nor are there "better offers" to be had. Any further adverse development could give reason for AmTrust to withdraw from the deal, and the the stock would be in a free fall. Its already 13% below the "sale" price which isn't a great signal from the market about the likelihood of the deal going through.
My point isn't that its better to accept the $3 deal than nothing its that 6 months is a very, very long time and there is no guarantee that this "$3 deal" will go through either at all or at the current terms.
Given the lack of transparency with respect to their financials, it should surprise no one if there are further "issues", all coming to light under duress and late. All of which would, IMO, heighten the probability that the closing should it arrive will not look anything like today's terms.
"Deals usually go through".
Ok -- so here's a company that hasn't called its financial condition right for the last 2-3 years, another company about which there are questions on how it handles its financials is now buying the one that has had "challenges" in their financial and operational management.
So, in your assessment being one of the "Great Washed", there is no chance that there will be any other material event from Tower that could derail this sure thing of a deal?
My own opinion is that Tower should just go under and not that there's a better deal out there.
Exactly. And Tower and AmTrust agents may not be the same so a client with a Tower account will have already started looking for a new carrier for the Tower business in their agency. I'd be shocked if 40% actually renewed into AmTrust and that's off a reduced overall book - wait for 3Q to see how much top line has shrunk. It'll be a lot.
Renewal rights deals are highly "performance" sensitive. There may be a notional number of front, but the amount actually paid depends on how many (count) policies renew and at what premium. Given the historical inability of Tower to properly price their business, the actual number and amount of renewal premium may be very low as it depends on the client agreeing to the new terms and premium.
We don't know the current value because they have not released 3Q earnings. It is nowhere near the numbers you cited above.
Its this deal or liquidation. There are no others and there will be no others. And this one may not make it to the finish line in any event.
Renewal rights are when the acquiring company does not want to assume the liabilities associated with the acquired company -- either because they aren't separable (e.g. many insurance companies write in numerous "writing" companies and they intermingle different segments of business in each one, making it impossible to "sell" the commercial business as a standalone segment
In this case, its almost certainly because AFSI wants to review each account separately and decide whether to offer a quote, and if so, at what terms (higher premium, higher deductibles, more restrictive coverage(s) etc). That which AFSI doesn't write/renew will just be non-renewed and disappear as written premium from Tower/AFSI's books.
What will remain are all the liabilities associated with the prior terms of that policy etc.
Its the best, and only, deal for Tower. I'm not sure its a good one for AFSI as they are in tough classes of business which aren't necessarily priced correctly.
But AFSI is in the driver's seat entirely on this; Tower has no alternatives, so AFSI can ask for, and get, terms that wouldn't be "normal" otherwise. There may be other terms such as "material change in financial condition" that permit AFSI to walk before closing; for example, this was likely papered with 3Q financials divulged to AFSI, but only an estimate on 4Q financials. It is typical for the buyer to get a "non-compete" clause so the seller can no longer shop the business (not that it would matter in this case -- they'd already shopped it and this was the best, and only, offer they got)
Secondly, renewal rights just permit the acquirer to opt into quoting renewals -- it doesn't mean it will be all, or even a majority of the business and it also doesn't mean that the renewal quote offered by AFSI will be accepted by the client. It is typical in renewal rights transactions for there to be a sliding scale going both ways depending on the outcome of the renewal process which protects the buyer from paying, for example $170MM for a $30MM book of business.
Bottom line, it isn't closed and till its closed, it is NOT closed.
I must have missed something -- the headline said that ACP Re was buying the assets of Tower's commercial business.
I'm well aware of AmTrust's, let's say, challenges. If one carefully reads the footnotes to their annual reports, you'll see a similar pattern of an owned reinsurance company being the primary risk transfer recipient of the US operating company's ceded reinsurance. It just means that when things go south, it doubles the velocity of the descent.
Also, some interesting officer loans to the subsidiaries bearing rather unmarketlike interest rates...
Other than '"where do the liabilities go" in this deal -- $3 is the best anyone will see. This company was going to be gone, as in trading at $0.00 before long.
But take heart, the deal isn't closed and six months is a long time with a distressed company so there's nothing that says it has to close.
Where are the liabilities going in this "asset only" purchase? Will Tower be left with $500MM+ of liabilities? Doesn't seem likely.
Also, this isn't closed until its closed -- all sorts of things can impede a closing, including further bad news or other changes that would make even AmTrust nervous (as they should be already)
It isn't closed until its closed -- I don't understand where the liabilities are going in this deal as it seems to be an asset only purchase. If there is further bad news between now and closing (June), AmTrust can almost certainly get out of the deal.