To complement, diversify and strengthen its existing lines of businesses globally, Markel Corportaion (MKL) announced a merger agreement with Alterra Capital Holdings Limited (ALTE). Markel will acquire the majority stake of Alterra, the global provider of specialty insurance and reinsurance products for approximately $3.13 billion.
The deal will provide for Alterra shareholders to receive 0.04315 Markel common shares and a cash payment of $10. Markel will own approximately 69% of the merged entity, with 31% stake going to Alterra. The deal is expected to culminate in the first half of 2013 pending closing conditions. The Zacks Consensus Estimate for 2013 is currently pegged at $20.56, representing a year-over-year increase of nearly 8.9%.
The two directors at Alterra’s current board will be added to the board of directors of Markel upon closure. The amalgamation of the companies is expected to help accomplish strong financial performance in the long run and benefit shareholders of both the companies.
The merger is expected to consolidate Markel’s present specialty insurance business, on the back of Alterra's reinsurance and large account insurance portfolios. On the other hand Markel’s asset management strengths combined with Alterra are expected to benefit Alterra’s shareholders, clients and business partners.
Upon the closure of the deal, business for Markel is expected to be approximately 50% short tail, 50% long tail; 67% insurance and 33% reinsurance. Its acquisition will be accretive to annual gross premiums written, significant book value, return on equity and Markel’s investment portfolio. Markel is estimated to write approximately $4.4 billion in gross premium with equity expected to be $6 billion post acquisition.
Subsequent to the announcement, credit rating agency A.M. Best Co. has retained the issuer credit ratings (:ICR) of ‘a+’ and Financial Strength rating (:FSR) of ‘A’ debt ratings of Markel. Concurrently it also retained the ICR of ‘BBB’ together with debt ratings of Alterra. Standard and Poor’s Ratings Services affirmed a long-term counterparty credit rating of ‘BBB’ rating on Markel.
Additionally, Fitch Ratings has affirmed the Insurer Financial Strength (:IFS) rating of ‘A’ of Alterra Capital following the merger announcement. The rating outlook is stable.
Markel has undertaken several acquisitions from the beginning of the year. The latest on the list was announcement of acquisition of Essentia insurance Company from Onebeacon insurance group LLC in October. The transaction is expected to close in January 2013.
Markel currently holds a Zacks #3 Rank, translating into short term Hold rating. Alterra Capital also shares the same Zacks Rank.
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