Fairfax agrees to buy Allied World for $4.9 billion

NEW YORK: Fairfax Financial Holdings agreed to buy insurer Allied World Assurance Co. for $4.9 billion in cash and stock in chief executive officer Prem Watsa’s largest purchase. Fairfax will pay $54 per share, which is 18% higher than Allied World’s closing price on Friday.

For every share, Allied investors will receive about $10 in cash — half from Fairfax and the rest from a pre-closing dividend by Allied — as well as $44 of Fairfax’s stock, according to a statement from the companies. Fairfax has the option to increase the cash portion by up to $30 per share.

Smaller carriers have sought merger partners in recent years as commercial insurance buyers and their brokers prefer companies with scale. The deal that Allied reached will make it a wholly owned subsidiary, while keeping its executive and senior management teams. “Allied World will operate within the Fairfax group on a decentralised basis after closing, and we are looking forward to supporting CEO Scott and the entire team at Allied World in growing their business over the long-term,” Watsa said.