Fairfax Financial Holdings Ltd. is gathering more institutional-investor support for the largest acquisition in its history.
The Toronto-based insurance and investments company said Friday that it will add another $500-million (U.S.) in capital from Alberta Investment Management Corp. toward its $4.9-billion acquisition of Swiss insurer Allied World Assurance Company Holdings AG. Through the deal, AIMCo will acquire more than 10 per cent of Allied World's shares.
Along with a previously announced $1-billion investment from the Ontario Municipal Employees Retirement System and roughly $100-million from other unidentified backers, Fairfax will be able to boost the cash part of its cash-and-stock offer for Allied World significantly. Fairfax had already sought an extension to increase its cash offering for the global property, casualty and specialty insurance and reinsurance provider – an effort made to avoid selling 3.5 million Fairfax shares to help finance the deal.
"Fairfax will be able to minimize the dilution to Fairfax shareholders, while having the flexibility to buy back the minority investments from OMERS, AIMCo and others over five to seven years' time," Fairfax founder and CEO Prem Watsa said in a statement. "We are very grateful for the support we have received from our co-investing partners."
Mr. Watsa released his annual letter to shareholders on Friday evening, calling the Allied World deal the "most significant acquisition in our history." Fairfax was founded in 1985.
Other themes of the letter include the reasoning behind the company's decision to remove the hedges on its common-stock portfolio. Fairfax adopted that strategy in 2010, but abandoned this year as the Trump administration promises to cut corporate taxes and put in place new measures to stimulate the economy.
"While many risks to global economic growth remain, such as protectionism, China unravelling and the Euro disintegrating, we believe the chances for robust growth have significantly increased," Mr. Watsa wrote.
After making such a blockbuster acquisition with Allied World in 2016, Fairfax said that it would raise its "threshold for acquisitions now so as to benefit from the ones we have already made – and to buy back our stock."
The company has also added two new directors to its stable, the first time Fairfax has had women in its boardroom. One of them is Lauren Templeton, whose great-uncle Sir John Templeton pioneered the value-investing principles that inspired the style of Mr. Watsa.
Ms. Templeton is based in Chattanooga, Tenn., where she runs Templeton and Phillips Capital Management LLC, a value-investing firm that she founded.
The second new board member is Karen Jurjevich, who has been principal of Branksome Hall, a Toronto private school for girls, since 1998.