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LONDONCatlin Group Ltd. has made a £591 million ($1.1 billion) offer for its Lloyd's of London rival Wellington Underwriting P.L.C.
Wellington announced last week that it was in talks with Catlin over a possible takeover. The board of Wellington has Monday recommended Catlin's offer to its shareholders.
The acquisition of Wellington by Catlin is expected to complete by December 31, 2006, according to a joint statement issued by the two companies.
Stephen Catlin, chief executive of Hamilton, Bermuda-based Catlin, said in a statement: "The combination of our two complementary businesses will create substantial value for both Catlin and Wellington shareholders. In London, the enlarged syndicate will be the largest at Lloyd's in terms of stamp capacity, with substantial strength across key sectors of the market.
"In the United States, our operations form a natural fit and the acquisition will accelerate our announced U.S. expansion," added Mr. Catlin, who will become the CEO of the combined group.
Wellington's chief executive Preben Prebensen, said: "The combination with Catlin accelerates Wellington's planned entry into the Bermuda market and facilitates a restructuring of our relationship with third-party capital providers without recourse to shareholders, while at the same time, creating a group with the scale, diversity and depth of talent to compete on a global stage."
Catlin's cash and share offer values each Wellington share at 121 pence. This is a 25% premium on the Lloyd's insurer's closing market price of October 23, 2006--the last business day prior to the takeover being announced.
The combined group will be domiciled in Bermuda and is expected to have gross premiums of £2.4 billion. The combined company will have capacity at Lloyd's of £1.25 billion in 2007. It will also have pro-forma gross premiums in the United States of $300 million. Catlin has also identified possible cost savings of $70 million, achievable by 2008.
As part of the acquisition, Catlin will close down Wellington's Syndicate 2020, with effect from the end of 2006. The corporate capital provided by Wellington to support 2020 next year--some 70% of 850 million--will be transferred to Catlin's Syndicate 2003. Underwriting capacity on Syndicate 2003 will not be offered to those private individual investors, known as Lloyd's Names, who currently provide capacity to Syndicate 2020.
Catlin is financing the acquisition with a $450 million bridging loan from JPMorgan and intends to issue debt by the end of the first quarter next year.