Fairfax Financial Holdings Ltd. (FFH.TO,FFH) and Odyssey Re Holdings Corp. (ORH), Friday announced a definitive merger agreement, whereby Fairfax would acquire all of the remaining outstanding shares of Odyssey Re that Fairfax does not currently own for US$65 per share in cash, which represents a total consideration of US$1.0 billion.
The current offer price of US$65 per share in cash represents a 29.8% premium over the closing price on September 4, 2009 and a 33.4% premium over the 30-day average closing price for the period ending September 4. Based on Odyssey Re's initial public offering price of US$18.00 per share in June 2001, the purchase price represents a compounded annual return of 17.3% through the date of the merger agreement.
Previously on September 4, Fairfax proposed to acquire the remaining shares of common stock of Odyssey Re that it does not currently own, for US$60 per share in cash. The offer represented a 19.8% premium over today's closing price and a 23.2% premium over the 30-day average closing price. At present, Fairfax Financial owns approximately 72.6% of all outstanding shares of Odyssey Re common stock.
The board of Odyssey Re recommended Odyssey Re's minority stockholders to tender their shares in the Fairfax offer. Marshfield Associates, Inc., which currently owns about 2.7 million shares of Odyssey Re has also agreed to tender the shares over which it has control to Fairfax's US$65 per share offer.
Fairfax plans to fund the merger with the US$983.0 million net proceeds from its previously completed public offering of its subordinate voting shares, together with available cash on hand. Upon the successful completion of the tender offer and subsequent merger, Fairfax expects to continue to have in excess of US$1 billion in cash and marketable securities at the holding company level.
Fairfax has also filed a preliminary short form base shelf prospectus with the Canadian securities regulatory authorities, related to the merger. The shelf prospectus will allow Fairfax to offer from time to time over a 25-month period up to US$2.0 billion of debt, equity or other securities.
The filing is intended to restore the capacity which was available to Fairfax prior to its recent offering of subordinate voting shares which closed on September 11. The US$2.0 billion maximum also represents an increase of US$1.0 billion in total capacity, which is consistent with Fairfax's increased market capitalization and will provide Fairfax with additional financial flexibility.
Upon the completion of the transaction, there would not be any change in the operational strategy and management structure of Odyssey Re. Odyssey Re will continue to operate its business under the leadership of its president and chief executive officer, Andy Barnard.
Commenting on the merger deal, Fairfax' chairman and chief executive officer, Prem Watsa said, "We believe that our increased offer price of US$65 per share, which is well above any price at which Odyssey Re shares have ever traded, represents a very attractive price for Odyssey Re's minority stockholders. We are very gratified that we have the recommendation of Odyssey Re's Special Committee and look forward to working together to complete the transaction."
BofA Merrill Lynch will be the Dealer Manager for the tender offer. BofA Merrill Lynch is also serving as Fairfax's financial advisor, and Shearman & Sterling LLP and Torys LLP are serving as Fairfax's legal counsel.
Sandler O'Neill & Partners, L.P. is serving as the Odyssey Re Special Committee's financial advisor and Simpson Thacher & Bartlett LLP is serving as that committee's legal counsel.
FFH.TO closed Friday's regular trading at C$398.00, up C$2.00 or 0.51%. On the NYSE, the share closed at US$371.27, up USUS$1.33 or 0.36%. In after-hours, the share gained US$1.04 or 0.28%, trading at US$372.31.
ORH closed Friday's regular trading session at US$62.58, up US$0.09 or 0.14% on a volume of 180,078 shares. Further, the stock gained US$2.27 or 3.63, and traded at US$64.85 in after hours.
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