Property and casualty insurer
Tower Group International, Inc
) has amended the terms of its alliance with ACP Re Ltd., a
Bermuda-based reinsurance company. The alliance, which was
announced in Jan 2014, is seen as a strategic endgame by Tower
The most significant change is that Tower Group's shareholders
will be now get $2.50 in cash compared to the prior agreement of
$3.00 per share cash payment. Other amendments include reduction in
termination fee. As per the old deal, if Tower Group backs out it
would have to pay ACP Re a certain amount of its transaction
expenses, subject to a $2 million cap, as well as a termination fee
of $8.18 million. The amount of reduction in the termination fee
was, however, not disclosed.
The time limit for finalization of the merger has also been
extended. While the merger was previously expected to close by the
summer of 2014, now shareholders have time till Nov 15, to vote and
wrap up the deal.
Other amendments include exclusion of material adverse result of
Tower's operations or deterioration of its financial condition
resulting from new business, operating expenses and reserve
insufficiency. Any adverse effect that already disclosed by
Tower in its previous SEC filing has also been excluded. The
condition that more than 15% of shareholders of Tower Group should
not disagree to the merger has also been relaxed. The amendment has
also eased the capital maintenance regulation for Tower.
Going back, the merger was sought by Tower Group after it ran
into trouble following huge reserve shortfall. The company had
miscalculated the magnitude of reserve required for policies
related to workers' compensation, commercial liability and
It comes as a great surprise to us that a company that was so
hale and hearty had to resort to a merger to save itself. While on
the surface level the company seemed to be doing well, reserve
inadequacy had spelt trouble for quite some time. The company
took remedial measures such as selling of stake in Canopius Group
Ltd.; reducing workforce by about 10% and dissolution of the
scheduled acquisition of ASRe from Fairfax Financial Holdingsto
improve its financial position and reduce expenses, these did not
Tower Group currently carries a Zacks Rank #3 (Hold).
AmTrust Financial Services, Inc.
Aspen Insurance Holdings Ltd.
), all with a Zacks Rank #1 (Strong Buy).
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