Watsa’s Fairfax to Buy Brit for $1.88 Billion in London Push

Brit Plc soared after Fairfax Financial Holdings Ltd. agreed to buy the Lloyd’s of London insurer for $1.88 billion in the latest round of industry consolidation.

The stock jumped 10.2 percent to 302.1 pence at 8:52 a.m. in London, the biggest intraday gain since the firm’s initial public offering in March. Fairfax, the insurer led by founder Prem Watsa, will pay 280 pence ($4.30) in cash for each share of Brit, the Toronto-based buyer said in a statement. The deal includes a 2014 dividend taking the offer to 305 pence a share.

“Another one bites the dust with the recommended cash bid by Fairfax for Brit,” said Eamonn Flanagan, an analyst at Shore Capital in Liverpool, England, who rates Brit shares hold. “The M&A juggernaut amidst the Lloyd’s quoted insurers continues with just five players left.”

XL Group Plc agreed to buy Catlin Group Ltd. in January for about 2.8 billion pounds to strengthen its position amid competition from hedge funds and other investors to underwrite insurance. The same month Axis Capital Holdings Ltd. announced a plan to merge with PartnerRe Ltd. in the U.S. while RenaissanceRe Holdings Ltd. struck a deal in November to purchase Platinum Underwriters Holdings Ltd.

Apollo, CVC

“Brit’s position as a market-leading global specialty insurer and reinsurer, its major presence in Lloyd’s and its disciplined approach to underwriting make it a natural candidate” to join Fairfax, the buyer said. Lloyd’s is the world’s oldest insurance market, and is used by businesses seeking to guard against large or complicated risks.

Apollo Global Management and CVC Capital Partners Ltd., which control about 73 percent of Brit shares, have agreed to the transaction, according to the statement. The firms were among investors that sold stock in Brit’s IPO in March that raised 240 million pounds and valued the shares at 240 pence apiece.

Brit, which has offices in locations including Bermuda, Chicago, Tokyo and Shanghai, guards against risks in industries such as energy and aerospace. Watsa has added to insurance operations through deals including the 2010 purchase of Zenith National Insurance Corp. for about $1.3 billion to expand in California. He has also been expanding into coverage for pet owners.

“There is very little crossover in our respective international operations, thus allowing Fairfax to further diversify its portfolio,” Brit Chief Executive Officer Mark Cloutier said in the statement.

Watsa also is known for contrarian bets like investments in the Bank of Ireland and Greek malls. In January, he took public Fairfax India Holdings Corp., a fund that will target infrastructure and the consumer-services, retail and exporting industries in the country.

Brit was advised by JPMorgan Cazenove, Numis Securities and Willis Capital Markets, while Fairfax received advice from RBC Capital Markets, according to the statement.

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