By Lisa Kerner
Charlotte, N.C., Aug. 5 - Tower Group, Inc. agreed to acquire CastlePoint Holdings, Ltd. in a cash and stock deal valued at about $490 million, or $12.68 per share, the companies announced on Tuesday.
The per-share price is based on Tower's closing stock price of $23.09 on Aug. 4.
CastlePoint shareholders will receive 0.47 shares of Tower common stock and cash consideration of $1.83 for each share of CastlePoint common stock.
Tower said the exchange ratio is subject to adjustment based on Tower's volume weighted average price per share during a 15-day trading window prior to closing.
If Tower's average stock price during the period falls below $17.50, the exchange ratio will be fixed at 0.5371. CastlePoint will have a limited time right to terminate the agreement, unless Tower elects to add Tower shares or cash to provide CastlePoint shareholders with a value per share of $11.23, including the amount in cash per share.
According to a joint company news release, the transaction is slated to close in December subject to shareholder approval and is not expected to require any external financing.
Both companies' boards of directors have approved the agreement and recommended the transaction to their respective shareholders.
Tower noted it owns about 6.7% of the common shares of CastlePoint and intends to vote all of its shares in favor of the merger. Michael H. Lee, chief executive officer and chairman of the board of both Tower and CastlePoint, has agreed to vote all of his shares of Tower and CastlePoint in favor of the transaction.
Once the transaction is complete, the companies will operate under their current names and conduct business at the same locations.
Tower will continue to focus on underwriting its brokerage business through retail and wholesale agents.
CastlePoint said it will continue to provide programs, risk sharing and reinsurance solutions to its program underwriting and insurance company clients.
"The combination of the two companies significantly strengthens our balance sheet and provides us with the ability to access and utilize CastlePoint's capital more efficiently and simplify our corporate structure," Lee noted in the release.
"In contrast to the market conditions at the time of CastlePoint's formation in April 2006, changes in the reinsurance market that now benefit primary companies provide Tower with the opportunity to shift its quota share reinsurance program currently placed with CastlePoint to other reinsurers on more favorable terms and conditions," added Lee.
CastlePoint's three independent board members will join Tower's board. Lee will remain as CEO and chairman of the combined company.
The senior management teams of the two companies will combine, the release said.
Tower's special committee retained Lazard Frères & Co. LLC as its independent financial adviser, while CastlePoint's special committee retained Goldman, Sachs & Co.
Tower is a New York property and casualty insurance company.
CastlePoint is a Hamilton, Bermuda-based holding company that provides property and casualty insurance and reinsurance business solutions to small insurance companies.
| Acquirer: | Tower Group, Inc.
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| Target: | CastlePoint Holdings, Ltd.
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| Announcement date: | Aug. 5
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| Transaction total: | $490 million
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| Price per share: | 0.47 share of Tower common stock plus $1.83 cash for $12.68 per share
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| Expected closing: | December 2008
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| Stock price for acquirer: | Nasdaq: TWGP: $23.09 on Aug. 4
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| Stock price for target: | Nasdaq: CPHL: $8.88 on Aug. 4
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