Tower Group, Inc. (NASDAQ: TWGP-News) today announced that it has exercised its previously announced option to combine with Canopius Holdings Bermuda Limited and Canopius Bermuda Limited (together, “Canopius Bermuda”), the Bermuda reinsurance business currently operated by Canopius Group Limited (“Canopius Group”). The merger with Canopius Bermuda will enable Tower to create a global specialty insurance company with greater diversification supported by an efficient international holding company structure and should enable Tower to increase its profitability.
Tower also conducted a comprehensive review of its reserves in the second quarter and strengthened its reserves by $42 million after-tax. This reserve charge should allow Tower’s financial results to fully reflect current accident year profitability going forward.
Merger with Canopius Bermuda
As announced on April 25, 2012, Tower agreed to invest approximately $75 million to acquire a 10.7% stake in Canopius Group subject to the closing of Canopius Group’s acquisition of Omega Insurance Holdings Limited (“Omega”). Tower also entered into an agreement dated April 25, 2012 (the “Master Transaction Agreement”) under which Canopius Group committed to assist Tower with the establishment of a presence at Lloyd's of London (subject to required approvals) and granted Tower an option (the “Option”) to combine with Canopius Bermuda. Tower today announced that it has exercised the Option and executed an Agreement and Plan of Merger (the “Merger Agreement”) with Canopius Bermuda pursuant to which an affiliate of Canopius Bermuda will acquire all of Tower’s common stock; under applicable accounting principles Tower will be regarded as the acquiring entity. Tower paid Canopius Group a fee of $1,000,000 to exercise the Option.
Tower believes that the merger is a significant step towards the creation of an efficient globally diversified specialty insurance company that supports its expansion plans, building upon its existing quota share reinsurance business in London and Bermuda (through CastlePoint Reinsurance, a Bermuda- based reinsurance subsidiary of Tower). Based on the market price of Tower’s stock as of July 30, 2012, Tower currently expects that, upon consummation of the merger, current shareholders of Tower will own more than 75% but less than 80% of the merged company, and that the merger will be accretive to earnings with 2013 operating earnings per share attributable to Tower shareholders expected to improve by approximately 4%-6%.