Scottish Re (SCT) sank 19% Monday after it said MassMutual and Cerberus Capital together will pay $600 million for preferred shares convertible into a 69% stake.
The Hamilton, Bermuda-based life reinsurance specialist said MassMutual and Cerberus will each sink $300 million into the company through a purchase of a million new convertible preferred shares.
The news comes three months after shares plunged 75% in a single day following the sudden resignation of CEO Scott Willkomm, along with poor second-quarter results. The company has since been rumored as a buyout target amid worries about its liquidity.
"This completes the process announced earlier this year to evaluate strategic alternatives, and will stabilize Scottish Re while providing long-term liquidity benefits," said CEO Paul Goldean. "In addition to the financial strength afforded by MassMutual Capital and Cerberus as majority shareholders, these firms offer Scottish Re extraordinary insurance, operational and investment expertise. We look forward to their input and guidance as we move aggressively towards our financial and business goals in the interest of returning value to all of our stakeholders."
The convertible preferred shares acquired by MassMutual Capital and Cerberus will have the same voting rights as holders of ordinary shares of Scottish Re. The convertible preferred shares will rank senior to ordinary shares of Scottish Re, and subordinate to existing securities that rank senior to the ordinary shares. The convertible preferred shares are convertible at any time and are by mandate convertible nine years from their issuance date.
The transaction is subject to approval by the holders of 66 2/3% of Scottish Re's outstanding ordinary shares who are entitled to vote at the special meeting. They will be requested to vote for the transaction via proxy. Proxy voting cards will be mailed within approximately 45 days of the agreement to all shareholders by Scottish Re and will include the voting instructions.
In accordance with the transaction agreement, MassMutual Capital and Cerberus are entitled to appoint two-thirds of the members of Scottish Re's board of directors. Initially, there will be eleven directors on Scottish Re's board, of which MassMutual and Cerberus will appoint six, including three directors chosen by MassMutual Capital and three chosen by Cerberus. Also, in addition to the chief executive officer, MassMutual Capital and Cerberus will nominate three independent directors and a designee of The Cypress Group to the board. The Cypress Group is a New York-based private equity firm and a major Scottish Re shareholder.
Shares fell $1.12 to $5.51.