Updated from 5:40 p.m. EDT
White Mountains Insurance Group
will buy the U.S. property and casualty operations of London-based
for $2.1 billion and pay about $0.5 billion of the unit's debt to its parent, the company said Monday.
The acquirer's shares, which were halted at the start of trading, soared to a five-year high after CGNU's chief executive told a news conference in London that the sale price was 38 % less than the net asset value of the unit and that his company had booked a 1.4 billion-pound loss on the deal, according to a report on
The deal, which is expected to close within four months, would add almost $4 billion in car, home and company insurance premiums to White Mountains' operations, said Mike Paquette, a company spokesman, in a telephone interview. That figure includes CGU's Canadian property and casualty business and U.S. life insurance business, which will be retained by CGNU, but Paquette said those businesses accounted for only a small portion of the $4 billion.
CGNU became the top British insurer in February, when CGU merged with Norwich Union. Since then, it has looked to unload weaker units.
"The facts are that this is the best price we can get for this business in line with a clean-cut sale,'' said Bob Scott, CGNU chief executive, in a London news conference, according to
. ``We've taken a knock on the price, which is disappointing.''
White Mountains shares gained $37.50, or 21.49%, to close at $212, the highest price in at least five years.
"We were the fortunate recipients of the fact that the seller had just announced that it wanted to change strategies," said John J. Byrne, chairman and chief executive of White Mountains, in a conference call with investors.
White Mountains officials said their strategy differs from that followed by CGNU. "You won't hear from us for three or four years," Byrne said, noting that the company will still file disclosures required by law. "We don't believe in watching the stock market. We don't believe in quarterly earnings."
Instead, the company will focus on slow, steady growth through traditional insurance practices, he said. Byrne, who will retire as chairman of White Mountains and become chairman of the acquisition company, said no other management changes are planned.
White Mountains said it has received a $1.0 billion debt financing commitment from Lehman Brothers, which served as its adviser. The financier Warren Buffett has committed to invest up to $300 million in convertible preferred stock of White Mountains, and a small group of private investors have committed to invest $300 million directly in a newly formed acquisition company, White Mountains said. The investor group will receive approximately 18% of the acquisition company's common stock.
Paquette said that if Buffett invests the full $300 million, he will own 22.6% of the holding company, which in turn would own 82% of the acquisition company.
White Mountains said it would contribute most of its existing operating businesses to the acquisition company.
White Mountains also announced that, as a result of the CGU transaction, it has terminated its open tender offer to purchase up to 1.5 million of its common shares at a price of $165 a share. That offer was scheduled to expire at midnight Tuesday.