TORONTO (Reuters) - Fairfax Financial Holdings (TO:FFH), the Canadian property and casualty insurer run by contrarian investor Prem Watsa, said it would buy Brit Plc (L:BRIT) for some $1.88 billion to become one of the top five underwriters on the Lloyd's of London market.
Watsa, a devotee of the value investing style favored by Warren Buffett, made billions for Fairfax by correctly calling the 2008 financial crisis. He has slowly been growing Fairfax's presence in Europe and recently announced deals to acquire much of QBE Insurance Group's (AX:QBE) asset base in Eastern Europe.
The Brit deal comes a month after XL Group (N:XL) snapped up Lloyd's of London's Catlin Group (L:CGL) for $4.22 billion, and is the latest in a string of European insurance mergers as the region's underwriters face tighter capital rules.
Analysts expect the consolidation activity to continue with Lancashire Holdings (L:LRE), Amlin Plc (L:AML) and Novae Group (L:NVA), all seen as potential targets.
Brit shareholders will receive 305 pence per share in cash, comprising 280 pence in cash and an expected dividend of 25 pence per Brit share for the year ended Dec. 31.
Brit shares jumped more than 10 percent to 303 pence, their highest since going public last year, on the London Stock Exchange on Tuesday. This was slightly below the offer price at a premium of 11.2 percent to Brit's closing price on Feb. 16.
Fairfax has received irrevocable undertakings to accept the offer from entities managed by Apollo Global (N:APO) and CVC Capital Partners, which together own about 73 percent of Brit.
"Brit had only recently returned to the stockmarket and had not yet built real traction, so this represents an easy exit for its major shareholder," said Westhouse Securities analyst Joanna Parsons, in a note.
Apollo and CVC, which acquired Brit in 2010, took it public last year, valuing it up to 960 million pounds ($1.48 billion).
Toronto-based Fairfax said Brit's growing global reach would complement its existing operations and allow it to diversify its risk portfolio. Brit underwrites a range of specialty policies from energy and marine to insurance for horses and the launch of spacecraft.
The acquisition is accretive to Fairfax on several metrics, including gross revenue per share and investments per share, it said in a statement.
Fairfax bought Brit's runoff business in 2012. In a runoff, a firm stops writing new business and only manages the existing book until all the policies in that book expire.