China investment group Fosun International Limited has agreed to acquire Meadowbrook Insurance Group Inc. of Southfield, Michigan for approximately $433 million, or $8.65 per share in cash.
Fosun said that the acquisition of Meadowbrook will enable it to expand and establish a “significant presence” in the U.S. property/casualty market.
The deal, if approved, would be the first full purchase of a U.S. insurer by a Chinese company, according to Reuters.
The transaction represents a 24 percent premium over Meadowbrook’s closing price on December 29, 2014 and a premium of 39 percent to Meadowbrook’s three-month average closing price for the period ending December 29, 2014. The transaction also represents a multiple of approximately 1.04x Meadowbrook’s tangible book value per share as of September 30, 2014.
Fosun, headquartered in Shanghai, has $50 billion in total assets and operations around the world. Currently, Fosun has more than one third of its total assets invested in insurance businesses around the world, including investments in Yong’an P&C Insurance, Pramerica Fosun Life Insurance and Peak Reinsurance, as well as Fidelidade Group, Portugal’s largest insurance company. Fosun has spent more than $4 billion in two years on acquisitions.
Fosun’s most recent investment in the insurance sector was an acquisition of a 20 percent equity interest in Ironshore Inc. in August 2014.
Meadowbrook will continue to maintain its headquarters in Southfield, Michigan and will operate under the Meadowbrook brand name.
Robert S. Cubbin, president and CEO of Meadowbrook, called the transaction “the culmination of a thorough strategic review process to maximize shareholder value.”
Meadowbrook has had a challenging few years. A.M. Best Best issued a warning to the company in late 2012 that it was placing the ratings of Meadowbrook and its subsidiaries under review with negative implications. At that time Best noted the company had experienced worse than expected operating results in 2012 and a reduction in risk-adjusted capitalization levels, and had lower earnings prospects going forward.
A.M. Best downgraded the insurer from “A-“to “B++” in August 2013.
Even before that downgrade, however, Meadowbrook had begun taking actions to improve its underwriting results and shore up its statutory reserves.
This past August, Meadowbrook’s Cubbin told Insurance Journal that after two years of siphoning off unprofitable business, tightening underwriting and raising rates, his firm was looking forward to growing again.
Fosun said it plans on using Meadowbrook to expand in the U.S. insurance sector.
“This transaction allows Fosun to establish a presence in the important U.S. P/C market, consistent with our strategy of expanding our core insurance business,” said Guo Guangchang, chairman of Fosun. “Meadowbrook has a talented employee base, comprehensive offering of high-quality specialty insurance products, robust distribution network and a strong commitment to meeting the evolving needs of its policyholders. The transaction represents another milestone for Fosun and will enable Fosun to further strengthen its insurance-oriented comprehensive financial capabilities.”
The transaction has been approved by all of the directors of both companies and is expected to close in the second half of 2015.
The transaction is subject to the approval of Meadowbrook’s shareholders as well as regulatory approvals and the satisfaction of other specified closing conditions.
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