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Fairfax to Acquire Shares of ASI

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Financial services holding company Fairfax Financial Holdings Limited recently joined hands with Bermuda based insurer, American Safety Insurance Holdings Ltd. to enhance its insurance operations in some specialty business lines.

As per the agreement, Fairfax will acquire all the outstanding shares of American Safety. The purchase consideration equates to $29.25 per share in cash or an aggregate value of nearly $306 million. The purchase price is at a 22.1% premium to the closing price of American Safety as of May 31, 2013.

The deal is expected to culminate in the fourth quarter of 2013 and is pending regulatory approval as well as approval from American Safety’s stockholders.

After a comprehensive delve into the prospects of the transaction, the board of directors of American Safety agreed upon the merger agreement and recommended that the shareholders of the company approve the same. Some executives of the company, who have 10% stake in the outstanding shares of American Safety have supported the decision and agreed to vote for the merger.

Fairfax will utilize internal resources to fund the transaction and will not need holding company cash for the purpose. On closing, many of the specialty lines of American Safety are expected to be added to two subsidiaries of Fairfax. These include Crum & Forster and Hudson Insurance Group. The acquisition will render Fairfax in receipt of $480 million of additional investable assets.

Simultaneously, Fairfax inked a purchase and sale agreement with Tower Group International Ltd. . After completing acquisition of American Safety, Fairfax intends to sell American Safety Reinsurance Ltd. (ASRe), a subsidiary of American Safety to Tower Group for $59 million. This deal is expected to culminate in the second half of 2013 and is subject to regulatory approval. As per the deal, the operations and employees of ASRe will join the Bermuda reinsurer of Tower – Tower Reinsurance Ltd. (Tower Re).

Among others who recently engaged in acquisition agreements, Fidelity National Financial (FNF - Free Report) inked a deal to acquire Lender Processing Services Inc. (LPS) for $2.9 billion or $33.25 per share.

American Safety currently carries a Zacks Rank #1 (Strong Buy). Fidelity carries a Zacks Rank #2 (Buy). Among others in the industry, Global Indemnity plc shares the same Zacks Rank as ASI.

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