(Reuters) - Specialty insurer Markel Corp said it will buy Alterra Capital HoldingsLtd for about $3 billion in cash and stock to diversify into reinsurance.
The offer of $31 per share represents a premium of 34 percent to Alterra's closing stock price of $23.15 on Tuesday. Shares of Alterra opened slightly below the offer price, while Markel's shares fell 5 percent to $462.
Each Alterra common share will be converted into a right to receive 0.04315 Markel common shares plus a cash payment of $10.
"The addition of Alterra's reinsurance and large account insurance portfolios will serve to diversify and strengthen Markel's current book of specialty insurance business," Markel Vice Chairman Steven Markel said in a statement.
Markel's shareholders will own about 69 percent of the combined company, with Alterra's shareholders owning the rest.
Stifel Nicolaus analyst Meyer Shields was lukewarm on the deal.
"We have enormous respect for Markel's underwriting and investing expertise, but we think its M&A track record is frankly less impressive," Shields wrote in a note to clients.
"Its last major acquisition (Terra Nova, in 2000) experienced regular and significant adverse development for years following the deal."
Markel has been venturing into sectors other than specialty insurance in recent years, mirroring Warren Buffett's Berkshire Hathaway.
The insurer created Markel Ventures in 2005 to acquire an assortment of companies including a baking equipment maker and supplier of dredges.
Citigroup was the financial adviser to Markel, while BofA Merrill Lynch advised Alterra.