NU Online News Service, June 22, 2:37 p.m. EDT

Property-casualty insurer Tower Group Inc. in New York will acquire Chicago-based Specialty Underwriters' Alliance, Inc. for $107 million, it was announced today

Under the terms of the proposed agreement approved by both company boards, if SUA shareholders okay the deal they would receive Tower common stock equal to $6.72 per SUA share based on Friday's closing stock price for Tower of $24.

Last August SUA adopted defensive changes to its bylaws to fend off a Hallmark takeover after its board rejected an upgraded offer from Hallmark Financial Services Inc. in July 2008 of $6.50 in Hallmark stock for each share of SUA stock. SUA stock in June 2008 sold for $4.74 per share. The stock closed Friday at $3.96 per share, but gained more than $2 in early trading today.

The companies announcement today of the proposed merger called it "Financially compelling to Tower and SUA stockholders," stating that SUA is valued in the transaction at an 87 percent premium to SUA's average closing price over the past 30 trading days.

The firms added that:

o On a pro forma basis as of March 31, 2009, Tower's stockholders' equity increases by 13 percent from $786.9 million to approximately $890 million and the transaction is expected to be accretive to Tower's book value per share immediately at closing.

o Tower projects after the transaction its 2010 earnings per share will be in a range between $3.50 and $3.70 which accounts for the additional shares expected to be issued.

The companies said the merger would mean SUA will be able to better leverage its strong distribution network and expand its business opportunities by accessing Tower's

A- rating by A.M. Best Company while Tower will be able to create a separate and distinct underwriting and operational infrastructure dedicated to specialty business which would take advantage of the growth opportunities in this area.

The merger, said the firms, creates a much larger, efficient, more scalable and profitable specialty business with strong growth potential and establishes a Midwest regional office to support continued geographical expansion.

After the merger, the companies said Tower's brokerage insurance business will be expanded by utilizing SUA's underwriting staff to offer products to wholesale and retail agents in the Midwest where Tower does not have an operating presence.

Michael H. Lee, chairman and chief executive officer of Tower, said, "By fully leveraging the operating platform and distribution relationships that SUA has developed, we are confident in our ability to further build on CastlePoint's specialty business. We particularly value the experienced people at SUA who will help us in executing our plans in the specialty business segment."

Bermuda-based CastlePoint provides traditional quota share reinsurance to Tower, as well as other types of ancillary reinsurance coverage,

Courtney Smith, SUA's President and CEO, said, "Tower will allow us to improve our profitability and take advantage of the current market opportunities by accessing Tower's A- rating by A.M. Best Company and strong capitalization."

Tower said Debevoise & Plimpton LLP was its legal advisor for the transaction. FBR Capital Markets & Co. acted as SUA's exclusive financial advisor, and Stroock & Stroock & Lavan LLP acted as SUA's independent legal advisor.

Tower said for 2010 it projects its earnings to be in a range between $3.50 and $3.70 per diluted share. Tower and SUA will host a joint conference call tomorrow.

Special Reports /

Tower Buying Specialty Underwriters For $107 Million

Related Stories

Recommended For You