Notable Mergers and Acquisitions 10/5: (ENH) (NOK) (STZ) (TMH)

October 5, 2016 9:40 AM EDT

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*** SOMPO Holdings, Inc ("SOMPO") and Endurance Specialty Holdings Ltd. (NYSE: ENH) today announced that they have entered into a definitive agreement for the acquisition of 100% of the outstanding ordinary shares of Endurance by SOMPO for US$93 per share in cash.

  • The aggregate consideration is JPY 637.5 bn (approximately US$ 6, 304 m[i]), which represents approximately a 40.3% premium to Endurance's closing share price on 3 October 2016 and approximately a 41.6% premium to the average share price over the last 3 months
  • The acquisition has been approved by the Board of Directors of Endurance and is subject to Endurance shareholder approval at a shareholders' meeting
  • The acquisition will be effected through SOMPO's wholly owned subsidiary, SOMPO Japan NI Inc. ("SJNI") and will be financed with existing sources of liquidity and supplementary facilities without a financing contingency
  • The transaction is subject to the clearances and approvals of applicable regulatory authorities, as well as other customary closing conditions
  • It is expected that the transaction will close before the end of SOMPO's current fiscal year end (31 March 2017)

Background to the Acquisition

SOMPO's ambition is to build a business which competes effectively on a global scale while at the same time, as part of its structural transformation, enhancing its offering to become a best in class customer service provider. By achieving this, it will realise its goal of providing insurance and related services of the highest quality which contribute to the security, health and wellbeing of its customers worldwide.

  • SOMPO is significantly expanding its overseas insurance business and expects to deliver a material expansion of its footprint through both organic growth and disciplined M&A in the coming years. This will bring both top and bottom line growth to the business and will emanate from developed and emerging markets
  • SOMPO has already been actively strengthening its operating base and driving earnings growth by expanding its overseas insurance business through various acquisitions in the past six years, including the acquisitions of Fiba Sigorta (Turkey, 2010), Berjaya SOMPO (Malaysia, 2011), the acquisition of a further stake in Maritima (Brazil, 2013) and the acquisition of Canopius (Lloyd's, 2014). As it has been building a globally diversified business portfolio, SOMPO has been considering the acquisition of an insurance company which has strengths in the primary insurance business in developed and emerging markets
  • Endurance is a global specialty insurance and reinsurance group with an experienced management team led by a world-class CEO with a strong track record as well as an underwriting team with excellent underwriting capabilities. It operates its insurance and reinsurance businesses in, among other countries, the U.S., the U.K. and Bermuda. SOMPO believes that through this acquisition, it will accelerate its goal to expand the footprint, growth and earnings of its overseas insurance business, while delivering growth and improvement in return on equity for its shareholders

Kengo Sakurada, President and CEO of SOMPO Holdings, Inc, commented: "Today's agreement marks the beginning of SOMPO's overseas transformation which undoubtedly enhances the quality and reach of our insurance services. Endurance brings strength in the primary insurance business in developed markets.

"Endurance also brings a highly experienced executive team led by one of the world's leading P&C CEOs in John Charman. Mr. Charman, and certain shareholders associated with Mr. Charman, representing in the aggregate approximately 4.9% of Endurance ordinary shares, have agreed to vote in favor of the proposed transaction.

"This acquisition will be integral in helping SOMPO realize its goal of providing insurance and related services of the highest quality which contribute to the security, health and wellbeing of its customers."

John Charman, Endurance CEO, added: "Today, we have strategically aligned ourselves with SOMPO, a large, well capitalized and highly respected global insurance (and reinsurance) company headquartered in Japan. This signals the beginning of an exciting new chapter for Endurance, our wonderful and incredibly talented people and our much valued clients. When I joined Endurance just over three years ago, I stated quite publicly that cost efficient scale, globally diversified insurance and reinsurance products as well as market relevance were absolutely essential to our future success. I also signaled that I would seek out a high quality, strong Asian partner to further complement our global business capabilities for the future. Our alignment today with SOMPO achieves all those goals and promises so much more.

"Critically, both our companies share and practice important values daily - a commitment to the highest levels of loyalty, integrity and client service. These stated values are clearly reflected in our disciplined, focused underwriting approach which has deeply embedded, strong risk management practices. It is with great honour and with much joy that we all look forward to being welcomed as important family members of SOMPO. Finally, to our Endurance shareholders, we thank you for your loyalty and trust over the years and are happy that you have been rewarded with an attractive premium for your investment."

Overview of Endurance

  • Endurance began operations in 2001, as an insurance and reinsurance company in Bermuda, and has expanded to become a global specialty provider of insurance and reinsurance operations worldwide including in the U.S., the U.K. and Bermuda.
  • Endurance underwrites a wide variety of insurances such as crop insurance, in which Endurance has the fifth largest presence in the U.S. (based on underwriting insurance fees for FY2015), property, casualty and specialty lines of insurance and reinsurance
  • Endurance has built a well-balanced underwriting portfolio while achieving stable and profitable business operations by establishing an advanced enterprise risk management system
  • Since Mr. Charman, the current CEO of Endurance, joined the management team in 2013, the business has expanded not only in the U.S. but also in the U.K., including through the acquisition of a Lloyd's business in 2015. The focus has been on improving profitability, based on disciplined, expert, underwriting and pursuit of growth through M&A
  • For the fiscal year to 31 December 2015, Endurance had US$4,856m in consolidated net assets, US$3,321m of premium and fee income, US$344m of consolidated net income and a combined ratio of 82.9%

Strategic Rationale

Strengthen management fundamentals

  • As part of SOMPO's medium-term objectives, the business aims to achieve adjusted consolidated profit of JPY 300bn and adjusted consolidated ROE of more than 10% from the fiscal year 2020 onwards
  • Based on SOMPO's and Endurance's FY2015 business performance, the combined operations would equate to a JPY 32.1bn increase in adjusted consolidated profit from JPY 164.3bn to JPY 196.4bn and a 1.3pp increase in adjusted consolidated return on equity from 6.9% to 8.2%
  • Income from SOMPO's overseas insurance business as a percentage of the total group income would increase from 12% currently to approximately 27%, delivering an immediate diversification of its business portfolio and allowing it to strengthen its group management fundamentals

Accelerate growth of insurance business worldwide

  • Endurance has been expanding its business in the U.S., the U.K., Bermuda and other countries through launching new business units and executing M&A transactions led by a highly experienced management team. Throughout, it has maintained its high levels of profitability, including through disciplined, expert underwriting by its sophisticated underwriting team
  • Importantly, Mr. Charman and other members of the Endurance management team have agreed to continue to operate Endurance and the combined international business following the acquisition for at least five years, with Mr. Charman leading the Board of the international business as Chairman and CEO. Mr. Charman will report directly to SOMPO's Group CEO, Kengo Sakurada
  • Through this acquisition, not only will SOMPO acquire a strong operating base in the U.S., the world's largest insurance market, but it will also significantly benefit from the continuity of the Endurance management team, which will enable it to further expand its footprint and earnings by combining Endurance's operations with SOMPO group's existing international insurance and reinsurance businesses worldwide - including Lloyd's - under the leadership of the Endurance management team

Acquisition Process

  • Under, and in accordance with, applicable laws and regulations in Bermuda, the acquisition will be implemented through SJNI's special purpose company in Bermuda, Volcano International Limited and then merging it into Endurance, with Endurance as the surviving company. Through this process, SJNI will purchase all of Endurance's outstanding ordinary shares in return for the payment of cash consideration to Endurance's shareholders
  • This acquisition is subject to the approval of Endurance shareholders at a shareholders' meeting, and to clearances and approvals of applicable regulatory authorities, as well as other customary closing conditions
  • SOMPO intends to proceed expeditiously with this acquisition and anticipates the transaction will close before the end of March 2017

Estimated financial impact on SOMPO

SOMPO will update the market in due course with regards to the effect of the acquisition on SOMPO's financial operating performance.

*** Nokia (NYSE: NOK) has acquired Eta Devices, a US-based start-up specializing in power amplifier efficiency solutions for base stations, access points and devices. Eta Devices will bolster Nokia's push to enhance base station energy efficiency, an increasingly important area for operators on the path to 4.9G and 5G.

The demand for data from consumers and businesses is surging, as is the number of connected devices and things, with operators increasingly needing power that is delivered both cost-effectively and sustainably. Eta Devices' unique ETAdvanced power management technology can reduce heat waste drastically through the use of a new amplifier that works like an automated gearbox, adjusting energy usage by constantly providing just the right amount of power required for a radio signal. This translates to savings for operators that can be invested as 4.9G and 5G approach. Eta Devices' technology reduces the need for backup power, translating into smaller base station cabinets and reduced equipment breakdown rates, and supporting Nokia's target to continuously strengthen the base station power efficiency of its products.

The acquisition of Eta Devices underlines Nokia's commitment to invent, design, and deploy sustainable technologies that make a real difference to people's lives, and take responsibility for the impact we make in the world. Nokia already offers a Zero Emission base station solution that reduces site energy consumption and CO2 emissions by up to 70 percent.

Eta Devices is a private start-up company founded in 2010. The company is headquartered in Cambridge, MA with an R&D office in Stockholm, Sweden, and it employs approximately 20 people. The acquisition includes fixed assets, employees, intellectual property rights as well as lease and supplier agreements.

*** Team Health Holdings (NYSE: TMH) is said to be exploring a sale and is in talks with private-equity firms, according to Dow Jones Newswires. The report said a deal for Team Health could be struck this month.

*** Constellation Brands (NYSE: STZ) announced an agreement to purchase the Utah-based High West Distillery for approximately $160 million. This acquisition includes a portfolio of distinctive, award-winning and high-end American straight whiskeys and other spirits brands. With High West, which has experienced double-digit volume growth year over year for the past three years, Constellation Brands enters the dynamic and profitable high-end craft whiskey market segment.

The transaction is expected to close by the end of October.

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