Bloomberg New York
Assurant Inc agreed to acquire Warranty Group Inc from buyout firm TPG, bringing together two of the largest providers of extended warranties, the insurance policies covering big consumer purchases such as cars, mobile phones and dishwashers.
The deal values Warranty Group at about $2.5bn including debt, according to a statement yesterday. Assurant will pay about $1.5bn in stock and $372mn in cash, as well as assuming almost $600mn of Warranty Group’s debt.
“Together, we believe we can deepen our global footprint and accelerate profitable growth in key markets already on Assurant’s strategic road map,” said Assurant president and chief executive officer Alan Colberg in the statement.
The cash-and-stock deal resembles a reverse merger and will enable New York-based Assurant to move its tax domicile to Bermuda, where Warranty Group’s parent company is based. Insurers can benefit from a rule in Bermuda that lets them avoid US taxes on premiums collected in the US if they cede those premiums to affiliates in Bermuda.
Assurant intends to keep paying the same amount of US taxes that it does now and has no current plans to use any of Bermuda’s tax advantages, Colberg said in an interview.
“This deal is driven by the compelling strategic rational,” he said. “We’re not moving jobs offshore. It’s not predicated in anyway on the tax benefit.”
Assurant had a fiduciary responsibility to structure the deal the way it did to preserve the flexibility of being based in Bermuda, he said.
At least 59 insurers call the island home, including Arch Capital Group Ltd and XL Group Ltd, according to data compiled by Bloomberg.
US consumers spent about $40bn buying extended warranty policies last year from providers including Assurant, AmTrust Financial Services Inc, American International Group Inc and Apple Inc, according to industry trade journal Warranty Week. Assurant has eyed Warranty Group for years, Colberg said, and held talks with Onex Corp before the Canadian buyout firm sold the business to TPG for $1.5bn in 2014. The company held numerous informal talks with TPG about a pairing before discussions heated up this year, he said.
“We have had a long history,” he said.
Property and casualty insurers are seeking to diversify and grow by buying businesses that can deliver new technology or product lines. Allstate Corp acquired warranty provider SquareTrade Holding Co from investors including Bain Capital for $1.4bn in January.
Assurant has spent the last two years getting out of tertiary businesses such as employee benefits and health insurance to better focus on its warranty operations and other units, including home and rental insurance.
Buying Warranty Group will diversify earnings because the predictability of its sizeable auto warranty unit will offset volatility in Assurant’s property catastrophe business, Colberg said. Assurant said last week that it expects to book as much as almost $300mn in pretax losses due to payouts tied to Hurricane damage.
Shares in the company closed at $95.86 on Tuesday, valuing Assurant at about $5.2bn. They were little changed in early trading yesterday.
Assurant expects the deal to generate $60mn in pretax operating synergies by the end of 2019, according to the statement. It plans to fund the cash part of the transaction and retire Warranty Group’s $591mn in debt by taking on new debt and selling preferred securities after the deal closes. It has also signed a commitment with Morgan Stanley for a $1bn bridge loan.
Morgan Stanley also acted as Assurant’s financial adviser on the deal, while its legal counsel was Willkie Farr & Gallagher. UBS Group AG and the law firm Skadden Arps Slate Meagher & Flom advised Warranty Group.
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