Bermuda-based Catlin Group Limited has announced further details on progress relating to the acquisition and integration of Wellington Underwriting plc (See IJ web site Oct. 30, Dec. 19, 2006 and related articles).
To finance the acquisition Catlin has priced an issue of US$600 million noncumulative perpetual preferred shares at a dividend rate of 7.249 per cent. “The transaction size was increased during the bookbuilding process from US$300 million to US$600 million as a result of the very strong demand from investors,” said the bulletin. “The proceeds of the issue will be received on 18 January 2007. The proceeds will be used to refinance the US$500 million short-term acquisition financing facility Catlin established as part of the financing for the Wellington acquisition, and for general corporate purposes.
Chief Executive Stephen Catlin commented: “”We are delighted by the success of our inaugural debt capital market transaction and the excellent response we have received from investors. The issue provides us with the highest-quality hybrid capital available and has opened up a new source of capital for the Group. It is also the largest-ever preferred share issuance by a member of our peer group, both in the UK and the Bermuda markets.”
Catlin also indicated that so far the renewal of business written by Wellington has been a pleasant surprise. The Group had expected the consequences of the acquisition deal to result in a “substantial loss of business that had been underwritten by Wellington. However its announcement noted that “the January 1st renewal period was an important first test of the enlarged Group’s ability to retain the business it desired, and the amount of business actually lost was significantly lower than originally contemplated.
Stephen Catlin noted that “we have been very encouraged during our important January 1st renewal season by our ability to retain quality business.”
Things seem to be going smoothly for Catlin on integrating Wellington’s operations as well. The bulletin noted: “The integration of Catlin and Wellington operations is proceeding ahead of management’s original plan. Underwriting operations have been fully integrated as previously reported, and the combined London underwriting staff occupied a new, purpose built underwriting floor located in Catlin’s office 14 hours after the offer for Wellington was declared unconditional. The integration of all other operations, including financial and support functions, is either on or ahead of schedule.
A basic component of any merger involves reducing costs through synergies. The process inevitably results in job losses, as fewer people are needed to do the same work. Catlin acknowledged that part of its offer contemplated “redundancies” (the British term for lay-offs), but it also committed itself to “the retention of key staff through an employee retention program, which has been put in place.”
The plan seems to be working out well, as Catlin’s bulletin noted, “there have been fewer than ten unplanned departures out of a total of more than 900 employees.”
In addition the bulletin noted that the “relocation of all London staff to Catlin’s offices located in 3 Minster Court is expected to be completed on schedule by 5 February 2007.
Stephen Catlin stated he was “amazed at how far our integration efforts have progressed in such a short time frame. Within four months of Catlin’s initial offer to the Wellington Board, Catlin will have completed the acquisition, fully integrated the companies’ operations, refinanced the acquisition-related debt and relocated all employees in London under one roof. The departure of a small number of employees from the company is well within expectations and will have no material impact on our business going forward.”
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