Caisse, CPPIB, OTPP to fund Intact’s $2.3 bln buy of OneBeacon

Intact Financial Corp (TSX: IFC), a Canadian provider of property and casualty insurance, has agreed to acquire OneBeacon Insurance Group Ltd (NYSE: OB), a U.S. specialty insurer, for about $2.3 billion (US$1.7 billion) in cash. Toronto-based Intact said the deal, expected to close in the fourth quarter, will create a North American insurer with more than $2 billion in specialty lines premiums. The funding of the acquisition will include $700 million of equity financing, $340 million of which will be raised through a private offering from Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board (CPPIB) and Ontario Teachers’ Pension Plan (OTPP).

PRESS RELEASE

Intact Financial Corporation to Acquire US Specialty Insurer OneBeacon Insurance Group, Ltd. for US $1.7 billion

TORONTO, ONTARIO–(Marketwired – May 2, 2017) –

Creating a leading North American specialty lines insurer with over $2 billion in specialty lines premiums
Focuses on small to mid-size businesses where both organizations have deep capabilities and ability to scale up
Bolsters Intact’s existing Canadian business with new products and cross-border capabilities
Provides additional growth pipeline to leverage Intact’s consolidation expertise in a highly fragmented market
Accretive to net operating income per share within 24 months
Strong financial position maintained with MCT estimated above 200% at closing

Intact Financial Corporation (TSX:IFC) announced today that it has entered into a definitive agreement and plan of merger pursuant to which it has agreed to acquire OneBeacon Insurance Group, Ltd. (NYSE:OB), a leading US specialty insurer. Under the terms of the all-cash deal, OneBeacon shareholders will receive US$18.10 cash per common share, a 14% premium based on OneBeacon’s closing stock price on the NYSE of US$15.89 as of May 1, 2017 and a 15% premium to the volume weighted average price over the last 30 days. This represents an aggregate cash consideration of approximately US$1.7 billion ($2.3 billion). In addition, OneBeacon debt of approximately US$275 million will remain outstanding. The transaction has been unanimously approved by the Boards of Directors of both companies and is subject to approval by OneBeacon’s shareholders.

Intact’s acquisition of OneBeacon is creating a North American leader in specialty insurance, with over $2 billion of annual premiums. It combines Intact’s leading commercial lines track record and deep data, claims and digital expertise with OneBeacon’s high caliber team and specialty lines capabilities. The acquisition bolsters Intact’s Canadian business with new products and cross-border capabilities, and better positions Intact to compete with international insurers. Furthermore, this provides an additional growth pipeline to leverage Intact’s consolidation expertise in a fragmented specialty lines market.

“Today, we’ve taken an important step in building a world class P&C insurer. The addition of OneBeacon is creating a leading North American specialty lines insurer focused on small to mid-sized businesses,” said Charles Brindamour, CEO of Intact Financial Corporation. “OneBeacon is a strong strategic fit for Intact, with deep expertise in commercial and specialty lines, and shared values. We see significant growth potential from the combination of our specialty lines operations and we look forward to welcoming OneBeacon employees to the Intact family.”

Mike Miller, CEO of OneBeacon Insurance Group, said, “We are all very excited to join the Intact family. The opportunity to leverage Intact’s deep technical, financial and technology capabilities makes this combination the perfect next step in the OneBeacon journey. Together, we will accelerate our pursuit in creating a leading specialty insurer in North America. We look forward to working with our US and Canadian independent agents and brokers to deliver market-leading capabilities to our targeted customers. Both companies are dedicated to ensuring a seamless transition and look forward to profitably growing our specialty portfolio going forward.”

Attractive Shareholder Returns and Conservative Financing Structure

The transaction is expected to be neutral to net operating income per share in 2018 and generate mid-single digit NOIPS accretion within 24 months after close. Intact expects to also benefit from top and bottom line growth opportunities resulting from broader geographic and line of business diversification.

Intact secured the conditional purchase of a reinsurance agreement pursuant to which a major reinsurer will assume 80% of any negative development in excess of US$74 million with respect to OneBeacon’s claims liabilities as at December 31, 2016. The maximum amount payable by the major reinsurer is US$200 million and is subject to some exclusions and limitations.

Intact intends to finance the acquisition and related transaction expenses using a combination of $700 million of equity financing, approximately $700 million of excess capital and approximately $1.0 billion of financing comprised of bank term loans, medium term notes and preferred shares. Intact has hedged the purchase price against the exposure associated with USD/CAD exchange rate fluctuations. Intact will maintain its strong capital position with an estimated MCT above 200% on closing and expects its debt-to-total capital ratio to return below the target level of 20% within 24 months following the closing of the acquisition.

Intact will cancel the automatic share purchase plan announced on March 27, 2017 and suspend its normal course issuer bid in order to maintain excess capital prior to the closing date of the transaction. Following closing, Intact plans to use excess capital for deleveraging in line with its conservative transaction financing plan.

The $700 million of equity financing is being completed through a combination of a $360 million bought deal subscription receipt offering and $340 million of subscription receipts issued on a private placement basis to three Canadian institutional investors, namely Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan (collectively, the “Private Placement Subscribers”).

In connection with the bought deal subscription receipt offering, Intact has entered into an agreement with a group of underwriters, led by CIBC Capital Markets and TD Securities Inc. for the issue of 3.9 million subscription receipts at a price of $91.85 per subscription receipt (less an underwriting fee) pursuant to a bought deal public offering in Canada and to qualified institutional buyers in accordance with Rule 144A of the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”). Each subscription receipt will entitle the holder to receive one common share of Intact upon closing of the acquisition. Intact has also granted the underwriters the option to purchase an additional 0.6 million subscription receipts exercisable at the offering price for a period of 30 days after the closing of the offering for additional gross proceeds of up to $54 million. The gross proceeds (net of the initial underwriters’ fee) from the sale of the subscription receipts will be held in escrow until the acquisition close date. The offering is expected to close on May 11, 2017.

Intact has separately agreed with the Private Placement Subscribers to issue an aggregate of 3.7 million subscription receipts at a price of $91.85 per subscription receipt (less a private placement fee). The escrow release provisions of the private placement subscription receipts are substantially equivalent to those applicable to the public offering of subscription receipts and the private placement is expected to close concurrently with the public offering.

Completion of the concurrent private placement is subject to a number of conditions including the closing of the bought deal subscription receipt offering. Completion of the bought deal subscription receipt offering is conditional upon the closing of the concurrent private placement.

The subscription receipts and the common shares of Intact have not been, and will not be, registered under the U.S. Securities Act, or the securities laws of any state of the United States and may not be offered, sold or delivered, directly or indirectly, within the United States, except in certain transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. This press release does not constitute an offer to sell or a solicitation of an offer to buy any of these subscription receipts within the United States.

Additional Details, Closing and Approvals

The transaction was unanimously approved by the Boards of Directors of both companies (Mr. Yves Brouillette, who is a director of Intact Financial Corporation and White Mountains Insurance Group, Ltd., the controlling shareholder of OneBeacon, was excluded from board meetings, deliberations, votes and related communications regarding the transaction). The transaction is expected to close in the fourth quarter of 2017, subject to satisfaction of customary closing conditions, including OneBeacon shareholder approval and receipt of required regulatory approvals. In connection with the entering into of the acquisition agreement, White Mountains Insurance Group, Ltd. has entered into a voting agreement pursuant to which it has agreed to vote in favour of the transaction. The voting agreement can be terminated by White Mountains Insurance Group, Ltd., if the acquisition agreement is terminated by OneBeacon. OneBeacon has the ability to terminate the acquisition agreement, subject to the procedures set forth therein and the payment of a US$85.1 million termination fee and reimbursement of Intact’s expenses up to US$22 million, in order to enter into a definitive agreement for a superior proposal with a third party.

Advisors

Goldman, Sachs & Co. LLC is acting as financial advisor to Intact Financial Corporation. Skadden, Arps, Slate, Meagher & Flom LLP and Blake, Cassels & Graydon LLP are acting as legal advisors to Intact Financial Corporation in this transaction. Davies Ward Phillips & Vineberg LLP is acting as legal advisor to the Private Placement Subscribers. McCarthy Tétrault LLP is acting as counsel to the underwriters in the bought deal subscription receipt offering.

Conference Call

Intact Financial Corporation (TSX:IFC) will host a conference call today at 4:45 p.m. ET to discuss this transaction and 2017 first quarter results. Given the concurrent equity offering, there will not be a question and answer session following the remarks.

The conference call will be made available by dialing 1 (647) 427-7450 or 1 (888) 231-8191 (toll-free in North America). Please call 10 minutes before the start of the call. To listen to the call via live audio webcast, visit our website at www.intactfc.com.

A replay of the call will be available later today until midnight on May 10. To listen to the replay, call 1 (855) 859-2056, passcode 3414926.

A transcript of the call and link to the audio webcast will also be made available on Intact Financial’s website at www.intactfc.com under “Investors”.

About Intact Financial Corporation

Intact Financial Corporation (TSX:IFC) is the largest provider of property and casualty (P&C) insurance in Canada with over $8.0 billion in annual premiums. Supported by over 12,000 employees, the Company insures more than five million individuals and businesses through its insurance subsidiaries and is the largest private sector provider of P&C insurance in British Columbia, Alberta, Ontario, Québec, Nova Scotia and Newfoundland & Labrador. The Company distributes insurance under the Intact Insurance brand through a wide network of brokers, including its wholly owned subsidiary, BrokerLink, and directly to consumers through belairdirect.

About OneBeacon Insurance Group

OneBeacon Insurance Group, Ltd. is publicly traded on the New York Stock Exchange under the symbol “OB.” OneBeacon’s underwriting companies offer a range of specialty insurance products sold through independent agencies, regional and national brokers, wholesalers and managing general agencies. Each business is managed by an experienced team of specialty insurance professionals focused on a specific customer group or industry segment, and providing distinct products and tailored coverages and services. OneBeacon’s solutions target group accident and health; architects and engineers; commercial surety; entertainment; environmental; excess property; financial institutions: financial services; healthcare; management liability; ocean and inland marine; programs; public entities; technology; and tuition refund. For further information about our products and services visit: Onebeacon.com and to remain up to date on OneBeacon news, follow us on Twitter @OneBeaconIns or visit our online newsroom: www.onebeacon.com/newsroom.

Contact Information

Intact Media Inquiries:
Stephanie Sorensen
Director, External Communications
+1 (416) 344-8027
stephanie.sorensen@intact.net

Intact Investor Inquiries:
Samantha Cheung
Vice President, Investor Relations
+1 (416) 344-8004
samantha.cheung@intact.net

OneBeacon Media Inquiries:
Carmen Duarte
Director Marketing & Communications
+1 (781) 332-7268
cduarte@onebeacon.com

OneBeacon Investor Inquiries:
Paul McDonough
Executive Vice-President and CFO
+1 (952) 852-6020
ir@onebeacon.com

Photo courtesy of Intact Financial Corp