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Watsa’s Fairfax Agrees to Buy Allied World for $4.9 Billion

Fairfax Financial Holdings Ltd. agreed to buy insurer Allied World Assurance Co. for $4.9 billion in cash and stock in Chief Executive Officer Prem Watsa’s largest purchase.

Fairfax will pay $54 per share, which is 18 percent higher than Allied World’s closing price on Friday. For every share, Allied investors will receive about $10 in cash -- half from Fairfax and the rest from a pre-closing dividend by Allied -- as well as $44 of Fairfax’s stock, according to a statement from the companies. Toronto-based Fairfax has the option to increase the cash portion by up to $30 per share.

Smaller carriers have sought merger partners in recent years as commercial insurance buyers and their brokers prefer companies with scale. The deal that Zug, Switzerland-based Allied reached will make it a wholly owned subsidiary, while keeping its executive and senior management teams.

“Allied World will operate within the Fairfax group on a decentralized basis after closing, and we are looking forward to supporting Scott and the entire team at Allied World in growing their business over the long-term,” Watsa said in the statement, referring to Allied CEO Scott Carmilani.

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