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Prem Watsa's Fairfax Financial to Acquire American Safety Insurance

August 21, 2013 | About:
Monica Wolfe

Monica Wolfe

127 followers
According to GuruFocus Real Time Picks the Canadian guru Prem Watsa made a notable increase in his position in American Safety Insurance (ASI) this past week as a result of his intent to acquire the company.

On Aug. 7 Watsa reduced his position in American Safety by -19%. The guru sold a total of 235,100 shares at an average price of $29.88 per share. Since his sell the price per share has increased approximately 1%. After his sell Watsa held on to 1,001,314 shares of ASI, representing 10.12% of the company’s shares outstanding.

Twelve days later Watsa increased his position in American Safety by 54.77%. On Aug. 19, Watsa purchased a total of 548,390 shares of ASI at an average price of $31.06 per share. Since his buy, the price per share has dropped -3%. The guru currently holds on to 1,549,691 shares of American Safety Insurance representing approximately 15% of the company’s shares outstanding.

On June 3, American Safety Insurance announced that Watsa would acquire all of the outstanding shares of American Safety common stock. The announcement that Watsa would purchase these shares caused the stock to jump 20%. In the graphs below you can see the company’s historical price in comparison to the price after Watsa made the announcement that he would acquire ASI.

ASI’s Historical Price:

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ASI’s Price from Watsa’s announcement on June 30 to the present:

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About American Safety Insurance

American Safety Insurance is a specialty insurance company that provides customized insurance products and solutions to small- and medium-sized businesses in industries which they consider to be underserved by the standard insurance market. In the company's 20 years, they have developed specialized insurance coverage and alternative risk transfer products that are not generally available to customers because of the unique and individual characteristics of the risks involved and the specific needs of the insured.

American Safety is considered the specialty insurance and reinsurance underwriter. The company's operating segments come from three main insurance divisions: excess and surplus, alternative risk transfer and assumed reinsurance.

American Safety’s historical revenue and net income:

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The company’s second quarter financials released on July 31 reported:

· Gross written premiums decreased 4.2% to $83.9 million.

· Total revenues were $105.6 million compared to $70.1 million.

· Pre-tax net realized gains were $37.5 million.

· Book value was $32.79 per diluted share versus $34.21 at Dec. 31, 2012.

The Peter Lynch Chart shows that American Safety is currently undervalued:

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Prem Watsa to Acquire American Safety:

On Aug. 7, Watsa’s Fairfax Financial increased their offer to buy American Safety Insurance Holdings to $30.25 per share. This is up from their previous offer of $29.25 per share. The board of directors has approved an amendment to the Merger Agreement among American Safety, Fairfax and Fairfax Holdings Bermuda reflecting the revised price and an increase in termination fee to $13.4 million from $9.1 million.

On Aug. 18 representatives of Fairfax and Catalina informed American Safety that Catalina was withdrawing its revised proposal to acquire American Safety at a price of $30.75 per share and that Fairfax and Catalina had reached an agreement whereby Fairfax would sell American Safety’s reinsurance business to Catalina promptly after the closing of Fairfax’s pending acquisition of American Safety.

The special general meeting of shareholders of American Safety to consider and vote on, among other things, a proposal to approve and adopt the merger agreement with Fairfax, as amended, is scheduled to be held on August 26, 2013.

American Safety Insurance has a market cap of $290.4 million. Its shares are currently trading at around $30.12 with a P/E ratio of 6.60, a P/S ratio of 0.90 and a P/B ratio of 0.90. The company had an annual average earnings growth of 21.8% over the past five years.

Rating: 3.3/5 (4 votes)

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