5. Prem Watsa, Fairfax Financial Holdings Ltd., $666-millionAaron Harris/Reuters
Fairfax Financial Holdings Ltd.'s chief executive Prem Watsa is concerned about the equity markets in many pockets of the world, but his company isn't sitting back. The last few days have been busy for Fairfax, which filed an appeal in a high-profile lawsuit on Friday and made an acquisition Monday morning.
The deal:
Today, the Toronto-based insurer and investment manager is buying a Bermuda-based re-insurer American Safety Insurance Holdings Ltd. for about $306-million (U.S.). The deal is expected to close towards the end of the year.
While Fairfax is paying a 22.1 per cent premium to its target's closing share price Friday ($29.25 per share), the company doesn't expect to dip into its deep cash pool to finance the deal, instead saying it will use "internal resources."
Fairfax has been keen to hold on to its cash position, which was about $7-billion of the company's investment portfolio as of its first quarter results in early May. Although Mr. Watsa has said that you never know where opportunities will develop in difficult markets, and having cash on hand was beneficial to Fairfax in the downturn of 2008-09.
Mr. Watsa did express worries over the growth of some of the larger global economies on the Fairfax earnings call after the company's first-quarter results. "There continues to be a big disconnect between the financial markets and the underlying economic fundamentals," he said of the North America and Western Europe.
Rumours that American Safety may be sold started a few months ago when the company said it had hired Bank of America Merrill Lynch to help investigate "strategic alternatives" for the company.The transaction is subject to approval by American Safety's stockholders and other regulatory approvals.
As part of Monday's announcement, Fairfax said it will sell the Bermuda reinsurance unit of the company, American Safety Reinsurance Ltd., to Tower Group International Ltd. for about $59-million.
The appeal:
On Friday, Fairfax filed an appeal of a decision that dismissed its $6-billion (U.S.) lawsuit against a group of hedge funds and other defendants it accused of conspiring to manipulate its stock and push prices down. The company sued the group of U.S.-based firms nearly seven years ago in New Jersey, for manipulating the company's shares.
The company said that the scheme involved synchronizing short positions in the company with negative analyst reports, which caused financial damage. They also alleged that Fairfax executives had been intimidated in the process.
"The scheme's objective was to 'kill' Fairfax and its subsidiaries..." the appeal filing states. "By the time this case was commenced, they were convinced that they had made that collapse imminent."
The most resent dismissal from the case came in Sept. 2012. The appeal states that the trial court made four key errors when it decided that Fairfax had no legal remedy.
The noisy lawsuit shook the financial community when it was filed in 2006 because of Fairfax's reputation as a quiet company – albeit one with an ongoing problem with short-sellers that contributed to the stock falling about 50 per cent between 2002 and 2003 (it later rebounded significantly).
The case gained additional attention as bizarre details emerged including unverified allegations of personal threats, disparaging letters being sent to Mr. Watsa's pastor and one defendant's involvement with the FBI.
Some of the larger hedge funds included in the case, including Daniel Loeb's Third Point LLC and Steven Cohen's SAC Capital Advisors LP, won dismissals at different points last year because of lack of evidence, having "no economic interest" in the scheme, or because they couldn't be sued in New Jersey. The case against the remaining defendant firms was subsequently also dismissed by Donald Coburn, a New Jersey Superior Court Judge.
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)
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