THURSDAY, AUGUST 30: Validus Holdings, Ltd. and Flagstone Reinsurance Holdings, S.A. announced that the boards of directors of both Validus and Flagstone have approved a definitive merger agreement pursuant to which Validus will acquire all of the issued and outstanding shares of Flagstone. 

Under the terms of the agreement, Flagstone shareholders will receive 0.1935 Validus voting common shares and $2.00 in cash for each Flagstone share.  The transaction provides Flagstone shareholders with a 19.4 per cent premium and $8.43 of value per share based on the closing share price for each of Validus and Flagstone as of Wednesday, August 29, 2012 and represents an aggregate equity value of $623.2 million. 

For United States tax purposes, the proposed transaction is intended to be tax-free to Flagstone shareholders with respect to the Validus voting common shares they receive.

Completion of the transaction, which is expected to occur in the fourth quarter of 2012, is subject to customary closing conditions, including obtaining regulatory approvals and the approval of Flagstone’s shareholders.  The combined company will maintain Validus’ name, headquarters and executive management. Validus has obtained agreements from investment funds associated with Lightyear Capital and Trilantic Capital Partners, which collectively own approximately 22.5 per cent of the outstanding Flagstone shares, to vote in favor of the transaction.

Ed Noonan, Validus’ chairman and CEO, said: “This is a compelling transaction for us that allows Validus to further build upon our market leading position in catastrophe risk.  Flagstone brings a strong client base that will add scale to our business. 

“Validus has an established track record of integrating acquisitions quickly and effectively with a focus on the needs of our clients and intermediaries.  We are confident that this transaction will generate excellent value going forward for Validus and Flagstone shareholders.”

David Brown, Flagstone’s CEO, said: “We believe this transaction offers a significant premium and immediate value for our shareholders, and provides a more stable capital base with which to underwrite over the long-term. 

“Over the past ten months, Flagstone has taken steps to strategically shift our business model, becoming a more focused and efficient underwriter and we believe this transaction reflects our progress.

“Further, we believe that Flagstone and Validus share a strong technical, analytical approach and a commitment to providing exemplary service for our clients. 

“We look forward to working with Validus to complete this combination and create shareholder value.  The transaction, which our board of directors has unanimously concluded is in the best interest of Flagstone, concludes a lengthy and extensive process in which the board carefully considered a broad range of strategic alternatives.”

Deutsche Bank Securities Inc. acted as financial advisor to Validus and Skadden, Arps, Slate, Meagher & Flom LLP provided legal advice to Validus.  Evercore Partners acted as financial advisor to Flagstone and Cravath, Swaine & Moore LLP provided legal advice to Flagstone.