So, Markel (MKL) is buying Alterra (ALTE). We realize Markel is acquisitive and wants opportunities. So it is here. Of course Markel shareholders might have gotten sticker shock from the stock being down so much. If the deal is accretive to book value, then why the stock is performed by the heck price need to be down so much?
Markel was trading above publication value, and they will buy Alterra for around reserve value. But the real way the market sees it, at least initially, is that on the sum-of-the-parts basis, nothing really changes with this deal. 6.8 billion, so the publication value accretion to Markel (positive for MKL shareholders) is offset by the increasing contact with reinsurance (negative; reinsurers are trading below book). Anyway, the merger demonstration (which is always educational) is on the MKL website.
I like Markel, therefore I tend to like this deal. It’s a good idea. Buy float for cheap and boost returns by enhancing investment comes back. Markel’s strategy is to do well on both underwriting and investing. Most insurers work on the underwriting but spend money on bonds mainly. This deal is accretive to book value. 434/talk about, around 1.02x post-deal publication value per talk about. 2/share in booked gains on fixed income securities held to maturity (booked at amortized cost). 424/share post-deal is clean and simple (unlike the LUK post-deal BPS that included goodwill from the JEF purchase).
I don’t believe MKL would do that deal planning on sub-10% return-on-equity …