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A sense of déjà vu in latest report of OneBeacon sale process

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A sense of déjà vu in latest report of OneBeacon sale process

The text of a Jan. 18 Bloomberg News article should have looked familiar to followers of OneBeacon Insurance Group Ltd.

The news service opened the piece with identical language to an April 8, 2015, article in reporting that the White Mountains Insurance Group Ltd.-majority-owned OneBeacon is once again exploring a sale.

The 2015 article linked Fosun International Ltd. to a possible acquisition of OneBeacon. Fosun, which announced an agreement in December 2014 to acquire Meadowbrook Insurance Group Inc., revealed a deal May 3, 2015, for a buy-in of the remaining 80% stake in Ironshore Inc. it did not already own.

Bloomberg reported in the Jan. 18 story, which like the 2015 article cited unnamed sources, that OneBeacon was working with Credit Suisse in the sale process.

Shares of OneBeacon rallied to close Jan. 18 at $16.54, up 9.1%. The stock climbed only 5.9% to a close of $15.89 on April 8, 2015, following the previous rumor. In both cases, however, trading volume was many multiples of the daily average.

That White Mountains may be open to a sale of its position in OneBeacon, which totaled 76.1% according to the latter company's most recent Form 10-Q, should not come as a surprise. White Mountains Chairman and CEO and OneBeacon director Raymond Barrette made it clear during a June 2015 investor day that he would not rule out a sale of the specialty insurer.

"We are running the business for ourselves, [but] if someday somebody shows up with an offer we can't refuse, we have a rule: We don't refuse it," Barrette said at the time, responding to an analyst's question about the market for specialty insurance company acquisitions.

With White Mountains subsequently having sold Sirius International Insurance Group Ltd. to China Minsheng Investment Co. Ltd. and divested its stake in life insurer Symetra Financial Corp. as part of a transaction with Sumitomo Life Insurance Co., the company's CFO appeared to wonder aloud about its future in a letter to shareholders in the 2015 annual report.

"It isn't clear today what we will be in the future," David Foy wrote, citing the presence at that time of about $2.7 billion in mostly "undeployed" capital at the parent-company level. "It will be a challenge to put that much money to work in the current environment, but the environment can change quickly. Patience is required."

Barrette added in an accompanying letter in that report that he expected to continue to gradually return capital to shareholders through share repurchases while White Mountains continued to explore investment opportunities.

"Our efficient global structure, combined with our clean and liquid balance sheet, present unique possibilities for win-win transactions with companies seeking to achieve more competitive capital/financial structures," Barrette wrote in that letter.

Through the first 10 months of 2016, White Mountains reported that it repurchased 1.09 million common shares for a total cost of $878 million, leaving it with less than 4.57 million shares outstanding as of Oct. 31, 2016. The company bought back 325,065 shares during the first 10 months of 2015 at a total cost of $236.2 million.

In addition to its majority stake in OneBeacon, White Mountains maintains ties to bond insurer Build America Mutual Assurance Co. through its ownership of 96.9% of the preferred equity and 88.4% of the common equity of HG Global Ltd. White Mountains capitalized HG Global in 2012 to fund Build America Mutual through the purchase of two series of surplus notes.

White Mountains' ties to OneBeacon date back much further to its June 2001 purchase of the U.S. property and casualty businesses of CGNU Plc. It sold a minority stake in OneBeacon to the public by way of a November 2006 initial public offering.

White Mountains executives said in the 2015 annual report that the "final transformation" of OneBeacon into a focused specialty insurer, an effort that dated back to the time of the IPO, had been "confirmed" in February 2016. Now, if the process reported by Bloomberg plays out, new ownership could represent the next step in OneBeacon's evolution.