will acquire all of the outstanding ordinary shares of for about $4.9 billion in cash and stock.
AlliedWorld shareholders would receive a combination of Fairfax subordinate votingshares and cash equal to $54.00 per Allied World share, based on the Dec. 16closing stock price on the TSX for Fairfax of $460.65. The $54.00 per shareoffer price represents a premium of 18% to the closing price of $45.77 perAllied World share Dec. 16.
AlliedWorld shareholders will receive cash consideration of $10.00 for each AlliedWorld share, $5.00 of which will be paid in the form of a preclosing cashdividend by Allied World. A portion of the stock consideration, having a valueof $14.00 based on the closing price of Fairfax shares as of Dec. 16, ispayable at a fixed exchange ratio of 0.030392.
Theremaining portion of the stock consideration will be a number of Fairfax shareswith a value equal to $30.00, which will be determined based on thevolume-weighted average closing price of Fairfax shares for the 20 trading daysending on the day prior to closing. If the volume-weighted average price of Fairfax sharesduring this period is above $485.65, the stock portion of the considerationwill be fixed at 0.061772 Fairfax share for each share of Allied World, and ifit is below $435.65 per share, the stock portion of the consideration will befixed at 0.068862 Fairfax share for each share of Allied World. Also,on or before 75 days after the date of the agreement, Fairfax has the option toreplace on a dollar-for-dollar basis this portion of the stock considerationwith cash in an amount up to $30.00 per Allied World share, together with thedividend, for up to a total cash consideration of $40.00 per Allied Worldshare. Fairfax may choose to fund the $30.00 in cash by an equity or debtissuance or by bringing in third party partners.
Thetransaction is intended to be effected through an exchange offer, followed by asqueeze-out merger. The transaction is subject to a sufficient number of theoutstanding Allied World shares having been tendered in the offer and theapproval of Allied World shareholders, Fairfax shareholdersand applicable regulators.
Thetransaction is expected to close in the second quarter of 2017.
Thedeal will require the approval of Fairfax shareholders by a majority vote since the Fairfax shares issued in thetransaction will exceed 25% of the total number of outstanding Fairfax shares.Prem Watsa, Fairfax's chairman and CEO, and The Sixty Two Investment Co. Ltd.,a company controlled by Prem Watsa, who collectively hold an aggregate votinginterest in Fairfax of about 43%, have signed a voting support agreement infavor of the Fairfax share issuance necessary in connection with theacquisition.
Fairfaxplans to seek written consents from other shareholders that, together with thevotes represented by the shares held by Prem Watsa and Sixty Two Investment,represent more than 50% of the votes attached to all multiple and subordinatevoting shares of Fairfax. The company will request that the TSX accept thesewritten consents to support the transaction as evidence of shareholder approvaland not require Fairfax to hold a shareholders' meeting to approve the issuanceof Fairfax shares. If Fairfax is unable to proceed by written consent, ameeting of Fairfax shareholders will be convened to approve the share issuance.
Bankof America Merrill Lynch is acting as exclusivefinancial adviser to Allied World. Willkie Farr & Gallagher LLP is actingas U.S. legal counsel to Allied World, and Baker & McKenzie LLP and WalderWyss Ltd. are acting as Swiss legal counsel.
Fairfaxretained Shearman & Sterling LLP as U.S. legal counsel, Torys LLP asCanadian legal counsel and Homburger AG as Swiss legal counsel.