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Allied World's capital position attracted Fairfax

Allied World Assurance Co. Holdings AG's deal to sell to Fairfax Financial Holdings Ltd. will have a provision that will allow Allied to look for a better deal, said Scott Carmilani, Allied's chairman, president and CEO.

The agreement followed nearly a dozen meetings that date back to September, Carmilani said during a conference call.

"We went through many iterations between then and now," Carmilani said.

Fairfax's offer of $54 per Allied World share includes a $10 cash consideration per share that Fairfax could increase to as much as $40 per share. The extra cash offered would replace a portion of the stock consideration.

The transaction would provide Allied World the enhanced scale and capabilities that are increasingly important in the insurance industry, Carmilani said.

Allied World would be the largest company that Fairfax has purchased in more than three decades, Fairfax Chairman and CEO Prem Watsa said, according to a transcript of the call. Allied World's balance sheet and capital position complements Fairfax's, Watsa said. The deal offers no cost synergies, Watsa said. Fairfax allows its companies to run autonomously, and Allied World will continue with no change in operations, he said.

One of the factors that brightens the outlook of the proposed deal is the potential for an improved economic and regulatory environment in the U.S. with Donald Trump as president and Republicans in control of Congress, Watsa said. Allied World generates a substantial amount of premium from large customers in the U.S.

Reducing taxes, easing burdensome regulations and providing an incentive to build infrastructure could bring significant GDP growth, Watsa said.

"Our businesses in the United States, including Allied World, will benefit from any such positive economic development," he said.