Omega Underwriting Holdings PLC
(“Omega”, “the Company” or, together with its subsidiaries “the Group”)
Omega’s shares were admitted to trading on AIM in April 2005. The admission to trading and the associated £18.2 million fundraising (net of expenses) gave the Group a base from which to implement its longer term plans for its business. In December 2005, the Company raised a further £85.8 million (net of expenses) principally to capitalise a new Bermudian business, Omega Specialty, which has subsequently commenced business and has been rated “A-” (Excellent) by A.M. Best. The Omega Board considers that the proposals will enable the Group to take its business forward to the next stage of its planned development.
The Group’s origins date back to 1980 when Syndicate 958 commenced business. In keeping with Lloyd’s market practice at the time, the business would then have been described as a “managing agent at Lloyd’s”, managing capital for Names on a Syndicate. The Company’s admission to AIM in 2005, the establishment of Omega Specialty, the Proposals and the establishment, authorisation and capitalisation of Omega US, will collectively provide a platform for the implementation of the Group’s future strategy. At the core of this are the twin objectives of, firstly, continuing to grow the Group’s support of it own underwriting activities and, secondly, managing independently rated and capitalised businesses in the key markets for the Group’s business.
Syndicate 958 has a total capacity of £249 million for the 2006 Year of Account. Syndicate 958’s relative consistency and low volatility of results have generated market out-performance over the cycle with 24 closed years of underwriting profitability. In 2005 Syndicate 958 wrote gross premiums of approximately £240 million. It is envisaged that Syndicate 958 will continue to be an important part of the Group’s underwriting platform going forward.
Following the establishment of Omega Specialty earlier this year, we have been focusing on the optimal way for the Group to address the future of its US business. Historically, some 50 per cent. of the business measured by premium income has been derived from US insureds and reinsureds and some 70 per cent. of income has been US Dollar denominated. Whilst this business has been serviced through Syndicate 958 in the past (and Syndicate 958 will continue to write this business in the future), the Omega Directors consider that the establishment of the Group’s own US incorporated carrier is the best way to grow its Lloyd’s and non-Lloyd’s businesses in a complementary way.
Under the Reorganisation, the Group will operate in the future under a Bermudian holding company, New Omega. The Omega Board considers Bermuda to be a favourable jurisdiction from which to continue the development of the Group’s business for a number of reasons, not least of which is the continued emergence of Bermuda as a premier global market for a number of the types of insurance and reinsurance business already underwritten by the members of the Group. Bermuda is seen by the Omega Directors as the key holding company location for groups whose principal business is the insurance and reinsurance of US-based corporations and US-based risks. Beyond its strategic importance as a leading insurance market, the attractions of Bermuda to the Group include its proximity and transport links to the US, the insurance industry expertise, potentially lower brokerage rates, good commercial and legal infrastructure and the regulatory and tax environment. Many institutional investors regard Bermudian based groups as a preferred choice of investment in the insurance sector. A number of the Group’s major competitors are also headquartered in Bermuda and the Omega Directors consider that there is commercial advantage in being similarly headquartered.
For the future New Omega’s accounts will be produced in US Dollars. Dividends will be declared in US Dollars with a Pounds Sterling dividend election. New Omega’s Common Shares will trade with a Pounds Sterling quotation.
Omega US
Omega incorporated a new subsidiary, Omega US, in Delaware on 5 September 2006. This entity will be capitalised by Omega through the net proceeds of the Placing, which will raise £35 million (before expenses). This entity is held under an intermediate holding company, Omega US Holdings Inc., which itself was incorporated in Delaware in August 2006. Omega US will apply for authorisation as an admitted insurer in Delaware and for approval to do business as a non-admitted surplus lines insurer in other US states. The business will be formed to create within the Omega Group a US incorporated and regulated entity which will provide Omega with access to business that, whilst of a similar class and type to that currently underwritten by Syndicate 958 (and intended to be underwritten by Syndicate 958 in the future), would not otherwise be offered to the Group. The Omega Directors believe that this business is typically all produced by smaller local or regional insurance intermediaries, many of whom, the Omega Directors believe, do not have a London or Bermudian presence, adding to the strategic attraction of a local presence. The Omega Directors believe that certain of these intermediaries also limit the portion of their account that is offered to London based underwriters.
The Omega Directors anticipate that going forward, the majority of the Group’s income will originate in the US and, accordingly, the Omega Directors consider that establishing a US business is key to ensuring the continued support and development of the Group’s US customer base. It is intended that Omega US will apply an underwriting approach that is consistent with that of Syndicate 958 with a similar focus on commercial surplus lines property insurance on smaller risks. The Omega Directors believe that the current market conditions in that sector will continue into 2007 making it an opportune time for the establishment and development of Omega US. In keeping with the Group-wide philosophy, it is intended to develop Omega US’s underwriting account with a focus on consistent profit margins and relatively low volatility of earnings.
Omega US will obtain a financial strength rating from A.M. Best.
Dividend Policy
The Group focuses on underwriting for gross profit and manages its capital base across the business cycle accordingly. When considering the appropriate level of dividends to pay at any one point in time, the Directors of New Omega will have regard to the Group’s ability to deploy capital profitably, the level of surplus capital in the business and the stage of the insurance cycle.
For the future, and subject to what is set out below, the Directors of New Omega intend to pay out a substantial part of New Omega’s distributable profits as dividends following publication of interim and final results on a calendar basis, and/or as special dividends when individual events or levels of New Omega profitability, inter alia, result in such special dividends being a prudent course of action. It is intended that New Omega Shareholders will be able to elect to receive dividend in Pounds Sterling or US Dollars. New Omega’s interim and year end accounts will be produced in US Dollars. Any dividends will be declared in US Dollars with a Pounds Sterling election made available to those New Omega Shareholders who wish to receive dividend payments in Pounds Sterling. The currency exchange rate applying to Pounds Sterling dividend elections in the future will be notified to New Omega Shareholders at the relevant future date.
All dividends will be subject to the future financial performance of New Omega, including results of operations and cash flows, New Omega’s financial position and capital requirements, rating agency considerations, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and any other factors the Directors of New Omega deem relevant in their discretion, which will be taken into account at the time. Dividends to New Omega Shareholders will be considered as part of an active management of New Omega’s capital base together with, inter alia, share repurchases.
Structure of the Scheme and the Restructuring
The Scheme is a Court approved scheme of arrangement under section 425 of the Companies Act 1985. Upon the Scheme becoming effective, New Omega will acquire Omega and become the new holding company of the Group, and all existing Ordinary Shares will be cancelled and replaced by New Omega Common Shares on the following basis:
For every Scheme Share cancelled - One New Omega Common Share
Application will be made for the New Omega Common Shares to be admitted to trading on AIM, such admission being conditional, inter alia, upon the Scheme being effective.
As a result of the Scheme, Ordinary Shareholders will receive the same number of New Omega Common Shares as Ordinary Shares currently held by them. Such shares will continue to enjoy substantially the same economic rights in New Omega as the shares they currently hold. The New Omega Common Shares to be issued pursuant to the Scheme will, when issued, be credited as fully paid and free from all liens, charges and encumbrances whatsoever and shall rank in full for all dividends or distributions made, paid or declared by New Omega after the Scheme Effective Date in accordance with the New Omega Bye-laws.
The Group’s Chief Executive Officer, Richard Tolliday, has relocated from the UK to the US. Mr Tolliday will spend most of his time in Bermuda and the US. Other than Mr. Tolliday’s relocation, the Scheme itself will have no immediate impact on the core management team of the Group as all of the existing Directors of Omega will continue as the Directors of New Omega together with Nicholas Warren of International Advisory Services Limited (one of the outsourced service providers to the Group). The Directors of New Omega intend to manage the affairs of New Omega (including as to the executive responsibilities of the management team) so that it is resident in Bermuda for tax purposes.
The Directors of Omega who hold Ordinary Shares, being Messrs. Clarke, Fiederowicz, Robinson and Tolliday, have, in their respective capacities as Ordinary Shareholders, indicated in letters of intent addressed to Omega their intention to vote in favour of the resolutions to be proposed at the Court Meeting and Scheme EGM in respect of, in aggregate, 17,211,312 Ordinary Shares, representing approximately 14.24 per cent. of Omega’s entire issued share capital. Pursuant to these letters of intent, Messrs. Clarke, Fiederowicz, Robinson and Tolliday have also indicated their intention to vote against any resolution or proposal which may prevent or impede the passing of the resolutions to be proposed at the Court Meeting and/or Scheme EGM and/or the implementation of the Scheme.
The Placing is not conditional on the Scheme becoming effective. In the event that Scheme Shareholders do not vote in favour of the Scheme and the Scheme Resolution or the Court does not sanction the Scheme, neither the proposed Reorganisation nor the New Omega Admission will take place although the Placing will (subject to satisfaction of the conditions to which it is subject) take place in any event. In such an event, Scheme Shareholders will remain shareholders in Omega whose issued share capital will continue to be admitted to trading on AIM. The Scheme is also conditional upon written approvals being received from the FSA, Lloyd’s and certain other regulatory bodies. If any of these approvals has not been received by 9 November 2006 (the expected Scheme Effective Date), then that date and the date of the New Omega Admission will be delayed until such approvals have been received. If the Scheme has not become effective by 31 January 2007 (or such later date as Omega and New Omega may agree and the Court may allow), it will lapse, in which event the position of Scheme Shareholders will remain unchanged. The conditions of the Scheme are set out in Appendix I of this announcement.
The proposed restructuring of the Group after the Scheme Effective Date will involve a series of intra-Group transactions which it is proposed will be implemented by way of the MVL or, subject to the Omega Board and the New Omega Board respectively considering this as being in the best interests of Omega, New Omega and their respective shareholders as a whole, the Dividend in Specie. This restructuring, whilst not part of the Scheme, will not proceed unless the Scheme becomes effective.
After the Scheme Effective Date, the Omega Board and the New Omega Board will keep under consideration which alternative method of implementing the restructuring (the MVL or the Dividend in Specie) is in the best interests of Omega, New Omega and their respective shareholders as a whole and the timing of that restructuring is that Omega Specialty becomes a direct subsidiary of New Omega. It is currently anticipated that the restructuring will be effected in the first quarter of 2007. A further announcement will be made by New Omega once a decision has been made in this regard.
The Company has received H.M. Revenue & Customs clearances. It has also obtained H.M Treasury consent to facilitate the subsequent restructuring.
Details of the Placing
The Company is proposing to raise capital to fund the initial capitalisation of Omega US by the Placing of 26,515,152 new Ordinary Shares at a placing price of 132p to raise £35 million (before expenses). The Company has entered into the Placing Agreement with Numis and Cenkos pursuant to which Numis and Cenkos have agreed to act as joint brokers to the Company for the purpose of carrying out the Placing and to procure placees for the Placing Shares, such placees to comprise institutional and other investors (including certain existing Shareholders). The Placing has been fully underwritten by Numis.
The Placing is conditional, inter alia, on:
- the passing of the Placing Resolution;
- the Placing Agreement becoming unconditional and not having been terminated in accordance with its terms; and
- Admission becoming effective by no later than 8.00 a.m. on 6 November 2006, as the Company, Numis and Cenkos may agree)
The Placing is not conditional upon the Scheme and the Capital Reduction becoming effective and binding.
The Placing Shares will be issued credited as fully paid and will rank on Admission pari passu in all respects with the existing Ordinary Shares, including as to the right to receive and retain all dividends and other distributions declared, made or paid after Admission in respect of the Ordinary Shares save that the Placing Shares will not be entitled to the Special Interim Dividend.
Whilst the Placing is not conditional on the Scheme becoming effective, the Placing shares will be Scheme Shares for the purposes of the Scheme and will be subject to the Scheme in the event of the Scheme becoming effective.
The Placing Shares are not being made available to the public and are not being offered or sold in any jurisdiction where it would be unlawful to do so.
Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Placing Shares will commence on or around 23 October 2006.
CREST and Depositary Interests
New Omega Common Shares will not themselves be admitted to CREST and hence will not be able to be held and traded directly in uncertificated form. However, Scheme Shareholders who wish to hold and transfer interests in their New Omega Common Shares within CREST will be able to do so pursuant to depository interest arrangements to be established by New Omega. The Depositary Interests will be independent securities constituted under English Law which may be held and transferred through the CREST system. In relation to such Depository Interests, although New Omega’s register of members will show Capita IRG Trustees (Nominees) Limited as the legal holder of the relevant New Omega Common Shares, the beneficial interest in such shares remains with the holder of the Depository Interests representing the underlying shares, who will receive all the rights attaching to the New Omega Common Shares as he/she/it would have if the holder of Depositary Interests had been on the New Omega register of members himself/herself/itself.
Amendments to Omega Articles
Subject to the passing of the Scheme Resolutions at the Scheme EGM, the Omega Articles will be amended to ensure that Ordinary Shares (including the Placing Shares) issued (other than to New Omega or any nominee thereof) after the passing of the Scheme Resolution but on or prior to 6:00 p.m. on the business day prior to the date on which the Court Order is made are issued subject to the terms of the Scheme. This amendment will ensure that the Placing Shares and any Ordinary Shares issued upon the exercise of such Resolution and 6:00 p.m. on the business day prior to the data on which the Court Order is made, will be subject to the Scheme.
The amendments to the Omega Articles will also provide that any Ordinary Shares issued after 6:00 p.m. on the business day prior to the date on which the Court Order is made, for example, upon exercise of options under the Omega Share Incentive Plans, will be transferred to New Omega in consideration of the issue or transfer to such holder by New Omega of New Omega Common Shares on the basis of one New Omega Common Share for every Ordinary Share transferred. This amendment will avoid any person (other than New Omega or any nominee thereof) being left with Ordinary Shares after dealings in such shares have ceased on AIM.
UK Takeover Code
As New Omega is incorporated in Bermuda, the Takeover Code will not apply to New Omega and Bermuda law does not contain any provisions similar to those applicable in the UK which are designed to regulate the way in which takeovers are conducted. Accordingly, any person or persons acting in concert will be able to acquire shares in New Omega which, when taken together with the shares already held by them, carry 30 per cent. or more of the voting rights in New Omega without being required to make a general offer for the entire issued share capital of New Omega. Additionally, any party intending to acquire all or a substantial part of the issued share capital of New Omega will not be obliged to comply with the provisions of the Takeover Code as to announcements, equality of treatment for shareholders as to the value and type of consideration offered, and will not be subjected to the scrutiny and sanctions of the Panel.
The New Omega Bye-laws contain certain takeover protections, although these will not provide the full protections afforded by the Takeover Code. To the extent permitted under the Bermuda Act, Bye-law 87 adopts certain of the provisions of the Takeover Code, including provisions dealing with compulsory takeover offers (to the extent permitted by Bermuda Law), which are to be administered by the New Omega Board. Bye-law 87 is to have effect only during such times as the Takeover Code does not apply to New Omega.
The New Omega Board has the full authority to determine the application of Bye-law 87, including the deemed application of the whole or any part of the Takeover Code, and such authority shall include all the discretion that the Panel would exercise if the whole or part of the Takeover Code applied. Any resolution or determination made by the New Omega Board, any New Omega Director or the chairman of any meeting acting in good faith is final and conclusive and is not open to challenge as to its validity or as to any other ground. The New Omega Board is not required to give any reason for any decision or determination it makes.
For the avoidance of doubt, the Takeover Code does not apply per se to New Omega or to the New Omega Common Shares and the Panel will not be responsible for enforcing any Takeover Code provision which is incorporated into the New Omega Bye-laws.
Formal Documentation
It is expected that the Scheme Circular and the Admission Document will be posted to Ordinary Shareholders on or around 25 September 2006. The Scheme Circular will include the notice of the Court Meeting and the Scheme EGM and will explain the actions which Ordinary Shareholders will be requested to take.