Why Allied World Assurance Co. Holdings, AG. Stock Is Up 12% Today

By Jordan Wathen Markets Fool.com

Image source: Getty Images.

Continue Reading Below

What happened

Shares ofAllied World Assurance Co. Holdings, AG. (NYSE: AWH) were up by about 12% as of 12:00 p.m. EST after the company announced that it would merge withFairfax Financial Holdings (TSX: FFH)in a mostly stock deal.

So what

The terms of the deal call for Allied World shareholders to receive total consideration of $54.00 per Allied World share, with $10.00 paid in cash and $44.00 in Fairfax Financial stock, subject to some conditions. Half of the cash consideration ($5.00) will be paid in the form of a special dividend from Allied World prior to closing.

Fairfax retains the option to increase the amount of cash in the transaction to up to $40 per share, which it may prefer if Fairfax shares rise in value before the deal closes. Given that this is a cross-border transaction (Fairfax is listed in Toronto), currency fluctuations also play a role in the final price tag.

Continue Reading Below

Now what

The market is pricing Allied World Assurance shares as if the deal will go through without a hiccup. Shares of the insurer are trading at a single-digit discount to their implied value if the transaction were closed today, suggesting that investors see little risk that it won't go through and minimal odds that another insurer will make a higher bid for the company.

10 stocks we like better than Allied World Assurance Holdings
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Allied World Assurance Holdings wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of Nov. 7, 2016

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.