logo
  Join        Login             Stock Quote

Alterra Capital (ALTE) Downgraded To 'Hold' By Deutsche Bank Following Rally On M&A Offer

 December 20, 2012 02:20 PM


(By Balaseshan) Deutsche Bank analyst Joshua Shanker downgraded rating of Alterra Capital Holdings Ltd. (NASDAQ: ALTE) to "Hold" from "Buy" following rally on merger and acquisition offer, with $29 price target.

On Wednesday, Markel Corp. (NYSE: MKL) said it has agreed to buy Alterra Capital, which provides diversified specialty insurance and reinsurance products, for about $3.13 billion. Each of Alterra's shares would be acquired by Markel in exchange for 0.04315 shares of Markel and $10 in cash.

Shanker does not expect a bidding war to ensue with another suitor aiming to buy Alterra at a higher price. His "Hold" rating is based on the assumption that the stock will largely trade in parity with Markel until being acquired.

[Related -Stocks Close Lower Amid Budget Impasse; Navistar (NAV) Retreats]

The analyst believes that Markel shareholders does not resemble Alterra shareholders. Markel shareholders are sticky investors in an illiquid never-split stock who seek equity market correlated returns under Tom Gaynor's stewardship conjoined with an insurance company.

Shanker questions whether Alterra shareholders wish to become Markel shareholders with its unique value proposition or whether they might sell in advance. Further, he believes there will be some investors who prefer to take a long-term capital gain at 2012 tax rates as opposed to the tax associated with a $10 cash dividend in 2013.

The analyst expects the deal to close in 2Q-2012 and believes that approval from both set of shareholders is likely. Markel had made its desire to find an acquisition known to its shareholder base.

[Related -Markel (MKL) To Buy Alterra Capital (ALTE) For $3.13B]

Cash and stock consideration for Alterra shares was worth $30.97 when announced, but is currently worth $28.82, following Markel's decline of more than 10%. 0.04315 shares of newco Markel and $10 of equity are worth $28.08 as of 3Q-2012, so the stock currently trades above book value per share, Shanker noted.

The analyst doesn't expect that book value per share has increased materially due to a flat stock market quarter-to-date and the impact of Hurricane Sandy. The biggest risk to Alterra's share price would be a decline in Markel's, which is levered to the stock market, the analyst noted. A decline in either's shareholder of more than 20% could scuttle the deal.

Shanker believes a broad equity market decline of greater than 16% has a higher likelihood of causing this to happen to Markel's equity (0.6-to-1 common stock-to-shareholders' equity leverage) than would an earthquake event cause losses with such an impact to Alterra.

ALTE is trading down 0.60% at $28.01 on Thursday.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageChart Says This Retailer's Comeback Isn't Finished

One of the surprises, at least on the surface, of the market's recent swoon was the outperformance of read on...

article imageETF Performance Review: Major Asset Classes | 19 Dec 2014

It’s all about real estate investment trusts (REITs) these days when it comes to bullish performance among read on...

article imageOil and Global Stock Markets Rebounding Sharply

So far so good on our expectation of a 4 to 5% pullback and then a resumption of the bull read on...

article imageGrading the FOMC

Love its members or loathe them, you have to admire the gradual impact the policy-making committee has had read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.