Mississauga, ON (Nov. 9, 2018) – Echelon Financial Holdings Inc. (EFH) and CAA Club Group announced today that they have entered into a definitive agreement for EFH to sell Echelon Insurance, the Company’s main operating subsidiary that is incorporated under the Insurance Companies Act, and the unregulated warranty business held directly by EFH (together, the “Business“) to CAA for $175 million, payable in cash.
The announcement of the Agreement follows an extensive strategic review process overseen by a committee of EFH’s Board of Directors comprised exclusively of independent directors (the “Special Committee“). In its review, the Special Committee considered numerous alternatives and recommended to EFH’s Board of Directors that the sale of the Business to CAA is in the best interest of the Company.
Murray Wallace, Chairman of EFH’s Board of Directors commented, “We are excited about the sale of Echelon Insurance as it produces an attractive outcome to the shareholders of EFH and the continuation of employment for our staff. The success of this transaction can be directly attributed to the vision and commitment of the Echelon Insurance management team and staff who in 2015 implemented a strategy to develop multiple personal and commercial insurance lines of business across the country. We believe that CAA will enable Echelon Insurance to reach the next level of service for its brokers and customers.”
“The acquisition of Echelon Insurance represents an exciting opportunity to expand CAA Club Group’s insurance product offering into non-standard auto, property, and commercial insurance,” said Jay Woo, President and CEO of CAA Club Group. “CAA is committed to the success of its independent insurance brokers, and is excited to offer them new products to meet their customers’ needs. CAA looks forward to inviting Echelon Insurance’s brokers into one of Canada’s most trusted brands, and supporting them with industry-leading IT systems, support and infrastructure. CAA will continue to give brokers the transparency, tools and fairness they need to grow their business.”
After considering the recommendation of the Special Committee, EFH’s Board of Directors has determined that the Agreement is in the best interest of the Company, and has unanimously approved entering into the Agreement. EFH’s Board of Directors recommends that shareholders vote in favour of approving the Agreement at a special shareholder meeting expected to be held in January 2019 (the “Meeting“).
The Purchase Price of $175 million represents a 42% premium to the book value of Echelon Insurance as at June 30, 2018. Pursuant to the terms of the Agreement, EFH has committed to deliver Echelon Insurance to CAA with a Minimum Capital Test (“MCT“) ratio of 220% at closing. In addition, CAA will assume up to $4 million of EFH’s transaction expenses in relation to the Agreement.
National Bank Financial Inc. and Blair Franklin Capital Partners Inc. provided opinions to EFH’s Board of Directors and EFH’s Special Committee, respectively, that the consideration pursuant to the Agreement is fair, from a financial point of view, to EFH.
Shareholder Approval and Other Considerations
The Agreement is subject to the approval of at least 66⅔% of EFH shares voted in person or by proxy at the Meeting. Certain shareholders including EdgePoint Investment Group, Cymbria Corporation, Foyston, Gordon & Payne Inc., Franklin Templeton Investments Corp., and the directors and senior officers of the Company, together representing over 50% of the Company’s outstanding common shares (calculated on a non-diluted basis), have entered into voting support agreements with CAA pursuant to which they have agreed to vote their shares in favour of the Agreement. Such voting agreements can be terminated in certain circumstances.
Completion of the Agreement is subject to customary conditions including receipt of shareholder approval, required insurance regulatory approvals and Competition Act approval.
The Agreement includes non-solicitation covenants, as well as customary fiduciary protections including the ability to consider and support a superior proposal with respect to the Business or the Company (a “Superior Proposal“). CAA will have five business days to match any Superior Proposal. EFH will be required to pay a break fee of $6.1 million in the event the Board accepts or supports a Superior Proposal.
The terms and conditions of the Agreement will be disclosed in greater detail in EFH’s information circular (the “Information Circular“) that is anticipated to be mailed to shareholders in December 2018. In the event of a postal strike that prevents mailing, EFH intends to discuss other options with its regulators and issue a further news release as necessary. It is expected that the proposed Agreement will be completed in the first half of 2019 once all required approvals are obtained.
Copies of the Agreement and of the Information Circular for the Meeting will be filed with Canadian securities regulators and will be available on the SEDAR profile of EFH at www.sedar.com. In addition, EFH shareholders may obtain free copies of the Agreement and of the Information Circular by writing to Echelon Financial Holdings Inc., 2680 Matheson Boulevard East, Suite 300, Mississauga, Ontario, L4W 0A5 Attention: Corporate Secretary. EFH shareholders are urged to read the Information Circular and the other relevant materials when they become available as such materials will contain important information regarding the Agreement.
Remaining Assets of EFH
EFH continues to own a 75% interest in its other active subsidiary, the Insurance Company of Prince Edward Island (“ICPEI”). ICPEI is a leading provider of personal and business insurance sold exclusively through a network of 17 brokers in 68 offices across all three of Canada’s Maritime provinces. In the coming months, EFH expects to work collaboratively to assist ICPEI in setting up stand-alone operations in order to ensure business continuity including supporting its broker partners after the closing of the sale of the Business.
Based on EFH’s reported balance sheet as at June 30th, 2018 and excluding the contribution from the Business, EFH estimates that at such date it had approximately $30 million in net tangible assets in addition to its 75% interest in ICPEI which had an equity book value of approximately $10 million. EFH intends to review its alternatives to return capital to its shareholders and will assess other value maximization alternatives for its remaining assets in due course. EFH will provide supplementary details in the Information Circular and will provide updates to the stakeholders as appropriate.
National Bank Financial Inc. acted as the exclusive financial advisor to Echelon Financial Holdings in connection with the strategic review process and the Agreement. National Bank Financial Inc. and Blair Franklin Capital Partners provided opinions to EFH’s board of directors and EFH’s Special Committee, respectively, that the consideration pursuant to the Agreement is fair, from a financial point of view, to EFH. McCarthy Tétrault LLP acted as legal advisor to EFH. Cassels Brock & Blackwell LLP acted as insurance regulatory counsel to EFH. Stikeman Elliottt LLP acted as legal advisor to CAA Club Group.
About CAA Club Group
For over a hundred years, CAA has been helping Canadians stay mobile, safe and protected. The CAA Club Group of Companies is comprised of two automobile clubs, CAA South Central Ontario and CAA Manitoba, providing roadside assistance, travel, insurance service and Member savings for over 2.2 million members. It also includes the CAA Insurance Company, a national property and casualty insurance company, and the Orion Travel Insurance company.
About Echelon Financial Holdings Inc.
Founded in 1998, Echelon operates in the property and casualty insurance industry in Canada, primarily focusing on non-standard automobile insurance and other specialty P&C insurance products. The Company operates and distributes insurance products through Echelon Insurance and The Insurance Company of Prince Edward Island. It trades on the Toronto Stock Exchange under the symbol EFH. For more information, please visit echelon-insurance.ca.
SOURCE: Echelon Financial Holdings Inc.Tags: Acquisition, CAA, Echelon