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Tower Group, Inc. to Acquire Specialty Underwriters' Alliance, Inc.

Source: SUA Inc.

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Posted on 22 Jun 2009

Tower Group, Inc. ("Tower") and Specialty Underwriters' Alliance, Inc. ("SUA") have announced today that they have entered into a definitive agreement for the acquisition of SUA by Tower in a transaction valued at approximately $107 million. Under the terms of that agreement, SUA shareholders would receive Tower common stock equal to $6.72 per SUA share based on Friday's closing stock price for Tower of $24.00.

Transaction Highlights:

* Financially compelling to Tower and SUA stockholders

-- SUA is valued in the transaction at an 87% premium to SUA's average closing price over the past 30 trading days.

-- On a pro forma basis as of March 31, 2009, Tower's stockholders' equity increases by 13% from $786.9 million to approximately $890 million. The transaction is expected to be accretive to Tower's book value per share immediately at closing.

-- After giving effect to the transaction, Tower projects its 2010 Diluted EPS will be in a range between $3.50 and $3.70 which accounts for the additional shares expected to be issued.

* Strengthens specialty business segment

-- SUA will be able to better leverage its strong distribution network and expand its business opportunities by accessing Tower's A- rating by A.M. Best Company.

-- Tower will be able to create a separate and distinct underwriting and operational infrastructure dedicated to specialty business which would take advantage of the growth opportunities in this area.

-- The combination of Tower's and SUA's specialty businesses creates a much larger, efficient, more scalable and profitable specialty business with strong growth potential.

* Establishes a Midwest regional office to support continued geographical expansion

-- Tower's brokerage insurance business will be expanded by utilizing SUA's underwriting staff to offer products to wholesale and retail agents in the Midwest where Tower does not have an operating presence.

Under the terms of the agreement, SUA shareholders, including Class B shareholders, will receive 0.28 shares of Tower common stock for each share of SUA common stock or SUA class B stock. The exchange ratio is subject to adjustment based on Tower's volume weighted average price per share during a 15 day trading window prior to closing, and will be fixed at 0.28 if the average price of Tower stock during such period is equal to or greater than $23.25 and equal to or less than $27.75. If the average stock price during such period is greater than $27.75, the exchange ratio will be adjusted downward to provide SUA shareholders with a fixed value per share of $7.77. If the average stock price during such period is less than $23.25 but equal to or more than $20.00, the exchange ratio will be adjusted upward to provide SUA shareholders with a fixed value per share of $6.51. However, if Tower's average stock price during such period falls below $20.00, the exchange ratio will be fixed at 0.3255, and SUA will have the right, for a limited period, to terminate the agreement, unless Tower elects to add Tower shares to provide SUA shareholders with a value per share of $6.51.

The boards of directors of Tower and SUA have approved the transaction, and the board of directors of SUA has recommended the transaction to its shareholders. The transaction is expected to close approximately at year-end 2009, subject to customary closing conditions, including the approval by SUA shareholders, as well as certain regulatory approvals.

Michael H. Lee, Chairman and CEO of Tower, stated, "Acquiring SUA enables us to raise additional capital cost effectively to support our growth initiatives. It also significantly enhances our profile in the specialty business segment, an area in which we are seeing very strong opportunities for growth. By fully leveraging the operating platform and distribution relationships that SUA has developed, we are confident in our ability to further build on CastlePoint's specialty business. We particularly value the experienced people at SUA who will help us in executing our plans in the specialty business segment."

Courtney Smith, SUA's President and CEO, stated, "We are pleased to join forces with Tower, which has a strong track record in acquisitions and providing meaningful value to shareholders. After a careful review of our strategic alternatives, our board has concluded that this transaction provides our shareholders with the best opportunity to enhance shareholders' value. In addition, our affiliation with Tower will allow us to improve our profitability and take advantage of the current market opportunities by accessing Tower's A- rating by A.M. Best Company and strong capitalization."

Tower retained Debevoise & Plimpton LLP as its legal advisor. FBR Capital Markets & Co. acted as SUA's exclusive financial advisor, and Stroock & Stroock & Lavan LLP acted as SUA's independent legal advisor.

About Tower

Tower Group, Inc. offers property and casualty insurance products and services through its operating subsidiaries. Its insurance company subsidiaries in the U.S. offer insurance products to individuals and small to medium-sized businesses through its network of retail and wholesale agents and specialty business through program underwriting agents. Tower also offers reinsurance solutions to small insurance companies through its Bermuda based reinsurer and U.S. insurance companies. Tower's insurance services subsidiaries provide underwriting, claims and reinsurance brokerage services to other insurance companies.

About SUA

Specialty Underwriters' Alliance, Inc., through its subsidiary SUA Insurance Company, is a specialty property and casualty insurance company providing commercial insurance products through exclusive wholesale Partner Agents that serve niche groups of insureds. These targeted customers require highly specialized knowledge due to their unique risk characteristics. Examples include tow trucks, professional employer organizations, public entities, and contractors. SUA's innovative approach provides products and claims handling, allowing the Partner Agent to focus on distribution and customer relationships.


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