Casualty, specialized and home insurance provider Allied World Assurance Holdings Ltd. has recently purchased back stocks from Goldman Sachs Group Inc.-affiliated funds, which served as the company's founding shareholders. The stocks were reportedly worth $250 million.
Allied World was said to purchase back five million shares at a price of $50 per share. The firm made the purchase from several investment funds that serve as affiliates of Goldman Sachs, including GS Capital Partners. The buy-back offered a discount of 0.5%. A spokesperson from Allied has asserted that the buy back was in no way related to the recent financial rules reform.
The recent change in financial regulations restricts proprietary trading among banks and also sets limit on hedge fund investment and private equity size. This led to speculations as to who among the lender banks will get out of the business of proprietary trading to comply with the latest financial rules change. Some analysts speculated that Goldman will likely reduce its private equity position over time, instead of spinning out its various units, including GS Capital Partners.
According to home insurance provider Allied World, the buy back represented outstanding shares of 9.4%, leaving the Goldman affiliate with over three million non voting stocks, which represent 7.2% of outstanding shares. According to officials, the current repurchase is a separate deal from the repurchase initiative worth $500 million authorized by the Allied board last May 2010.
Allied World, best known as a provider of casualty, specialty and property insurance and reinsurance, has denied that the decision has something to do with recent reforms in financial industry regulations.
In a buyback situation, a company can purchase its own stocks back through cash distribution to shareholders in exchange for part of the outstanding equity. The company then has the option to keep the stocks and wait for the right time to make a re-issue, keep them as treasury shares or retires the stocks completely.
The decision of home insurance company Allied World Assurance Holdings Ltd. to repurchase $250 million worth of its shares may provide benefits to the company in the long run. For now, the company is said to be satisfied with how things turned out financially.