On June 14, 2020, Mr. Harris and Mr. Levy called Mr. Rajeh, who confirmed to them that Arch was willing to discuss potential transactions with Party A. Mr. Levy then called Party A to authorize Party A having discussions with Arch as it had requested, subject to Party A agreeing to keep the Company informed regarding its discussions with Arch.
On June 17, 2020, the Board held a telephonic meeting at which Mr. Harris and Mr. Levy briefed the other directors on the discussions with Party A. During the meeting, the Board determined that it should engage a financial advisor. Also, during the meeting, Mr. Rajeh and Nicolas Papadopoulo determined that they would recuse themselves from any further discussions regarding strategic alternatives potentially available to Watford, recognizing that in any potential transaction that might result from those discussions, the interests of Arch could diverge from the interests of the Company and its other shareholders.
As hereinafter used in this summary, references to the “Board” or the “board of directors” or the “transaction committee” or any action taken by “directors” of the Company after June 17, 2020, means the board of directors acting without the participation of Maamoun Rajeh and Nicolas Papadopoulo, the directors appointed to the Watford board by Arch (the “Arch Directors”). The Arch Directors did not participate in the Board’s or any Board committee’s deliberations relating to the Merger Agreement, the statutory merger agreement or any transaction contemplated by either agreement (including the merger), and did not participate in the Board’s or any Board committee’s vote to approve the Merger Agreement, the statutory merger agreement or any transaction contemplated by either agreement (including the merger).
On June 22, 2020, the Board received presentations from Morgan Stanley and another investment bank. Subsequently, at the direction of the Board, the Company retained Morgan Stanley as its financial advisor. The Board selected Morgan Stanley based on its relevant experience, familiarity with the insurance industry including the specialty reinsurance segment, and reputation.
On June 28, 2020, Mr. Rajeh called Mr. Harris and Mr. Levy to report that while Arch remained open to discussions with Party A, Arch would also be exploring potential transactions in which it would partner with Kelso and/or Warburg Pincus. Mr. Harris and Mr. Levy agreed that the Company would provide access to non-public information to Kelso and Warburg Pincus subject to their entering into customary confidentiality agreements. Watford signed a confidentiality agreement with Warburg Pincus on June 30, 2020 and with Kelso on July 1, 2020. Subsequently, Watford provided each of them with access to non-public information. In late June 2020, Arch also entered into separate confidentiality agreements with each of Party A, Kelso and Warburg Pincus with respect to a possible Watford transaction.
On July 1, 2020, Francois Morin, a senior Arch executive, called Mr. Harris and Mr. Levy to advise that Arch wished to explore a transaction in which Arch would acquire a majority of the common equity of the Company. On July 2, 2020, on a telephonic Board meeting, Mr. Harris and Mr. Levy advised the Board of this development. On July 1, 2020, the closing price per share for the Company’s common shares on the Nasdaq Global Select Market was $16.62.
During July 2020, there were periodic calls between Arch and Watford to check-in and confirm the parties’ interest in continuing discussions with respect to a possible transaction. Arch informed Watford that it intended to review Watford’s second quarter operating results, including its non-investment grade portfolio valuations, and that a proposal would be forthcoming after such review. Arch continued discussions with Kelso and Warburg Pincus with respect to a potential transaction.
On August 13, 2020, Mr. Morin called Mr. Levy to advise him that Arch expected it shortly would deliver a verbal indication of the price per common share Arch and its co-investors would be willing to pay to acquire Watford. Mr. Morin further advised that Arch was considering various structures and that, in a transaction involving Arch, Kelso and Warburg Pincus, Arch would likely hold an equity interest representing less than 50% of the surviving entity.
On August 14, 2020, at the request of the Company’s Board, representatives of Morgan Stanley made a presentation to the Board regarding various potential strategic alternatives that might be available to the Company. The principal alternatives discussed at the meeting were (i) a “stay the course” strategy, (ii) a “hybrid strategy” with various potential modifications to the Company’s business model being made that could be pursued individually or in combination, including adjustments to the terms of the Company’s agreements with Arch and HPS that would include financial concessions by Arch and HPS, de-risking the Company’s investment portfolio, and reallocating the