Tower Group buys CastlePoint Holdings for $490M

The acquisition will help Tower diversify its business, expand in high-margin segments and save on costs, the companies said.

CastlePoint shareholders will receive 0.47 shares of Tower common stock and $1.83 in cash for each share of CastlePoint.

Based on Tower's closing stock price of $23.09 on Monday, CastlePoint shareholders will receive $12.68 per share in cash and stock.

External financing will not be needed to finance the purchase, which is expected to close in December, following regulatory and shareholder approval. The companies' boards have already approved the deal.

Tower expects second-quarter profit, excluding items, of 66 cents per share, and will take an impairment charge of about 23 cents per share.

Analysts polled by Thomson Financial, who usually exclude one-time items from their estimates, predict 65 cents per share.

For 2008, Tower expects earnings per share between $2.90 and $3, excluding items, compared with the $2.93 estimate expected by analysts.

Tower expects 2009 earnings per share between $3.20 and $3.40, once the acquisition is complete. Analysts polled by Thomson Financial expect $3.39 for the year.

CastlePoint expects profit of 35 cents per share for the second quarter, and will take an impairment charge of 8 cents per share for the quarter ended June 30. Analysts expect 38 cents per share for the quarter.