Why Alterra Capital Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Alterra Capital Holdings (NASDAQ: ALTE  ) soared 24% today after property-casualty company Markel (NYSE: MKL  ) agreed to acquire it for about $3 billion.

So what: The cash-and-stock acquisition values Alterra at $31 per share and represents a 34% premium to its closing price on Tuesday. Markel is making the move to diversify into reinsurance -- similar to what Warren Buffett's Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) has done -- but given its own stock's 8% plunge today, Wall Street isn't impressed with the price being paid to do it.

Now what: The deal, in which Alterra investors will receive 0.043 Markel shares and $10 in cash for each share they own, is expected to close in the first half of next year. "The addition of Alterra's reinsurance and large account insurance portfolios will serve to diversify and strengthen Markel's current book of specialty insurance business," said Markel Vice Chairman Steven Markel. "[W]ith their help and the benefit of approximately $6 billion in combined shareholders' equity, we believe we will be well positioned to take advantage of a wide range of profitable opportunities." So while Alterra is likely all popped out at this point, today's plunge in Markel might be an attractive long-term opportunity.

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