Heritage board accepts acquisition offer

The Boards of Argo Group International Holdings, Ltd. (Nasdaq GS: AGII) ("Argo") and Heritage Underwriting Agency plc ("Heritage") are pleased to announce that they have reached agreement on the terms of a recommended cash offer under which Argo Acquisition, Limited (a wholly owned subsidiary of Argo) will acquire the entire issued and to be issued ordinary share capital of Heritage.

Under the terms of the Offer, Heritage Shareholders will receive, for each Heritage Share held, 154 pence in cash (on an ex-dividend basis).

In addition, Heritage Shareholders on the register at the close of business on 28 March 2008 will remain entitled to receive the Final Dividend of 6.0 pence per Heritage Share announced on 11 March 2008.

The Offer values the entire issued and to be issued ordinary share capital of Heritage at approximately £136 million (on an ex-dividend basis) and approximately £141 million (on a cum dividend basis), assuming the exercise of all outstanding options and the Heritage Warrants.

The Offer Price, together with the value of the Final Dividend to be retained by Heritage Shareholders, represents:

• a premium of approximately 46 per cent. to the Closing Price of 109.5 pence per Heritage Share on 4 December 2007, the last business day prior to Heritage confirming that it had received an approach regarding a possible offer for Heritage;
• a premium of approximately 38 per cent. to the average Closing Price of 116 pence per Heritage Share over the last 30 days prior to 4 December 2007.

The Offer Price represents a premium of approximately 15 per cent. to Heritage's Closing Price of 133.5 pence per Heritage Share (on an ex-dividend basis) as at 1 April 2008, the last business day prior to this Announcement.

The combination of Argo and Heritage will create a broader underwriting platform, with increased market presence, as well as an extended geographic capability and distribution network.

The Heritage Board, which has been so advised by KBC Peel Hunt and Hines Associates, consider the terms of the Offer to be fair and reasonable. In providing advice to the Heritage Board, KBC Peel Hunt and Hines Associates have taken into account the commercial assessments of the Heritage Directors.

The Heritage Directors intend unanimously to recommend the Offer.

The Heritage Directors have irrevocably undertaken to accept the Offer in respect of their existing beneficial holdings of issued Heritage Shares which amount, in aggregate, to 2,578,627 Heritage Shares, representing approximately 3.3 per cent. of Heritage's existing issued share capital, and in respect of their options to acquire Heritage Shares. In addition, if so directed by Argo Acquisition, the Heritage Directors have agreed to transfer the Heritage Shares subject to such undertakings to Argo Acquisition or as Argo Acquisition may direct at the Offer Price. These irrevocable undertakings will continue to be binding if any higher competing offer is made for Heritage.

In addition, Argo has received irrevocable undertakings from the Hays Investors, HCC and certain other Heritage Shareholders to accept the Offer in respect of a total of 47,168,255 Heritage Shares representing, in aggregate, approximately 60.7 per cent. of Heritage's existing issued share capital. These irrevocable undertakings will cease to be binding if, amongst other things, a Competing Offer is made which values the Heritage Shares at a price per share being at least 10 per cent. higher than 160 pence (being an amount equal to the aggregate of the Offer Price plus the Final Dividend) as at the date on which such third party offer is announced.

Argo has therefore received irrevocable undertakings to accept the Offer in respect of 49,746,882 Heritage Shares representing, in aggregate, approximately 64.0 per cent. of Heritage's existing issued share capital.

Mark E. Watson III, President and Chief Executive Officer of Argo Group International Holdings, Ltd said: "Coming just eight months after our merger with PXRE Group, Ltd, our acquisition of Heritage is another important milestone towards becoming a leading international specialty underwriter. Heritage is a successful quoted Lloyd's insurer with a core team of underwriters who have a track record of profitable underwriting results across the underwriting cycle. Heritage's mix of property and liability business, and access to the Lloyd's market, make it a complementary addition to our Bermuda and US books of business. We expect the acquisition to enhance Argo's 2008 earnings per share by approximately 15 per cent. and to increase return on equity by 1.2 to 1.5 percentage points, on an annualised basis. We look forward to serving Heritage's customers and partners within the Lloyd's market, and to introducing new business from the extensive Argo Group distribution network. We are also extremely pleased to welcome the Heritage employees to the Argo team."

John Kavanaugh, Chairman of Heritage Underwriting Agency plc, said: "In recent years, Heritage has developed a successful and profitable underwriting business. The Heritage Board is confident that the business will continue to thrive under the ownership of Argo, as part of a diversified group with significant US and international platforms and access to capital.

Since our admission to AIM in August 2006, our shareholders have enjoyed a significant return on their investment.

Argo's offer presents an exciting opportunity for the employees of Heritage to play an important role in the development of a London-based platform for the new enlarged group."