Validus Holdings Ltd. (VR), the reinsurer that acquired IPC Holdings Ltd. in 2009, offered $55.95 a share to acquire Transatlantic Holdings Inc. (TRH) and derail a planned merger with Allied World Assurance Company Holdings AG.
Transatlantic holders would receive 1.5564 Validus common shares and $8 in cash for each share they hold, Bermuda-based Validus said yesterday in a statement. That values the offer at about $3.5 billion, based on New York-based Transatlantic’s 62.4 million shares outstanding as of March 31.
Transatlantic agreed last month to merge with Allied in a stock transaction valued at $51.10 a share, or about $3.2 billion. Transatlantic’s biggest shareholder, Davis Selected Advisers LP, said on June 14 it may oppose the deal and approach other companies about alternatives.
“While Validus prefers to work cooperatively with the Transatlantic board of directors to complete a consensual transaction, it is prepared to take the proposal directly to Transatlantic stockholders” and urge them to vote against an Allied deal, Validus said in a regulatory filing today.
Validus’s bid of $55.95 a share is 14 percent higher than the $49.02 closing price for Transatlantic yesterday in New York Stock Exchange trading.
‘In Due Course’
Transatlantic’s board will “consider and evaluate the Validus proposal in due course and will inform Transatlantic stockholders of its position,” the company said in a statement today. “Transatlantic advises stockholders to not take any action at this time and to await the board’s recommendation.”
Transatlantic climbed $2.50, or 5.1 percent, to $51.52 at 9:35 a.m. in New York Stock Exchange composite trading. Allied World advanced $1.33, or 2.3 percent, to $58.05. Validus dropped $2.51, or 8.2 percent, to $28.30. Faye Cook, a spokesperson for Allied, didn’t return phone calls for comment.
Validus said its offer would create the world’s sixth- largest reinsurer, and the second-biggest in North America behind Warren Buffett’s Berkshire Hathaway Inc. Reinsurance is coverage for primary carriers.
Validus focuses on property coverage, including protection against catastrophes. Transatlantic provides medical-malpractice protection and guards corporate officers against lawsuits through so-called directors-and-officers coverage. Zug, Switzerland-based Allied offers professional-liability coverage.
“With Validus’s predominant property book diversifying nicely with Transatlantic’s mostly casualty book, it appears Validus has a strong case to make” with firms that advise investors on shareholder votes, said Paul Howard, director of research at Solstice Investment Research in Glastonbury, Connecticut. “But I do expect a counter-offer from Allied as this soap opera is in the early innings.”
Transatlantic would have to pay a breakup fee of $115 million if it backs out of the Allied deal, it said last month in a conference call. Transatlantic was previously owned by American International Group Inc., which divested its stake to help repay its 2008 U.S. bailout.
Reinsurers with less than $4 billion in market value have been combining to gain scale and diversify their business mix. Clients and investors prefer carriers with larger capital bases, W. Marston Becker, chief executive officer of Alterra Capital Holdings Ltd., has said. Alterra was formed in 2010 by the merger of Max Capital Ltd. and Harbor Point Ltd.
“Reinsurance is a scale business,” Validus Chief Executive Officer Ed Noonan said on a conference call today. “The combined company will have the product reach, geographic scope and size to be a leader in any class that we find attractive.”
Davis Selected Advisers, holder of more than 23 percent of Transatlantic shares outstanding, said it had “serious concerns” about the Allied deal, according to a filing last month from the Tucson, Arizona-based firm. Laura Berger, a spokesperson for Davis, said the company doesn’t comment on individual holdings.
Tweedy Browne Co., another Transatlantic investor, said the price offered by Allied was too low. Tweedy Browne held more than 2 percent of Transatlantic’s shares as of March 31, according to data compiled by Bloomberg.
“It is really puzzling to us why they would want to sell the company at a 20 percent discount from book value,” said Tom Shrager, one of four managing directors at Tweedy Browne, in a phone interview on June 15. “Simply doing it for size is not a good enough reason to sell at this big discount.”
Validus said its offer is structured so that Transatlantic shareholders avoid a tax penalty by being paid in stock. The Allied deal would be “fully taxable,” Validus said.
Allied has said that its deal would produce tax benefits, too. Jack Sennott, Allied’s chief corporate strategy officer, said in an interview last month that the combined company will have a “Swiss domicile that we’ll be able to utilize for some tax efficiency.”
Validus got financial advice from Greenhill & Co. and JPMorgan Chase & Co. (JPM) and legal counsel from Skadden, Arps, Slate Meagher & Flom LLP.
Goldman Sachs Group Inc. (GS) and Moelis & Co. were financial advisers to Transatlantic on the Allied deal, and Gibson, Dunn & Crutcher LLP and Lenz & Staehelin acted as U.S. and Swiss legal counsel. Deutsche Bank AG (DBK) acted as financial adviser to Allied, and Willkie Farr & Gallagher LLP and Baker & McKenzie provided U.S. and Swiss legal counsel.
Validus has broken up a planned merger of rivals before. It won the right to buy IPC after breaking up an agreement with Max Capital in 2009. Later that year, Validus won a bidding war with Flagstone Reinsurance Holdings Ltd. and agreed to acquire IPC for about $1.7 billion.
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