Buffett’s Unsolicited Reinsurer Bid Departs From ‘Normal, Quiet Marriage’
Berkshire Hathaway Inc.'s Ajit Jain and Warren Buffett
Pankaj Nangia/Bloomberg
Berkshire Hathaway Inc. reinsurance division president Ajit Jain, left, and chairman and chief executive officer Warren Buffett.
Berkshire Hathaway Inc. reinsurance division president Ajit Jain, left, and chairman and chief executive officer Warren Buffett. Photographer: Pankaj Nangia/Bloomberg
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) bid $3.25 billion in an unsolicited offer for Transatlantic Holdings Inc. (TRH), seeking to break up a deal the target company had reached with another insurer.
Ajit Jain, Buffett’s reinsurance lieutenant, gave New York- based Transatlantic until today’s close of business to respond. Transatlantic dropped 10 of 11 trading days through Aug. 5.
The offer diverges from Buffett’s usual strategy of avoiding competitive bidding and favoring deals where he has approval of the target company’s management, said Michael Yoshikami, an investment strategist at YCMNet Advisors, a Berkshire investor. Transatlantic struck a deal in June to merge with Allied World Assurance Company Holdings AG and has shunned a July bid from Bermuda-based Validus Holdings Ltd.
“It certainly is different than the normal, quiet marriage they have,” Yoshikami said of Omaha, Nebraska-based Berkshire’s bid. “It is not their typical style in terms of acquisitions.”
Jain offered $52 for each of Transatlantic’s 62.5 million outstanding shares as of June 30, Transatlantic said in a statement yesterday. Allied’s bid to exchange 0.88 of a share for each Transatlantic share is valued at about $2.8 billion, based on Allied’s Aug. 5 closing price of $50.25. Validus’s hostile stock-and-cash offer fell to about $2.9 billion, from an original value of $3.5 billion, after equity markets plunged.
Transatlantic said its board will “carefully consider and evaluate” the Berkshire offer.
‘Out of the Norm’
Buffett, Berkshire’s chairman and chief executive officer, has sought to distinguish his firm from potential rivals in the buyout market by promising to keep managers in place, shunning hostile bids and vowing not to sell companies he takes over. The offer is the first publicly disclosed unsolicited bid by Berkshire since Bloomberg began tracking takeover data more than a decade ago.
“We will not engage in unfriendly takeovers,” Berkshire said in its most recent annual report. “We don’t participate in auctions.”
Jain’s approach to Transatlantic is “sort of out of the norm,” said Meyer Shields, an analyst at Stifel Nicolaus & Co. Berkshire generates “so much cash that they have to go beyond their historical patterns.” Buffett, 80, didn’t return a message seeking comment.
Berkshire had $47.9 billion in cash as of June 30, the company said last week. Buffett doesn’t buy back shares or pay a dividend and has been looking for acquisitions.
Validus and Allied said Berkshire’s offer denies Transatlantic shareholders the chance to benefit from gains at the business after a merger.
‘Right to Choose’
“Transatlantic stockholders deserve the right to choose for themselves between an offer that provides greater potential future value or a fixed price today,” Validus Chief Executive Officer Ed Noonan said yesterday in a statement. Validus has offered 1.56 shares and $8 in cash for each Transatlantic share.
Allied yesterday affirmed its commitment to its deal and called Berkshire’s bid “at best, opportunistic.” The Zug, Switzerland-based insurer has said its business mix makes it the best fit for Transatlantic.
Validus focuses on property reinsurance, including coverage against catastrophes. Transatlantic provides medical-malpractice protection and guards corporate officers against lawsuits through so-called directors-and-officers coverage. Allied offers professional-liability coverage.
Berkshire is the largest U.S.-based seller of reinsurance, which is coverage of policies written by primary carriers. Buffett’s company provides catastrophe protection and assumes risks being sold by rivals.
‘Just Capital’
Reinsurance acquirers may be more motivated by the ability to bolster their finances than to improve their business mix, said Tom Baker, a professor at the University of Pennsylvania Law School, who specializes in insurance, in an interview before Berkshire’s offer.
“To some degree at least, reinsurance is just capital,” he said. “They’re competing with other suppliers of capital.”
Allied shares have dropped about 13 percent through Aug. 5 since the last trading day before its deal was announced. Validus fell 20 percent since it announced its bid on July 12.
Transatlantic closed at $44.01 the last day before the Allied agreement. Transatlantic’s book value, a measure of assets minus liabilities, is about $67.76 per share.
“Warren Buffett does not engage in competitive bidding, but it seems even he finds a top-10 global reinsurance franchise for 77 percent of book value too compelling to pass up in a dislocated stock market,” said Gregory Locraft, an analyst at Morgan Stanley, in a note to investors today. “Berkshire uncharacteristically entered the fray.”
Reinsurance Rivals
Buffett competed against Validus in 2009 when IPC Holdings Ltd. auctioned itself, two people familiar with the matter said then. Validus won with a stock-and-cash offer valued at about $1.7 billion while Berkshire offered cash, the people said.
Validus has said it got financial advice on its Transatlantic offer 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. are financial advisers to Transatlantic and Gibson, Dunn & Crutcher LLP is acting as legal counsel.
Deutsche Bank AG acted as financial adviser to Allied, and Willkie Farr & Gallagher LLP and Baker & McKenzie provided U.S. and Swiss legal counsel.
To contact the reporter on this story: Brooke Sutherland in New York at Bsutherland5@bloomberg.net
To contact the editor responsible for this story: Dan Kraut at Dkraut2@bloomberg.net.
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