Validus Offers $3.5 Billion to Outbid Allied World to Acquire Transatlantic

Transatlantic Holdings Inc., which is in the process of merging with Allied World Assurance Co., said it has received an unsolicited counteroffer from Validus Holdings Ltd.

Validus (NYSE: VR) said its offer of $55.95 a share, or an estimated $3.5 billion for all of Transatlantic (NYSE: TRH), represents a 12.1% premium over the $3.12 billion, or $49.91 a share, offered by Allied World (NYSE: AWH).

In morning trading on July 13, Validus' stock tumbled to $28.02 a share, down 9.06% from the previous close. Transatlantic stock rose 5.12% to $51.53 a share, while Allied World's shares rose 1.55% to $57.60 a share.

Last month, Allied World, which is primarily an insurance company, and Transatlantic, a reinsurance company, agreed to merge as equals to offer specialty insurance and reinsurance products under two distinct brands (BestWire, June 13, 2011).

On July 13, Transatlantic confirmed it has received an unsolicited proposal from Validus, a reinsurance company, to acquire all of Transatlantic's outstanding shares of common stock.

Validus said Transatlantic stockholders would receive 1.5564 Validus voting common shares in the merger and $8 in cash. Based on closing prices on July 12, Validus said its proposal would provide total consideration of $55.95 per Transatlantic share.

Under the agreement to merge with Allied World, Transatlantic shareholders would receive 0.88 Allied World common shares for each share of Transatlantic common stock (plus cash in lieu of any fractional shares).

Transatlantic's board said in a statement it would "carefully consider and evaluate the Validus proposal in due course." A spokesman for the company said no further comment would be made at this time.

In a separate statement, Allied World said July 13 it had received regulatory approval for the proposed merger with Transatlantic, and had scheduled a special shareholder meeting to vote on the merger on July 22.

This is not the first time Validus has stepped forward with a counteroffer in an attempt to break up a proposed merger.

In 2009, after Max Capital announced plans to merge with IPC Re, Validus came forward with a higher offer and ended up successfully wooing IPC Re away from Max. Validus and IPC merged in September 2009.

Max later merged with Harbor Point and the newly merged entity changed its name to Alterra Capital.

Validus Reinsurance Ltd. currently has a Best's Financial Strength Rating of A- (Excellent). Allied World and Transatlantic both have Best's Financial Strength Ratings of A (Excellent).

(By Meg Green, senior associate editor, BestWeek: [email protected])