On June 12 of this year, New York-based Transatlantic Holdings Inc. and Swiss-based Allied World Assurance Co. Holdings announce a $3.2 billion merger deal that executives say will create a global specialty insurer and reinsurer operating in 18 countries on six continents.

The new company, to be called “TransAllied,” would manage $8.5 billion in total capital, according to Robert Orlich, president and CEO of Transatlantic.

The transaction is structured as a merger of equals, with shareholders of Transatlantic receiving 0.88 Allied World common shares for each Transatlantic common share held. Following the merger, Transatlantic shareholders would own approximately 58 percent of the combined company, with Allied World shareholders owning roughly 42 percent.

Roughly one month later, Bermuda-based Validus Holdings Ltd. makes an unsolicited competing $3.5 billion offer to acquire Transatlantic Holdings Inc. Validus says its offer is a “superior proposal” that “delivers significantly higher value to Transatlantic stockholders than does the proposed acquisition of Transatlantic by Allied World.”

While the Allied World/Transatlantic deal would make Transatlantic the senior partner, the Validus offer would make Transatlantic a subsidiary.

Later in July, Transatlantic responds, saying Validus' offer is not superior to Allied World's—but that it will likely lead to a superior proposal. Transatlantic agrees to talk to Validus, but asks the Bermuda company to sign a “standstill provision” that Validus says would effectively stop it from pursuing its bid without approval from the Transatlantic board

Validus rejects the condition and sends a letter to Transatlantic informing it that Validus is bringing its offer directly to Transatlantic stockholders. Validus CEO Ed Noonan says of the standstill provision, “Clearly this is not a condition that we can accept.”

Transatlantic urges its stockholders to reject Validus' offer, stating that it is “based on erroneous assumptions that are not supported by diligence,” and “includes meaningful uncertainties.”

Transatlantic also files a federal lawsuit in Delaware alleging that Validus has made false and misleading statements to Transatlantic's stockholders through tender-offer materials filed by Validus.

In early August, a new player with a bold-faced name—Warren Buffett—enters the game, as Berkshire Hathaway's National Indemnity Co. puts in a competing bid for Transatlantic. National Indemnity offers to buy all of Transatlantic's outstanding shares for $52 per share, valued at about $3.25 billion. Ajit Jain, reinsurance division president for National Indemnity, writes to Transatlantic, “With your stock trading at $45.83, I have to believe that you will find our offer to buy all of Transatlantic's shares outstanding at $52 per share to be an attractive offer.”

Validus' Noonan says both its bid and National Indemnity's bid represent superior offers to Allied World's.

Transatlantic rejects National Indemnity's bid, stating that it feels the Berkshire Hathaway company can make a better offer.

Later in the month, Validus says it will open its books to settle any questions Transatlantic has about its operations and risk exposure. Noonan criticizes Transatlantic for refusing to consider the Validus offer on the pretext that there is no standstill agreement.

Noonan also says Validus filed suit in Delaware Chancery Court against Transatlantic and the board for breach of fiduciary duty, seeking a declaratory judgment that the absence of standstill agreement is not sufficient reason for not considering the company's offer.

Transatlantic, meanwhile, sends a letter to shareholders informing them that it remains committed to the Allied World merger.

Transatlantic later says it has opened discussions and entered into a confidentiality agreement with National Indemnity.

Days afterward, Validus contacts Transatlantic shareholders asking them to vote against the Allied World proposal on Sept. 20. Validus claims it has made a “superior offer,” albeit unsolicited, and the company says a vote against the Allied World offer “will send a strong message to the Transatlantic board” that it should “terminate the Allied World acquisition agreement and give proper consideration to other offers that it receives.”

About a week later, at the end of August, Davis Selected Advisers Ltd., the largest shareholder of Transatlantic Holdings Inc., says it will oppose the Allied World bid. “Davis Advisers believes that the current offer from Allied World Assurance Co. Holdings is not in the best interest of maximizing value for shareholders,” the firm says.

September opens with another letter from Validus to Transatlantic shareholders, telling them the Transatlantic board of directors is not pursuing a “value-maximizing strategy” and is putting up “self-imposed roadblocks” to discussions with Validus.

In the weeks leading up to a planned vote on the Allied World proposal, advisory firm Institutional Shareholder Services (ISS) recommends that Transatlantic shareholders vote against the deal. ISS also recommends that Allied World shareholders vote in favor of the merger.

The proxy voting and advisory firm says Transatlantic shareholders have “a better chance of maximizing the value of their investment by voting down the [Transatlantic-Allied World] transaction.”

Transatlantic responds by stating that “a merger with Allied World would accelerate our ability to accomplish our strategic objectives.”

Later, Validus makes a regulatory filing with the U.S. Securities and Exchange Commission to ask Transatlantic stockholders to overthrow the seven-member Transatlantic board and replace them with three hand-picked candidates: Raymond C. Groth, an adjunct professor of business administration at The Fuqua School of Business at Duke University; Paul G. Haggis, chairman of Alberta Enterprise Corp.; and Thomas C. Wajnert, a senior managing director of The Alta Group.

Noonan says, “Validus believes the Transatlantic board has repeatedly failed to take the necessary steps to secure greater value for Transatlantic stockholders and that Validus' superior proposal is a better alternative for Transatlantic stockholders.” He adds, “…we believe that Transatlantic stockholders should elect a board that will act to do so.”

Days before the planned Sept. 20 vote, Transatlantic and Allied World announce they have ended their attempted merger in what they call a mutual settlement. Transatlantic says it will uphold the terms of the merger agreement and pay Allied World a $35 million termination fee in addition to $13.3 million in merger-related expenses to Allied World. According to statements from the companies, Transatlantic could pay Allied World $66.7 million if Transatlantic enters into a definite agreement with a competing bidder or recommends or submits a competing acquisition offer to its shareholders.

Transatlantic also appoints Michael C. Sapner as president and CEO, with the president title effective immediately. Sapner will assume the role of CEO on Jan. 1, 2012, succeeding Orlich, who had previously announced his retirement.

Following the announcement, National Indemnity reinstates its bid, but Transatlantic rejects it.

On Sept. 23, Validus and Transatlantic agree to enter a confidentiality agreement with a limited standstill provision that expires Oct. 31. The companies also agree to take no action on their lawsuits against each other within that timeframe.

Transatlantic also says on Sept. 26 that it has entered a confidentiality agreement with an unnamed third party.

The company says it currently has confidentiality agreements with Validus, National Indemnity and the undisclosed third party.

American International Group owned a majority stake in Transatlantic until 2009, when AIG sold its stake for over $1 billion to help repay government bailout funds.

To be continued…

Special Reports /

The Race for Transatlantic

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