Allied World and Transatlantic nix merger
Allied World Assurance Co. Holdings and Transatlantic Holdings, Inc. called off their merger today in the face of overwhelming opposition, and Transatlantic said it might remain independent despite two higher offers currently on the table. Shareholders were to vote on the Allied deal next Tuesday, but it was anticipated that they would vote against it.
After telling Transatlantic shareholders five days ago to accept Allied World’s all-stock offer of about $47 a share, or $2.94 billion at yesterday’s closing prices, Transatlantic announced it would be a disservice to its shareholders to accept a $52-a-share offer, or about $3.25 billion, from Warren Buffett’s Berkshire Hathaway.
The two deals differed in an important way, according to an insider. An Allied deal would have given shareholders the opportunity to benefit from future gains. Berkshire, however, would have bought out shareholders at a discount, leaving no potential for future returns.
New York-based Transatlantic is attractive to reinsurance competitors for several reasons, including:
- A depressed valuation; and
- Offering reinsurers that have heavy short-term exposure to natural disasters an opportunity to obtain longer-term lines of business such as medical malpractice and workers’ compensation.
Allied World will receive a $35 million break-up fee and $13.3 million in expenses from Transatlantic, and the company would owe Allied an additional $66.7 million if it enters into another deal within the next year.
Another suitor, Validus Holdings, has taken its bid directly to Transatlantic shareholders. At Thursday’s close, the Validus deal was worth 48.26 per share, or $3.02 billion.
Berkshire and Validus offers both put Transatlantic at a substantial discount to book value, at 0.77 times book and 0.71 times book, respectively.
In mid-day trading today, Transatlantic Holdings shares fell 3%, Allied Holdings rose 3.3% and Validus Holdings fell 2.6% on the New York Stock Exchange.
Source:
Allied World, Transatlantic, call off merger deal (http://www.insurancejournal.com/news/international/2011/09/16/215976.htm). Insurance Journal, September 16, 2011
Allied World, Transatlantic call off deal (http://www.reuters.com/article/2011/09/16/us-alliedworld-idUSTRE78F1V120110916?feedType=RSS&feedName=topNews). Reuters, September 16, 2011