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Validus resumes hostilities in Transatlantic campaign

by Laura Board | Published November 3, 2011 at 1:12 PM

Bermuda reinsurer Validus Holdings Ltd. on Thursday, Nov. 3, went back on the offensive in its long-running battle for Transatlantic Holdings Inc. by taking a sweetened offer it said is worth up to $3.46 billion directly to the target's shareholders and resuming attempts to oust its board.

The offer, worth up to $55.35 per share, comprises an unchanged stock component of 1.5564 of a Validus share per Transatlantic share and at least $11 in cash and up to another $2 in cash per share through a preclosing dividend. Validus' initial July 12 offer was worth $55.95 at that time, including $8 per share in cash, and though Transatlantic rejected it later that month, the two sides eventually began talks on Sept. 23 after Transatlantic's original agreed bidder, Allied World Assurance Co. Holdings AG, pulled its offer by mutual consent and Berkshire Hathaway Inc. subsidiary National Indemnity Co. walked away after being rebuffed.

Since the start of those talks, New York-based Transatlantic has received approaches from at least two further suitors, one of which is reported to be Bermuda-based Enstar Group Ltd., supported by investor Christopher Flowers and insurance company C.V. Starr & Co. of San Francisco.

Validus said Transatlantic had failed to accept the improved offer of up $55.35 per share, though Transatlantic said Thursday the matter was still under review.

Validus also disclosed that it had resumed its campaign to replace the Transatlantic board with three of its own candidates. On Sept. 23 the companies had agreed to suspend hostilities, which had included a Transatlantic lawsuit disputing Validus' claims about its offer.

"This is frankly the only way home," Validus chairman and CEO Ed Noonan said. "The Transatlantic board has rejected what I think is a very attractive and fully valued offer. The only way for the shareholders to get access to the deal is to give them the offer."

Transatlantic responded to Validus' latest move by promising to "carefully review and evaluate the revised exchange offer" and advising Transatlantic shareholders to take no action pending an announcement of the board's position on the bid.

The company noted that it "remains in confidential discussions with other parties regarding potential strategic alternatives."

It added: "Transatlantic is fully committed to reaching a conclusion to this process expeditiously. There can be no assurance that these discussions will result in a proposal or a transaction."

A Transatlantic spokesman declined to comment further.

Transatlantic is led by chairman Dick Press and CEO Robert Orlich, who is stepping down at the end of the year.

Validus requested a shareholder record date on Wednesday, which sets a 20-day clock ticking for Transatlantic to comply. Once a date is established, that, in turn, gives Validus the right to solicit shareholder votes for its attempt to change the Transatlantic board.

Validus noted that including the potential additional $2 per share in cash, the sweetened offer is 6% more than Transatlantic's Wednesday closing price of $52.23 and 26% more than its price on June 10, before Transatlantic announced the abortive deal with Allied World. It remains well below Transatlantic's book value of $69.67 as of the end of the third quarter.

What's more, the up to $2 per share cash dividend would be financed by diverting Transatlantic funds that the target plans to use for share buybacks.

Defending the still-substantial discount to book value, Noonan said: "Combining with Validus is the best way for Transatlantic shareholders of having a reasonable expectation of trading up to book value. I don't think Transatlantic has that same opportunity on its own."

He added: "I believe we will be successful in [this acquisition]. At any point of time the board can accept our offer. We can close the deal very quickly."

Validus confirmed it intends to increase Transatlantic's reserve position by $500 million if its takeover succeeds. Validus also said it expects the transaction to be "modestly accretive" to its diluted book value per share and tangible book value per share and could close by year's end. The company also said it would buy back $1 billion of its own stock after the Transatlantic takeover closes.

Validus' $2.69 billion market value, as of Wednesday, compared with Transatlantic's closing market value of $3.26 billion.

Noonan said J.P. Morgan Securities LLC has given firm financing commitments for the $11 per share guaranteed cash component.

Validus shares were down 7 cents at $27.14 by midmorning in New York, while Transatlantic shares rose 67 cents to $52.97.

Transatlantic is taking financial advice from Moelis & Co. LLC's John Binnie, John Sipp and Griff Norquist and Goldman, Sachs & Co. Its lawyers include Gibson, Dunn & Crutcher LLP's Lois Herzeca, Peter Sullivan, Stephen Fackler and Romina Weiss.

Validus is being advised by Greenhill & Co.'s Robert Greenhill, Robert Smith, Steven Friedman, James Babski, Julianna Teeple and Nick Bordignon and J.P. Morgan Securities.

It is taking legal counsel from Skadden, Arps, Slate, Meagher & Flom LLP's Todd Freed and Stephen Arcano.

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