M&A Deals of the Year
Transatlantic Holdings Inc. kicked off perhaps the most frenzied takeover battle of 2011 when it agreed to merge with Allied World Assurance Co. Holdings AG in June.
Shareholders rebelled. Rival bidders emerged. A Berkshire Hathaway Inc. subsidiary made an all-cash offer for Transatlantic, which rarely happens in insurance because of capital requirements. Buyout firms tried to pull together financing. At the climax of the bidding in November, the Transatlantic board signed a deal with white knight Alleghany Corp. that was worth slightly less than two other bids and came at roughly a 14% discount to Transatlantic's book value.
For many years Transatlantic was a subsidiary of American International Group Inc., but the New York reinsurer won its independence in June 2009 when AIG sold a 45% stake in a secondary offering that raised $1.14 billion.
In February, Transatlantic CEO Robert Orlich began talks with Scott Carmilani, his counterpart at Allied World. Edward Noonan, CEO of Bermuda-based insurer Validus Holdings Ltd., called Orlich in early June to express interest in Transatlantic, which on June 12 announced an all-stock deal with Allied World that valued it at $3.2 billion, or $51.10 a share, and would have given Transatlantic shareholders 58% of the combined company.
Two days later, the deal was panned by Davis Selected Advisers LP, which owned 23.7% of Transatlantic, and the game was on.
Validus made the first move with an unsolicited $3.5 billion cash-and-stock offer for Transatlantic worth $56 per share. Berkshire subsidiary National Indemnity Co. followed on Aug. 5 with a $52 a share bid in cash, a figure well under the target's book value of roughly $69.67 per share.
Facing opposition from both Davis Selected and Institutional Shareholder Services Inc., Allied World terminated its merger agreement with Transatlantic on Sept. 16 in exchange for a reverse breakup fee of $35 million, reimbursement of more than $13 million in expenses and a further $67 million if Transatlantic signs a deal in the next year.
The Transatlantic board kept putting off both National Indemnity, which pulled its bid on Sept. 19, and Validus, which entered into talks with Transatlantic on Sept. 23.
After National Indemnity retracted its offer, the Transatlantic board also implemented a buyback plan under which it spent $261 million to acquire 5.1 million shares on the open market at an average of $51.21 each.
Meanwhile, a group led by Alleghany tried to structure a deal that would have given it a 41% stake in Transatlantic, and another consortium of bidders that reportedly included Stone Point Capital LLC, J.C. Flowers & Co. LLC and Enstar Group Ltd., offered $58 a share in cash. Alleghany's group fell apart, which allowed it to approach the target outright on Nov. 4.
In the course of the next 17 days, Alleghany, Validus and the Stone Point consortium jockeyed for Transatlantic, whose board on Nov. 20 accepted Alleghany's $59.79 per share cash-and-stock bid over a similarly structured offer from Validus nominally worth $60.09 a share and a proposal from the consortium worth $61.50 a share in cash that included equity and debt commitment letters.
The Transatlantic board thus opted for slightly less value to avoid the financing risk that the cash offer would have entailed. Since then, Validus' stock has risen by about 10%, while Alleghany's has fallen by 9%.
Nevertheless, Davis Selected continues to support the Alleghany deal. Each of the companies have scheduled shareholder votes on the deal for Feb. 6, and the parties hope to close in the first quarter pending approvals from various state regulators.