UPDATE 2-Transatlantic opens buyout talks with Berkshire unit

Fri Aug 12, 2011 6:15pm EDT

* National Indemnity signs confidentiality agreement

* Transatlantic has deal to merge with Allied World

* Validus has made hostile bid for Transatlantic (Adds background, byline)

By Paritosh Bansal

NEW YORK, Aug 12 (Reuters) - Transatlantic Holdings Inc TRH.N opened talks with a unit of Warren Buffett's Berkshire Hathaway Inc (BRKa.N) on Friday over a $3.2 billion takeover offer, adding a new twist in the battle for the reinsurer.

The Berkshire unit, National Indemnity, entered into a confidentiality agreement with Transatlantic, according to Transatlantic.

Transatlantic already has an all-stock $2.9 billion deal to merge with Allied World Assurance Company Holdings Ltd (AWH.N). It is also facing a hostile $2.9 billion cash-and-stock takeover offer from Validus Holdings Ltd (VR.N).

Friday's move could force these other Transatlantic suitors to sweeten their bids, and possibly unleash a bidding war for the New York-based reinsurance company.

Allied World and Validus have both seen the value of their bids fall, thanks to the stock in the purchase price.

The Validus bid, which at one point was nearly $400 million better than the Allied offer, has lost all its premium, thanks to adverse investor reaction to its bid and broader market turmoil.

Transatlantic first entered into a deal with Allied World in June, but its plans hit a hurdle when a month later Validus came in with an offer of its own.

At the time each was made, the Allied World offer was worth $3.2 billion and the Validus offer was worth $3.5 billion.

Earlier this month, as the values of Allied World's offer fell, Buffett's lieutenant Ajit Jain jumped in with its $3.2 billion cash bid.

Transatlantic rejected Berkshire's offer as too low but said the bid could lead to a superior proposal, and offered to open talks if Berkshire signed a confidentiality agreement.

Transatlantic said on Friday the terms of the confidentiality agreement with National Indemnity are substantially similar to the terms of the agreement it entered into with Allied World.

Notably, the agreement includes a standstill provision, which had become a point of contention with Validus and led the Bermuda reinsurer to take its bid directly to Transatlantic's shareholders.

Validus sued Transatlantic on Thursday, but also offered its own books for review in an effort to raise pressure on Transatlantic to open talks with it. [ID:nN1E77A0WE] (Reporting by Paritosh Bansal; editing by Carol Bishopric)

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