(Corrects to remove date of shareholder meeting, next to last
* Validus shares down 10 pct, Allied World up 1 pct
* Transatlantic up 5 pct, co confirms unsolicited offer
* Transatlantic says board will evaluate Validus proposal
* Validus CEO says will go hostile if needed
(Adds comments by CEO, adds BANGALORE to dateline)
By Rachel Chitra and Tanya Agrawal
BANGALORE, July 13 Shares of Validus Holdings
Ltd (VR.N) fell as much as 10 percent after the reinsurer
outbid rival Allied World Assurance (AWH.N) for Transatlantic
Holdings Inc TRH.N, with investors questioning both the price
and the additional risk Validus is adding to its books.
Analysts had been deeply split on whether anyone would seek
to outbid Allied World. Some said yes, given what they felt was
a discounted price; others said no, citing what they perceived
as a unique cultural fit between Transatlantic and Allied.
Shares of Validus, which termed its $3.5 billion deal for
Transatlantic "superior," slipped to an eight-month low of
$27.87 on the New York Stock Exchange.
Analysts said Validus, which has a relatively pristine
balance sheet with virtually no exposure to what insurers call
"long-tail lines," will now be taking additional risk from
Long-tail lines, such as medical malpractice or workers
compensation, have a longer duration between the claim-causing
incident and its settlement.
Citigroup said Transatlantic's greater exposure to
long-tail business was less attractive in the sustained weak
But Validus' CEO, Ed Noonan, said in an interview that the
combined company would still be nearly three-quarters
short-tail business, a mix he argued would ultimately be
attractive for the company's investors.
The combined company would be the world's sixth-largest
DEALTALK on reinsurance deals [ID:nN13142656]
Allied World to buy Transatlantic [ID:nL3E7HD00X]
Validus tops Allied World's bid [ID:nL3E7IC3R1]
COULD GO HOSTILE
Shares of Transatlantic were up nearly 6 percent at $51.93
on the New York Stock Exchange on Wednesday afternoon. Some
analysts said they expected a bidding war, with Allied World
potentially raising its June offer of $3.2 billion in stock.
Noonan told Reuters that Validus has been looking at
Transatlantic for the last three years. He said he hopes to
negotiate a friendly deal but will pursue the offer
"We will still go every step of the way to complete the
acquisition," he said. Almost exactly two years ago, Validus
won what had been a hostile bidding war for another Bermudan
Validus' offer of $55.95 for Transatlantic values the
company at about 66 times forward earnings, which is well above
its 10-year average.
Some analysts rate the Validus offer attractive due to the
$8 per share cash component versus Allied World's all-stock
deal and the 14 percent premium to Transatlantic's Tuesday
The Validus deal also increases the geographical footprint
of Transatlantic and boosts its potential to write more
property catastrophe business, JMP Securities analyst Matthew
Validus has also said its offer will be tax-free to
Transatlantic stockholders unlike Allied World's fully-taxable
However, analysts say a Transatlantic-Allied World deal
might work better due to the AIG connection.
Transatlantic was majority-owned by American International
Group Inc (AIG.N) until the insurance giant sold its stake to
help repay its $180 billion government bailout package.
Allied World's co-founders include AIG and Chubb Corp.
In a separate statement, Allied World said on Wednesday it
received regulatory approval and its shareholders would be
voting on the merger at a date still to be determined.
Goldman Sachs & Co and Moelis & Co LLC are acting as
financial advisers to New York-based Transatlantic.
(Additional reporting by Ben Berkowitz in New York and Aditi
Sharma in Bangalore; Editing by Gopakumar Warrier, Saumyadeb
Chakrabarty and Matthew Lewis)