* Validus says unable to agree to merger talk conditions
* Begins exchange offer to buy Transatlantic stock
* Shares fall in early trading, both bids at discount
(Updates shares, deal values)
By Ben Berkowitz
NEW YORK, July 25 Reinsurer Validus Holdings
Ltd (VR.N) took its $3.2 billion offer to buy Transatlantic
Holdings Inc TRH.N directly to shareholders on Monday after
rejecting its rival's conditions for merger talks.
It was the second time in two years that Validus launched a
hostile bid for a reinsurer that had already agreed a deal with
someone else. In the previous case, Validus ultimately
prevailed in its efforts to buy underwriter IPC.
Validus said it was unable to start discussions with
Transatlantic because of a "standstill" provision that would
have prevented it from pursuing its bid without the approval of
"They sent us this confidentiality agreement they knew we'd
never sign," Validus Chief Executive Ed Noonan said in an
Noonan said he has spoken to the "vast majority" of
Transatlantic's largest shareholders and received good
feedback, but has not yet talked to Davis Selected Advisers,
which owns nearly 24 percent of Transatlantic and has said it
may oppose the company's already agreed deal with Allied World
Assurance Company Holdings Inc.
Last week, Transatlantic reaffirmed its deal with Allied
World (AWH.N), which is worth $3.05 billion at Monday
afternoon's share prices. But Transatlantic said it was
possible Validus's offer could lead to a superior proposal and
it would approach Validus to open talks.
Transatlantic accepted Allied World's bid on June 12.
Validus made its unsolicited cash-and-stock bid on July 12.
Transatlantic said on Monday it still considered Allied's bid
superior and it recommended shareholders not take any action
yet on the Validus offer.
Validus's exchange offer for Transatlantic's stock will end
on Sept. 30, unless extended.
At midday Monday, Transatlantic was down 0.6 percent at
$52.19 and Validus was off 1 percent at $27.43. Allied World
reversed earlier losses and was up 0.2 percent at $55.76.
At those levels, both the Allied World bid and the Validus
proposal represent a discount to Transatlantic's shares. The
Validus bid remains just over 3 percent higher than the Allied
GLOBAL TOP 10
Should Validus succeed, the newly combined company would be
the world's sixth-largest reinsurer.
Reinsurers sell insurance to insurers for their exposures,
letting them offset some of their risk and freeing them up to
write more policies.
Roughly three-quarters of Validus' business would be
exposed to short-term risks such as hurricanes and roughly
one-quarter to longer-lasting perils such as medical
malpractice and workers' compensation, what the industry calls
Some analysts have said long-tail exposure was a problem
for Validus, part of the reason Validus shares have fallen more
than 11 percent since the company made its bid.
Something similar happened in 2009, when Validus stepped in
to snatch up IPC from its deal with Max Capital. Shares fell
sharply once Validus made its offer and did not recover to
pre-bid levels for nearly five months.
Analysts and investors have been saying the Bermudan
reinsurance market was ripe for consolidation, with too many
companies holding too much capital and competing for too little
Yet most agree the Transatlantic bidding war is a unique
case and not a spark for further deal making, as valuations
across the island remain too depressed to make acquisitions
(Reporting by Ben Berkowitz in New York and Jochelle Mendonca
in Bangalore; editing by Joyjeet Das and Andre Grenon)