March 6, 2021

DealBook: Berkshire Unit Bids $3.25 Billion for Transatlantic

4:44 p.m. | Updated with statements from Validus and Allied

A division of Warren E. Buffett’s Berkshire Hathaway waded into the fight for Transatlantic Holdings, bidding $3.25 billion in an attempt to top competing offers from two other insurers.

Berkshire’s National Indemnity is offering $52 a share, Transatlantic confirmed in a statement on Sunday. That is a nearly 15 percent premium to Transatlantic’s Friday closing price.

“With your stock trading at $45.83, I have to believe that you will find our offer to buy all of Transatlantic shares outstanding at $52.00 per share to be an attractive offer,” Ajit Jain, the head of Berkshire’s sprawling reinsurance operations, wrote in a letter to Transatlantic’s chief executive, Robert Orlich, on Friday.

Berkshire’s bid is also well above the current values of the two outstanding offers for Transatlantic. The stock-and-cash bid by Validus Holdings was worth about $2.9 billion as of Friday’s close. The bid was worth nearly $3.5 billion when it was first announced.

An all-stock merger with Allied World Assurance, which Transatlantic had already agreed to, was worth about $2.76 billion. It was originally worth about $3.2 billion.

The brief letter from Mr. Jain gave few details about Berkshire’s proposal, other than a $75 million breakup fee payable to National Indemnity if the two strike an agreement but do not close a deal before Dec. 31. Mr. Jain added that he expected to hear a response by the close of business on Monday.

Berkshire did not specify what form its offer would take. But in keeping with the insurance conglomerate’s proclivities, it would likely be an all-cash offer.

Even at $3.2 billion, Berkshire’s offer is well below Transatlantic’s book value of $4.2 billion. And if it is all-cash, it would offer Transatlantic shareholders no upside if the combined company improves financially.

Transatlantic said in its statement that its board will “carefully consider and evaluate the proposal” from Berkshire. But it is unclear whether, with two offers already on the table, the Transatlantic board can reach a decision on the latest offer by Berkshire’s deadline.

Should Transatlantic agree to a deal with Berkshire, it would be liable for a $115 million breakup fee payable to Allied.

Validus has already taken its bid directly to Transatlantic’s shareholders, hoping to persuade them with both a higher price and the promise that it will create a well-balanced company with a big presence in reinsurance.

That prompted strong opposition from Transatlantic, which rejected the bid and filed a lawsuit against Validus, arguing that the unwanted bidder made misleading statements about its offer to shareholders.

Validus’s chief executive, Edward J. Noonan, has promised to wage a lengthy fight for Transatlantic.

Meanwhile, Allied — which made the first bid for Transatlantic — is arguing that its merger proposal would create a diversified operation, including a specialty insurance business.

So far, shareholders of both Validus and Allied appear unimpressed with either company’s campaign for Transatlantic. Shares in Allied have tumbled more than 13 percent since the insurer unveiled its merger proposal in June, while those in Validus have fallen 11 percent since making its hostile bid last month.

In a statement on Sunday, Validus again urged Transatlantic to hold merger talks without what it called restrictive conditions, including a limit on stock ownership.

Allied said in a statement that it remained committed to its merger with Transatlantic and derided the Berkshire offer as “opportunistic.”

Berkshire’s bid follows the company’s rosy earnings report on Friday, in which it disclosed $3.42 billion in profit for the second quarter this year, topping analyst predictions. Earlier this week, Allied announced that it earned $93.8 million in its second quarter, beating analyst estimates. Two weeks ago, Validus reported $109.9 million in net income for the quarter, matching analyst expectations.

Transatlantic is being advised by Goldman Sachs, Moelis Company and the law firm Gibson, Dunn Crutcher.

Allied is being advised by Deutsche Bank and the law firms Willkie Farr Gallagher and Baker McKenzie. Validus is being advised by Greenhill Company, JPMorgan Chase and the law firm Skadden, Arps, Slate, Meagher Flom.

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