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Allied World ends Transatlantic merger bid

Allied World Assurance Company Holdings AG has announced it terminated its $2.94 billion merger agreement with reinsurer Transatlantic Holdings Inc.

Under the terms of the agreement, Allied World will receive a termination fee of $35 million plus $13.3 million of merger-related expenses.

Transatlantic will also have to pay Allied World an additional $66.7 million if within 12 months of the termination Transatlantic enters into an agreement providing for a competing transaction, or recommends or submits a competing transaction to its shareholders for adoption, or a transaction in respect of a competing transaction is consummated.

The special meeting of Allied World shareholders, which was scheduled to be held on September 20, 2011, has also been cancelled.

Transatlantic is willing to enter into negotiations with Validus Holdings Ltd despite considering the Bermuda-based company’s present offer as inadequate, the company said in a statement. Transatlantic also received an unsolicited offer from a unit of Warren Buffett’s Berkshire Hathaway Inc, which said it was unwilling to increase its initial bid, and no further talks are scheduled between the firms, the reinsurer said.

Transatlantic agreed in June to merge with Allied in a stock transaction that was opposed by Transatlantic’s biggest shareholder, Davis Selected Advisers LP. Institutional Shareholder Services Inc was among proxy firms that recommended Transatlantic investors to reject the deal.

“We appreciate the dialogue we have had with our stockholders over the past three months and want them to know that their board is open to seriously considering any transaction that will deliver the value they deserve,” New York-based Transatlantic said in a statement.

“The Transatlantic board of directors has concluded that selling Transatlantic for cash at such a substantial discount to book value would not deliver fair value to stockholders.”

Transatlantic slipped 2.2 percent or $1.05 to $48.50 in New York Stock Exchange trading on Friday, while Allied World advanced 2.7 percent or $1.42 to $54.89.

Validus’s hostile stock-and-cash offer valued Transatlantic at about $48.26 a share, based on Thursday’s closing price, with the value falling to about $3 billion from $3.5 billion as equity markets plunged.

The $52-a-share offer from Berkshire Hathaway’s National Indemnity Co is worth $3.25 billion. Allied had offered 0.88 share for each Transatlantic share, valuing the reinsurer’s stock at about $47.05, based on Thursday’s closing price.

Allied World chairman, president and CEO, Scott Carmilani, said: “Although disappointed we were unable to complete the proposed merger with Transatlantic, Allied World’s core business strategy remains intact. We continue to profitably grow our business by building on our solid foundation of broad speciality product capabilities, strong distribution relationships and a team of professionals that are well respected throughout the insurance and reinsurance industry.

“As we approach our 10th anniversary, our shareholders remain our top priority and we will continue to make strategic decisions with their interest in mind and with the same consideration that has allowed us to grow the company’s book value per share by 140 percent since we went public in 2006.

“Finally, I would like to take this opportunity to thank Transatlantic and the employees and management teams of both of our companies who have worked diligently on integration planning over the past few months.”

A Validus spokesman said: “We are pleased to see the termination of Transatlantic’s merger agreement with Allied World. We welcome the opportunity to enter into discussions without any restrictive preconditions and engage in mutual due diligence.

“We continue to believe that the combination of Validus and Transatlantic will create a unique, global leader in reinsurance a large, nimble company deploying capital effectively to maximise underwriting profitability and achieve superior growth in book value per share.”

Transatlantic had previously said that its business mix made Allied the best fit. Transatlantic provides medical-malpractice protection and guards executives against lawsuits through so-called directors-and-officers coverage. Allied offers professional-liability coverage.

Validus focuses on property reinsurance, including coverage against catastrophes. Berkshire Hathaway is the largest US-based seller of reinsurance, which is coverage of policies written by primary carriers. Mr Buffett’s company provides catastrophe protection and assumes risks being sold by rivals.

Berkshire Hathaway had not responded to a request for comment by press time.

Allied World CEO Scott Carmilani

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Published September 19, 2011 at 10:14 am (Updated September 19, 2011 at 10:13 am)

Allied World ends Transatlantic merger bid

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