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Transatlantic and Berkshire Hathaway in Buy-Out Discussions

Source: WSJ - Erik Holm

Posted on 15 Aug 2011

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Warren Buffett's Berkshire Hathaway Inc. is moving forward with its effort to acquire Transatlantic Holdings Inc. by entering into discussions with the reinsurer. The two companies signed a confidentiality agreement that allows them to exchange non-public information, Transatlantic said. The development sets the stage for Transatlantic to push for Berkshire to boost its initial bid of $52 a share, or $3.25 billion.

Transatlantic, a reinsurance company, had earlier agreed to a merger with rival Allied World Assurance Co. It said in a statement Friday that it "reaffirms its recommendation" of the Allied World deal to shareholders for now.

The Transatlantic statement made no mention of a third bidder, Validus Holdings Ltd., which launched a hostile takeover effort in July after its approach was rebuffed by Transatlantic's board.

Mr. Buffett, Berkshire's chairman and chief executive, is known to disdain bidding wars for companies. But Ajit Jain, a possible successor to Mr. Buffett, put the company in the middle of one on Aug. 5 when he sent a letter to Transatlantic with Berkshire's $3.25 billion bid. Mr. Jain gave the New York-based reinsurer three days to respond.

On Monday, Transatlantic said the offer was likely to lead to a "superior proposal" to its existing merger agreement with Allied World, but wasn't itself a superior proposal.

The Allied World agreement, an all-stock deal, was valued at $2.92 billion based on Friday's closing share price. That is down from its $3.2 billion value when the deal was announced in June because of a recent decline in Allied World shares. The Validus offer has declined in value to $2.93 billion from $3.5 billion.

The Berkshire unit that made the offer, National Indemnity, signed a confidentiality agreement that is "substantially similar" to the terms Allied World agreed to when it first entered into negotiations, Transatlantic said Friday. The agreement includes a "customary" standstill provision that prohibits Berkshire from making an end-run around the Transatlantic board.

Unspoken in the Transatlantic statement is that Validus has refused to agree to a standstill provision, and has taken its argument to court and directly to

Transatlantic shareholders. Transatlantic hasn't commented on the Validus suit; it has urged its shareholders not to tender their shares.

Transatlantic said it has no plans to "comment further regarding its discussions with National Indemnity unless and until required by law or NYSE regulations.