Posted on 27 Sep 2011
Adding a fresh twist in a months-long takeover saga and sending the reinsurer’s shares up sharply, Transatlantic Holdings Inc. said on Monday it entered into deal talks with an undisclosed bidder.
For nearly four months, Transatlantic has been the subject of a bidding war, as the former arm of American International Group Inc. balanced an agreed deal and at least two unsolicited offers.
Just last Friday, Transatlantic agreed to open talks with Validus Holdings Ltd. after reaching agreement on a confidentiality pact with the Bermuda reinsurer, which has been pursuing a hostile bid.
That followed two other offers falling through in the last two weeks. Transatlantic called off a merger with Allied World Assurance Co. Holdings Ltd. in the face of overwhelming opposition and, last week, it said it would not accept an unsolicited bid from Warren Buffett’s Berkshire Hathaway Inc.
Transatlantic has proven to be an attractive target; it is one of the cheapest companies in the industry and has long-tail insurance lines, such as medical malpractice and workers’ compensation, which are attractive to others more exposed to short-tail risks such as hurricane damage.
Transatlantic is trading at 0.71 times book value, which allows rivals to bid less than book and still offer a premium. Berkshire’s National Indemnity Co., for example, bid 0.77 times book value for Transatlantic.
Transatlantic shares rose 4.2 percent to $48.59 in midday trading. Equity analysts at Standard & Poor’s said the stock remained undervalued and should trade closer to the sector than it does now.
Analyst Cathy Seifert maintained a $58 price target, which would be roughly 0.83 times book, right around the industry median.
Experts have been anticipating deals, especially in Bermuda, where a combination of excess capital and a soft pricing environment make consolidation attractive.
Deals, however, have been relatively rare, in part because the “social question” — who will lead the combined company — is often not resolved.
Transatlantic removes that hurdle. Chief Executive Robert Orlich said in June he would retire after striking the Allied World deal, worth $3.2 billion at the time.
There has also been some hesitancy among Bermudan players to buy or sell because valuations are depressed across the sector. Companies are loathe to use their own depressed stock to buy another depressed stock, with little sign of valuation improving anytime soon.New York-based Transatlantic did not disclose the identity of the latest bidder and said there was no assurance the discussions will result in a deal.Goldman Sachs Group Inc (GS.N) and Moelis & Co are acting as financial advisers for Transatlantic, while Gibson, Dunn & Crutcher LLP is acting as legal counsel.