August 09, 2011, 10:03 AM EDT
By Brooke Sutherland
Aug. 9 (Bloomberg) -- Transatlantic Holdings Inc., the reinsurer that has received three takeover offers, will ask Warren Buffett’s Berkshire Hathaway Inc. to improve its $3.25 billion unsolicited bid to win the deal.
The offer from Berkshire’s National Indemnity Co. “is reasonably likely to lead to a superior proposal,” New York- based Transatlantic said in a statement yesterday. The board is willing “to engage in discussions and to exchange information with National Indemnity.”
Transatlantic was given until the close of business yesterday to respond to an Aug. 5 offer from Ajit Jain, Buffett’s reinsurance lieutenant, to buy the company for $52 a share. The bid is the first publicly disclosed unsolicited offer by Buffett’s Omaha, Nebraska-based Berkshire since Bloomberg began tracking takeover data more than a decade ago.
“If there was one instance or unique instance where he would kind of break the pattern, break his rules, break his habits, it’s in insurance,” said David Rolfe, chief investment officer at Wedgewood Partners Inc., a Berkshire shareholder, in an interview. “I’d be surprised if Buffett and Jain don’t get this done.”
Transatlantic struck a deal in June to sell itself to Zug, Switzerland-based Allied World Assurance Company Holdings AG, which agreed to exchange 0.88 of a share for each Transatlantic share. Under those terms, the transaction would be valued at $2.8 billion based on Allied’s Aug. 5 closing price. Validus Holdings Ltd., based in Bermuda, made an unsolicited cash-and- stock offer last month that would be valued at about $2.9 billion, compared with $3.5 billion originally before equity markets plunged.
‘Don’t Knee-Jerk It’
Berkshire had $47.9 billion in cash as of June 30, it said last week. Buffett doesn’t buy back shares or pay a dividend and has been looking for acquisitions. He didn’t immediately respond to a message seeking comment left with his assistant.
“The offer on its face at $52 is superior,” Rolfe said of Buffett’s bid. “But I think the board is being, probably, I’m sure advised by their investment bankers and counsel, ‘Don’t knee-jerk it.’”
Validus said yesterday it remains committed to its offer and urged Transatlantic to choose the bid that would best serve its shareholders.
Benefits After Merger
“How many more superior proposals does the Transatlantic board need to receive before it will drop the self-imposed roadblocks and allow Transatlantic stockholders to fully explore potentially superior alternatives to the Allied World offer?” said Gemma Hart, a spokeswoman for Validus.
Validus and Allied have said Berkshire’s offer denies Transatlantic shareholders the chance to benefit from share gains at the business after a merger. U.S. stocks tumbled yesterday, dragging benchmark indexes to the biggest drop since December 2008.
Buffett, Berkshire’s chairman and chief executive officer, has sought to distinguish his firm from potential rivals in the buyout market by promising to keep managers in place, shunning hostile bids and vowing not to sell companies he takes over.
“We will not engage in unfriendly takeovers,” Berkshire said in its most recent annual report. “We don’t participate in auctions.”
While the likelihood of Buffett getting in a bidding war with Allied and Validus is slim, Berkshire’s chairman may still improve his offer, said Thomas A. Russo, who manages about $4 billion at Gardner Russo & Gardner in Lancaster, Pennsylvania.
“It doesn’t sound like he’s given them his full binding offer yet,” he said in an interview. “Once he gives his first non-binding offer, it may still be his only. But he just happens to be making it at a higher or lower price.”
Shifts in the value of Allied and Validus shares will affect the attractiveness of Berkshire’s original bid, he said.
Validus has slumped 23.7 percent through yesterday since the last day of trading before it announced its offer. Allied has dropped 14.7 percent.
Allied today affirmed its commitment to its deal in an e- mailed statement and said the merger was on target to close in the fourth quarter. The insurer has called Berkshire’s bid “at best, opportunistic” and said its business mix makes it the best fit for Transatlantic.
Validus focuses on property reinsurance, including coverage against catastrophes. Transatlantic provides medical-malpractice protection and guards executives against lawsuits through so- called directors-and-officers coverage. Allied offers professional-liability coverage.
Berkshire is the largest U.S.-based seller of reinsurance, which is coverage of policies written by primary carriers. Buffett’s company provides catastrophe protection and assumes risks being sold by rivals.
--Editors: Elizabeth Wollman, Dan KrautRead the full transcript of the March 2 Squawk Box Interview with Warren Buffett
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