Warren Buffett’s Berkshire Hathaway’s bid $3.25 billion in an unsolicited offer for Transatlantic Holdings Inc. (TRH), seeking to break up a deal the target company had reached with another insurer.Ajit Jain, Buffett’s reinsurance lieutenant, gave New York-based Transatlantic until Monday’s close of business to respond. Transatlantic dropped 10 of 11 trading days through Aug.5.
The offer diverges from Buffett’s usual strategy of avoiding competitive bidding and favoring deals where he has approval of the target company’s management, said Michael Yoshikami, an investment strategist at YCMNet Advisors, a Berkshire investor. Transatlantic struck a deal in June to merge with Allied World Assurance Company Holdings AG and has shunned a July bid from Bermuda-based Validus Holdings Ltd.“It certainly is different than the normal, quiet marriage they have,” Yoshikami said of Omaha, Nebraska-based Berkshire’s bid. “It is not their typical style in terms of acquisitions.”
Jain offered $52 for each of Transatlantic’s 62.5 million outstanding shares as of June 30, Transatlantic said in a statement yesterday. Allied’s bid to exchange 0.88 of a share for each Transatlantic share is valued at about $2.8 billion, based on Allied’s Aug.5 closing price of $50.25. Validus’s hostile stock-and-cash offer fell to about $2.9 billion, from an original value of $3.5 billion, after equity markets plunged.Transatlantic said its board will “carefully consider and evaluate” the Berkshire offer.
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. The offer is the first publicly disclosed unsolicited bid by Berkshire since Bloomberg began tracking takeover data more than a decade ago.“We will not engage in unfriendly takeovers,” Berkshire said in its most recent annual report. “We don’t participate in auctions.”Jain’s approach to Transatlantic is “sort of out of the norm,” said Meyer Shields, an analyst at Stifel Nicolaus & Co. Berkshire generates “so much cash that they have to go beyond their historical patterns.” Buffett, 80, didn’t return a message seeking comment.
Berkshire had $47.9 billion in cash as of June 30, the company said last week. Buffett doesn’t buy back shares or pay a dividend and has been looking for acquisitions.
Validus and Allied said Berkshire’s offer denies Transatlantic shareholders the chance to benefit from gains at the business after a merger.“Transatlantic stockholders deserve the right to choose for themselves between an offer that provides greater potential future value or a fixed price today,” Validus Chief Executive Officer Ed Noonan said yesterday in a statement. Validus has offered 1.56 shares and $8 in cash for each Transatlantic share.Allied on Sunday affirmed its commitment to its deal and called Berkshire’s bid “at best, opportunistic.” The Zug, Switzerland-based insurer has 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 corporate officers against lawsuits through so-called directors-and-officers coverage. Allied offers professional-liability coverage.Berkshire is the largest US-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.Transatlantic traded Aug.5 at about 67 per cent of its book value, a measure of assets minus liabilities. Buffett’s offer values the company at 77 per cent of its book value.
From / Gulf Today