Transatlantic Sues Validus, Rejects Offer

July 28, 2011

Reinsurance company Transatlantic Holdings Inc said Thursday it has filed suit against its unsolicited suitor, Validus Holdings Ltd., and rejected its offer as “inferior and highly conditional.”

Transatlantic also established a poison-pill plan to keep anyone from taking control of the company in the open market. The plan lasts for a year and has a 10 percent ownership threshold.

Transatlantic and Allied World Assurance Co Holdings Ltd agreed to a friendly all-stock deal in June. A month later Validus made its cash-and-stock offer. While both bids are currently at a discount to Transatlantic’s stock price, the Validus discount is smaller.

At one point Transatlantic said Validus’ offer could potentially lead to a superior proposal, but the two sides were unable to come to terms on a confidentiality agreement and Validus took its offer directly to shareholders.

Transatlantic said it sued Validus in federal court in Delaware, alleging it made “false and misleading statements” to shareholders in its proxy and tender materials.

A Validus spokesman was not immediately available to comment.

The Transatlantic lawsuit bears similarities to a legal tactic pioneered by Tenet Healthcare Corp in its defeat of hostile bidder Community Health Systems Inc.

Tenet lobbed explosive allegations that Community was a bilking government and private insurers. It wrapped the claims in a federal securities lawsuit, alleging that Community was failing to disclose material information in its tender offering documents.

Transatlantic is using a similar approach. It alleges that Validus fails to adequately disclose risks to its financing and is misleading investors about potential merger savings.

There is another connection between the two cases — Adam Offenhartz of the law firm Gibson Dunn & Crutcher LLP, represented Tenet and is representing Transatlantic.

Shares in Validus rose 1.2 percent to $27.60 and shares in Transatlantic rose 0.6 percent to $52.07 in early trading. Allied World rose 0.4 percent to $55.36.

At those prices, Allied’s bid was worth $3.04 billion and Validus’ was worth $3.18 billion.

Allied World has been on a road show this week, meeting with investors to make its argument for why its offer is financially superior.

The biggest unanswered question in the bidding war is the intentions of Davis Selected Advisers, Transatlantic’s largest investor with a stake of nearly 24 percent. In two SEC filings, Davis has said it may oppose the Allied bid. It has not commented publicly on the Validus proposal.

(Reporting by Ben Berkowitz in New York and Tom Hals in Wilmington, Delaware, editing by Gerald E. McCormick, Derek Caney, Dave Zimmerman)

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