Allied World, Transatlantic Call off Merger Deal

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Reinsurers Allied World Assurance Co. Holdings Ltd and Transatlantic Holdings Inc. called off their merger Friday in the face of overwhelming opposition, leaving Transatlantic to decide between two larger, unsolicited offers.

Allied World said in a statement it would receive a $35 million break-up fee and $13.3 million in expenses from Transatlantic. Transatlantic would owe Allied World another $66.7 million if it entered into another deal within a year.

Shareholders were due to vote on the agreement this coming Tuesday, but it was almost universally expected to be rejected.

Three proxy advisory firms said Transatlantic investors should reject the deal, the company’s largest shareholder was planning to vote against it and an Allied executive told a Barclays Capital conference last week that the deal was unlikely to succeed.

With Allied out of the picture, Transatlantic still has two suitors to choose from. It has been in confidential talks with a unit of Warren Buffett’s Berkshire Hathaway Inc. about an unsolicited offer. Meanwhile, Validus Holdings Ltd has taken its own hostile bid directly to shareholders.

Of the two, Berkshire’s all-cash bid is almost $300 million richer than the Validus offer, although both are at a sharp discount to Transatlantic’s book value.

Allied and Transatlantic reached their all-stock deal in June, but one day later Transatlantic’s largest shareholder said it might oppose the offer. About a month later Validus stepped in with its bid, only to be followed a few weeks later by Berkshire.

Analysts had expected a bidding war for Transatlantic given the depressed valuation the Allied bid offered relative to the rest of the sector.

(Reporting by Ben Berkowitz, editing by Gerald E. McCormick)