Reinsurers Holdings Ltd.Allied World Assurance and Transatlantic called off their merger Friday in the face of overwhelming opposition, and Transatlantic indicated it might remain independent despite two higher offers on the table.
Five days after telling shareholders to accept Allied World's all-stock offer of around $47 per share, Transatlantic said it would be a disservice to them to accept a $52-per-share cash offer from Warren Buffett's Berkshire Hathaway Inc .
For the first time, it said a hostile cash-and-stock offer from Validus Holdings Ltd. was superior to the Berkshire bid, and Transatlantic said it was open to talks even as it condemned most aspects of the offer.
Transatlantic also named a new chief executive and increased its share buybacks, moves its largest shareholder endorsed after previously opposing the Allied transaction. But it gave preliminary earnings results for the third quarter that were below even the most pessimistic Wall Street views, reporting earnings per share of 85 cents to $1.15 for the quarter.
Shares of Transatlantic fell 2.5 per cent in early trading, while Allied shares rose 4.5 per cent and Validus shares fell 1.4 per cent.
The failure of the Allied deal had been expected for days, after three proxy advisory firms said Transatlantic shareholders should reject the offer. Earlier this week, an Allied executive told a Barclays Capital conference the deal was unlikely to succeed.
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 another $66.7-million if it entered into another deal within a year.
Allied World's all-stock offer was worth $2.94-billion, or $47.05 per share, at Thursday's closing prices and represented a roughly 5 per cent discount to Transatlantic's share price. Shareholders were due to vote on the agreement Tuesday.
Transatlantic sent a letter to stockholders Friday in which it noted "it will continue to entertain and evaluate any serious proposal or opportunity that offers its stockholders full and fair value."
But it said the Berkshire offer "would not deliver fair value to stockholders," and that Berkshire had been unwilling as recently as last Friday to discuss raising its bid.
Transatlantic said Validus's hostile offer, though smaller, was better and that it was willing to engage in talks. But it also offered a laundry list of criticisms of the current proposal and criticized Validus's behavior.
Since Validus took its offer to shareholders in late July, the companies have sued each other and Validus has filed to remove and replace Transatlantic's board.
At Thursday's closing prices, the Validus deal is worth $48.26 per share, or $3.02-billion. The Berkshire offer is worth $3.25-billion.
But both put Transatlantic at a substantial discount to book value – 0.71 times from Validus and 0.77 times from Berkshire. The property and casualty insurance and reinsurance sector has a median value of 0.84 times book, according to Thomson Reuters data.
In the interim, Transatlantic said it will increase its stock buyback program to $600-million, with a commitment to buy back half of that this year.
Davis Selected Advisors, Transatlantic's largest shareholder, endorsed both moves.
"Davis Advisors applauds Transatlantic's efforts to create value for shareholders with an intelligent capital management plan while at the same time remaining open to other strategic alternatives," it said in the company's statement.