(Reuters) - Reinsurers Allied World Assurance Co Holdings Ltd and Transatlantic Holdings Inc called off their merger on Friday in the face of overwhelming opposition, leaving the fate of Transatlantic uncertain amid two larger, unsolicited offers.
Transatlantic said it would remain open to making a deal, while also increasing its share buyback program and naming a new chief executive. Its largest shareholder, which opposed the Allied deal, came out in favor of the new plan.
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 a share, at Thursday’s closing prices and represented a roughly 5 percent discount to Transatlantic’s share price.
Shareholders were due to vote on the agreement on Tuesday, but it was expected to be rejected.
Three proxy advisory firms said Transatlantic investors should reject the deal and an Allied executive told a Barclays Capital conference last week that the deal was unlikely to succeed.
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.”
In the interim, the company 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.
Transatlantic also said Chief Executive Robert Orlich would retire as planned and that chief operating officer Michael Sapnar would become CEO as of January 1, 2012.
With Allied out of the picture, Transatlantic still has two suitors. It has been in confidential talks with a unit of Warren Buffett’s Berkshire Hathaway Inc about an unsolicited offer.
But Transatlantic said Friday that no further talks were scheduled, and that Berkshire has said it is unwilling to increase its bid beyond the publicly announced $3.25 billion, or $52 a share, cash offer on the table. Transatlantic had been seeking a substantially higher bid.
Meanwhile, Validus Holdings Ltd has taken its own hostile bid directly to shareholders. At Thursday’s close, Validus’s $3.02 billion cash-and-stock bid was worth $48.26 per share.
Transatlantic said Friday that it remained willing to engage in friendly talks with Validus, though it said Validus’s bid was also inferior.
Of the two, Berkshire’s all-cash bid is $230 million richer than the Validus offer.
Allied and Transatlantic reached their all-stock deal in June, but Davis Advisors opposed the deal.
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. All three offers stand at a discount not only to Transatlantic’s book value but also to the sector median valuation.
Reporting by Ben Berkowitz, editing by Gerald E. McCormick and Derek Caney