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National Indemnity, a division of Warren E. Buffett’s Berkshire Hathaway (BRK.B), made a $3.2 billion bid for Transatlantic Holdings (TRH). The bid, which is for $52 per share, is an attempt to best two recent competing offers. The deal is presumed to be an all cash offer, though the precise details were not disclosed.
Berkshire’s bid is above the current values of the two outstanding offers for Transatlantic. Recently Validus Holdings (VR) made a stock-and-cash bid currently worth about $2.9 billion as of Friday’s close. The bid was initially worth about $3.5 billion, but VR’s stock has since dropped, along with many other insurers and equities broadly. Additionally, TRH already agreed to an all-stock merger with Allied World Assurance (AWH) now worth about $2.75 billion, though worth $3.2 billion when announced. If Transatlantic were to agree to a deal with either Validus or Berkshire, it would be liable to Allied World for a $115 million breakup fee. At the time the Allied World and Transatlantic merger was announced, I noted that it appeared poised to initiate a period of insurer consolidation. It certainly did, but so far most other insurers appear stuck on TRH. Berkshire is now attempting to buy TRH at that initial merger price, where the AWH merger would value TRH $450 million less. Berkshire must assume that TRH is happy with that valuation, as it already accepted it, and the likely all-cash aspect should make it a quick process and stable price. These insurer consolidation attempts thus far appear poorly timed, with most insurers dropping in value through the last two months. Shares in AWH have fallen over 12% since the merger was announced in mid June. Additionally Validus shares have fallen over 10% since its subsequent hostile bid. Allied released a statement noting that it is committed to its merger with Transatlantic and called the Berkshire offer “opportunistic.” Interestingly, the statement was released through Business Wire, a Berkshire Hathaway company. Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This article should not be construed as personalized investment advice as it does not take into account your specific situation or objectives.

Source: Berkshire Hathaway's Competitive Bid for Transatlantic