WILMINGTON, Del.—The board of Transatlantic Holdings Inc. said Thursday that its stockholders should reject Validus Holdings Ltd.’s unsolicited offer to buy Transatlantic and filed suit against Bermuda-based Validus.

New York-based Transatlantic said it remains committed to its earlier all-stock merger agreement with Zug, Switzerland-based Allied World Assurance Co. Holdings A.G., valued at $3.2 billion when announced in June.

Transatlantic also said it had filed suit in U.S. District Court in Wilmington, Del., that alleges Validus made false and misleading statements to Transatlantic's stockholders in its bid offer documents. The company said Validus’ offer was based on erroneous assumptions not supported by in-depth investigation, and seeks to compel Validus to correct its misstatements so that stockholders can make an informed decision.

In a statement, Transatlantic also announced a plan that would reduce the likelihood that anyone could take control of the company in the open market. The plan has a one-year term and 10% beneficial ownership threshold. The company said Transatlantic’s stockholders will receive a nontaxable dividend of one right per share as of Aug. 8, which becomes exercisable only if a person acquires beneficial ownership of at least 10%. The rights can make potential acquirers subject to dilution in their holdings, among other things.

On Monday, Validus said Transatlantic would not discuss its proposal, which was worth around $3.5 billion in cash and stock as of July 12, without a “standstill” provision that would contractually prohibit the Bermuda reinsurer from pursuing its bid without board approval.

Validus also appealed directly to shareholders to accept its bid in a filing with the U.S. Securities and Exchange Commission.

Standard agreement

Transatlantic board Chairman Richard S. Press said the agreement it asked Validus to sign is “the standard confidentiality agreement” required under its existing one with Allied World, and has “substantially” the same terms and conditions that Allied World agreed to, including a standstill provision.

In contrast, Validus sent Transatlantic’s board a draft confidentiality agreement that had no standstill provision and included other terms that would have allowed Validus to disclose Transatlantic’s information, Mr. Press said in the statement.

The Allied World deal “will provide greater long-term value potential to Transatlantic’s stockholders than Validus’,” Transatlantic said in the statement.