Transatlantic agrees to $3.4 billion takeover by Alleghany

NEW YORK—Following a lengthy takeover battle involving several companies, Transatlantic Holdings Inc. has agreed to a deal with Alleghany Corp. that values the reinsurer at $3.4 billion.

When the deal is complete, Transatlantic will become an independent, stand-alone subsidiary of Alleghany, the investment holding company said in a statement.

The deal, which has been approved by both New York-based companies' boards, is expected to close in the first quarter of 2012, Weston M. Hicks, president and CEO of Alleghany, said Monday during a conference call with analysts.

Transatlantic's largest stockholder, Davis Selected Advisors L.P., says it supports the deal, Mr. Hicks noted. Approval will now be sought from other shareholders.

Mr. Hicks said that, once the deal is complete, Transatlantic will operate as a semi-autonomous subsidiary of Alleghany, in much the same way that its wholesale specialty insurance subsidiary, RSUI Group Inc., currently operates.

The Transatlantic deal will create “an industry leader in U.S. excess and surplus lines and global specialty reinsurance with significant underwriting diversification by product and geography,” the companies said in a statement.

The development “seems good for Transatlantic,” said Cliff Gallant, an analyst with Keefe, Bruyette & Woods Inc. in New York. He noted that Alleghany's offer valued Transatlantic's at 86% of book value, which is better than the level at which most of the Bermudian reinsurers in Transatlantic's peer group have been trading.

Resolving the bidding also will eliminate a distraction for Transatlantic, Mr. Gallant said.

Meanwhile, New York-based Moody's Investors Service affirmed the Baa1 senior debt rating of Transatlantic Holdings and the A1 insurance financial strength rating of Transatlantic Reinsurance Co. following the announcement.

The move “reflects the fact that its acquisition by Alleghany would not significantly alter its current business or financial profile, as the company would operate as a separate business unit within the Alleghany organization,” said Moody's in a statement. “In Moody's opinion, the acquisition would be incrementally positive for Transatlantic's policyholders and creditors as the company's private status within a larger organization could allow the firm to better handle the volatility of property/casualty reinsurance pricing cycles.”

Doug Mewhirter, an equity research associate at RBC Capital Markets in Richmond, Va., said, “I'm sure that Alleghany management had to approach Transatlantic's management more from the same level” than a larger bidder who might walk in and dictate deal terms. That probably gave Transatlantic's management more say in what a combined company would look like, he said.

Transatlantic currently is rated A by A.M. Best Co. Inc. and A+ by Standard & Poor's Corp. Neither rating agency had taken any action on the ratings as of press time.

Joseph P. Brandon, former CEO of Berkshire Hathaway Inc.'s General Re Corp., will serve as president of Alleghany Insurance Holdings L.L.C., as well as executive vp of Alleghany and chairman of Transatlantic's board.

Mr. Brandon's “proven track record and deep understanding of the industry will be a great asset,” Mr. Hicks said.

Michael C. Sapnar will continue in his role as president of Transatlantic and will become CEO on Jan. 1, 2012.

Robert F. Orlich will retire as CEO of Transatlantic at the end of 2011, the statement said.

Mr. Brandon had been a rising star at Berkshire's reinsurance operation, Gen Re. But then the government alleged that Gen Re helped New York-based American International Group Inc. inflate its loss reserves with a pair of sham reinsurance transactions, identifying Mr. Brandon as an unindicted co-conspirator. Although legal experts said at the time that the prosecutors most likely did not have enough evidence to charge Mr. Brandon, and no charges were ever field, he resigned from Gen Re in April 2008.

Transatlantic has been the subject of several bids over the past year, most recently rejecting a revised bid from Pembroke, Bermuda-based Validus Holdings Inc., which had been the reinsurer's most aggressive suitor. Validus declined to comment on the Alleghany announcement.

Mr. Orlich said that Transatlantic considers the deal with Alleghany a “great outcome for the Transatlantic franchise.” He added that Transatlantic has been seeking a partner that would enable it to maintain its financial strength ratings and protect its global franchise, among other aims.

Associate Editor Sonja Ryst contributed to this article.