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NEW YORK—The monthslong saga involving the ownership of Transatlantic Holdings Inc. appears to be coming to an end as the New York-based reinsurer has agreed to be acquired by Alleghany Corp.
The deal, announced last week, values Transatlantic at $3.4 billion. When the deal is complete—it remains subject to various approvals—Transatlantic is to become a stand-alone subsidiary of Alleghany, the investment holding company said in a statement.
The deal, which has been approved by the boards of both New York-based companies, is expected to close in the first quarter of 2012, Weston M. Hicks, president and CEO of Alleghany, said last week during a call with analysts.
Transatlantic's largest stockholder, Davis Selected Advisers L.P., said it supports the deal, Mr. Hicks said.
Other Transatlantic shareholders, however, filed a lawsuit in New York State Supreme Court charging that the deal violates the board's fiduciary duties.
The suit, led by Transatlantic investor Marilyn Clark, also alleges the dealmakers pursued a sale “at an unfair price through an unfair and self-serving process” and that the defendants, including Transatlantic CEO Robert F. Orlich, “botched the sale of the company from the start.”
Should the deal be completed, Mr. Hicks said Transatlantic will operate as a semiautonomous subsidiary of Alleghany, in much the same way that its wholesale specialty insurance subsidiary, RSUI Group Inc., 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.
“Alleghany has a long history of accumulating a war chest that can be used opportunistically for acquisitions that we believe are complementary to what we know and understand in our existing businesses,” Mr. Hicks said in an interview.
“We have three subsidiaries in the insurance industry. We were familiar with Transatlantic. I was aware of what a really unique franchise it was. When the opportunity emerged for us to get involved and make a competitive offer, we thought it was something we wanted to do,” he said.
He said the acquisition would give Alleghany a better spread of risk.
“It gives us more international exposure that we can build on and, probably most importantly, the company shares many of the same values that our other subsidiaries share, which is a focus on underwriting excellence and really dedicated people who are proud of...and are very good at what they do,” Mr. Hicks said.
Industry observers gave the deal positive reviews.
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 at 86% of book value, which is better than the level at which most peer Bermudian reinsurers have been trading.
Resolving the bidding war also would eliminate a distraction for Transatlantic, Mr. Gallant said.
Davis Selected Advisers “is a big shareholder that seems to be in favor, so it's more likely that this deal will close,” said Jim Auden, an analyst with Fitch Ratings in Chicago.
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. after 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,” Moody's said 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 that 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.
Following the announcement, A.M. Best Co. Inc. said Friday that Alleghany and Transatlantic's ratings would remain unchanged. Alleghany's specialty insurance and Transatlantic's reinsurance business as well as a “shared philosophy of underwriting discipline” will bring greater diversification to Alleghany, Best said in a statement.
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 as president of Transatlantic and will become CEO on Jan. 1, 2012, succeeding Mr. Orlich, who will retire at the end of this year, the companies 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 filed, he resigned from Gen Re in April 2008.
Transatlantic has been the subject of several bids during the past year, including its June agreement to merge with Zug, Switzerland-based Allied World Assurance Co. However, the deal, which triggered more bids, fell apart in September. Most recently, Transatlantic rejected a revised bid from Pembroke, Bermuda-based Validus Holdings Inc., which had been the most aggressive suitor. Validus declined comment on the Alleghany deal.
Mr. Orlich said 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.
Online Q&A: For more insights from Alleghany's Joseph Brandon and Weston Hicks, read a full Q&A here.
Senior Editor Mark A. Hofmann contributed to this article.
Alleghany Corp. emerged last week as the winner in a monthslong, multisided bidding war for Transatlantic Holdings Inc. Senior Editor Mark A. Hofmann spoke with Alleghany President and CEO Weston M. Hicks and Joseph P. Brandon, who will serve as president of Alleghany Insurance Holdings L.L.C., as well as executive vp of Alleghany and chairman of Transatlantic's board, about the acquisition.