Back in 2009, in a fight for survival, beleaguered global insurance giant American International Group (NYSE:AIG) sold its majority ownership stake in reinsurer Transatlantic Holdings (NYSE:TRH). In February 2010, Transatlantic's management team started considering partnering up with a rival to improve its competitive position. A year later, it started talking with a rival and, despite a couple of competing bids, including one from Warren Buffett's firm, the company has decided to move forth with a merger. Below is an overview of the developments and what it will likely mean for shareholders.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Merger Developments
After nearly five months of negotiations, on June 12 Transatlantic announced a merger agreement with Allied World Assurance (NYSE:AWH). Transatlantic shareholders will receive 0.88 Allied shares for every share they hold. The transaction will leave them with 58% of the combined company, with Allied shareholders owning the remaining 42%. The deal's value was about $51 per share as of early August.

On July 13, Transatlantic received a competing bid from rival Validus Holding (NYSE:VR) with Validus offering 1.5564 Validus shares for every Transatlantic share, as well as $8 in cash. The value, at the time the deal was announced, was about $56 per Transatlantic share. Then, on August 5, National Indemnity, a division of Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), made yet another offer for $52 in cash per share.

Recent Results & Outlook
In the midst of the merger frenzy, Transatlantic reported mixed second quarter results at the end of July. It saw net premiums written rise 5.2% to $996.6 million. Net premiums earned fell nearly 2% to $954.9 million but net investment income rose just over 3% to $119.5 million. Including other investment gains and adjustments, total revenues fell 2.2% to $1.1 billion. A 1% increase in total expenses sent operating income down 27.5% to $94.7 million. Lower income taxes tempered the net income decline slightly to 26.8% as earnings fell to $80.9 million. Share buybacks again lessened the decline a bit, with diluted EPS dropping 25.1% to $1.28. (Find out what these company programs achieve and what it means for stockholders. For more, see A Breakdown Of Stock Buybacks.)

For the full year, analysts project revenue growth of 3.3% and total revenue just north of $4 billion. The earnings consensus currently stands at only 75 cents per share and is associated with a charge in the first quarter. Next year, analysts expect $6.13 EPS.

The Bottom Line
Berkshire's bid expired August 8, and Transatlantic has committed to honoring the original Allied World bid. With recent stock market volatility, the deal's value has fallen to less than $44 per share. This is well below the $52 original Berkshire offer, and the Validus offer would currently be valued at $47 per share. (Get a piece of Warren Buffet's profit by using Form 13F to coattail his picks. For more, see Build A Baby Berkshire.)

Transatlantic posted an investor presentation to its website on September 6 to summarize its take on all of the merger proposals and justify why it decided to go with the Allied World bid. In a nutshell, it felt hooking up with Allied World offered it the best chances to build critical scale in the industry. Its number crunching also suggested the most future upside for shareholders. It puts the combined entity as the third-largest industry player, based on total capital, and sees a similar culture between both firms, which could make the merger run more smoothly.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!