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Alleghany Buys Transatlantic, Ends Bidding War

Stocks in this article: TRH Y VR BRK.B BRK.A

Updated from 7:53 a.m. EST, and with analyst comment.

NEW YORK ( TheStreet) -- Transatlantic Holdings (TRH) on Monday announced an agreement to be acquired by Alleghany (Y - Get Report) for $3.4 billion.

The New York reinsurer's agreement to sell to Alleghany for $59.79 cents a share in cash and stock wards off a rival hostile bid by Validus (VR - Get Report), which on Nov. 8 mailed a letter to Transatlantic's shareholders, increasing its offer to $57.67 a share.

On Nov 10, Transatlantic CEO Robert Orlich said in a letter to shareholders that Validus' offer undervalued the company.

The Insurance Insider reported on Friday that an investor group headed by Stone Point Capital and including J.C. Flowers & Co. had made an all-cash offer for Transatlantic, valued at "more than $60 a share."

The Alleghany deal represents only a 10% premium from Transatlantic's closing price of $54.43, but the target company said that Alleghany's bid was "a 36% premium to Transatlantic's closing stock price on June 10, 2011, the last trading day before public announcement of the since-terminated merger agreement with Allied World Assurance (AWH)."

Transatlantic said it expected the sale to Alleghany to be "tax free to Transatlantic stockholders," who would receive "per-share consideration consisting of 0.145 Alleghany common shares and $14.22 in cash," with an option "to receive cash or stock consideration, subject to proration in the event of oversubscription."

Transatlantic in August received an unsolicited acquisition bid from National Indemnity -- a subsidiary of Warren Buffett's Berkshire Hathaway (BRK.B - Get Report) -- for $52 a share.

Transatlantic said following the completion of the transaction that it would "become an independent stand-alone subsidiary of Alleghany," and expected that it would "maintain its current financial strength ratings of 'A+' from Standard & Poor's and 'A' from A.M. Best."

Following the departure of outgoing Transatlantic CEO Robert Orlich at the end of the year, Transatlantic President Michael Sapnar will take on the additional role of CEO.

Gavin Magor, a senior analyst with Weiss Ratings, said "Transatlantic is lucky to be attracting bids, because of their excessive claims. The price being paid -- of roughly 85% book value -- is fair, but with Alleghany having one of the highest price-to-earnings ratios among insurers, Transatlantic's shareholders might have preferred to see an all-cash deal."

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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