While the Validus offer generally traded marginally above the indicated value of the Allied World transaction prior to the termination, this small premium does not compensate our stockholders for the strategic and financial shortcomings of its offer. In fact, the Validus offer is inadequate on both a relative and absolute basis, for the following reasons:
- Insufficient valuation – The proposed deal is considerably less than a book value for book value exchange. Validus arbitrarily seeks to charge Transatlantic stockholders for what it perceives to be a $500 million reserve shortfall. This is the primary reason that Transatlantic stockholders would receive only 48% of the future earnings of a combined company versus 52% in a book value for book value transaction taking into account the cash component of Validus' offer. The proposed transaction also results in Transatlantic book value per share dilution of 10%.(4)
- Less-than-optimal domicile – While Validus is domiciled in a favorable tax jurisdiction, Bermuda is without a U.S. tax treaty. The resulting 30% withholding tax rate on dividend distributions from U.S. subsidiaries creates significant frictional costs as compared to the domiciles of other potential partners.
- Undercapitalized EU subsidiary – There is questionable flexibility to fund a subsidiary that could support $1 billion-plus of international premiums.
- Negative impact on ratings – The combined company will likely carry lower ratings than Transatlantic on a standalone basis.
- Uncertain financial flexibility – Property catastrophe concentration adds earnings volatility and capital management risk.
- No U.S. insurance company – The transaction does not advance our objective of broadening distribution to U.S. specialty business not available to reinsurers.
- Cultural incompatibility – Validus has centralized underwriting, a stated distaste for the casualty business, and a short, six-year operating history compared with our 30-plus years.
- Questionable upside for stockholders – There is less than fair ownership in the combined entity for Transatlantic stockholders and a lack of due diligence.