In the summer of 2011 Transatlantic Holdings, Inc., trading at 70 percent of its book value, found itself the target of five companies’ desires. To sort through the offers, the New York–based reinsurance company turned to its longtime counsel, Lois Herzeca at Gibson, Dunn & Crutcher. Over the course of six months, Herzeca helped Transatlantic assess its offers, terminate a friendly deal, combat a hostile one, and ultimately secure a $3.4 billion deal with Alleghany Corporation, all while initiating a novel buyback plan that allowed Transatlantic to return capital to its stockholders.
“Lois did a fantastic job throughout the whole process and made everyone comfortable because she had a deep background and knowledge of Transatlantic. We always had a clear view of what our legal obligations were,” says Gary Schwartz, Transatlantic’s general counsel.
The hunt to find a partner started simply enough: In June 2011 Transatlantic signed a merger agreement with Allied World Assurance Company Holdings, AG. But just a month later, Validus Holdings, Ltd., another reinsurer, sent Transatlantic a competing bid worth $55.95 per share. According to a Validus statement, because Transatlantic’s terms for negotiation included a restrictive “standstill” provision that would have kept Validus from talking directly to Transatlantic shareholders without Transatlantic’s board’s permission, Validus went hostile, a rare move in the highly regulated insurance industry. Validus took its offer directly to Transatlantic’s shareholders and then sought to replace Transatlantic’s board through a consent solicitation, according to Herzeca.
“Validus’s hostile bid came as a surprise. We were all set to merge with Allied, and all of a sudden we needed to comply with these new SEC filings, and board meetings, and we had to think about getting the best deal for our shareholders,” says Herzeca.
As Transatlantic entertained multiple suitors, skepticism about the value of its deal with Allied World took root among some of Transatlantic’s stockholders. In mid-September 2011 Transatlantic terminated the Allied World combination to pursue other offers.
With the Allied World deal off, Transatlantic’s next task was to appease shareholders who had voiced interest in a stock buyback program, a nearly unheard-of step for a business in the midst of a hostile takeover attempt. When a company is combating an unsolicited bid, it’s in possession of its own nonpublic information, such as earnings and strategic plans. Purchasing its own stock could tiptoe close to the line of insider trading. But Herzeca had a plan: Transatlantic would disclose all its material information at once. It would then put the stock buyback in the hands of an independent broker, who would execute the share purchases automatically whenever the market hit a preset price threshold. The plan worked, and between September and November 2011, Transatlantic returned over $260 million to its stockholders.
Simultaneously, Herzeca was helping Transatlantic convince Validus to sign a six-week limited duration standstill and confidentiality agreement, which allowed both parties to conduct due diligence on the other and gave Transatlantic a chance to consider other offers. During those six weeks, Transatlantic entertained bids from an unidentified consortium and Alleghany Corporation, an investment holding company.
After the six-week standstill with Validus, Transatlantic sought to open friendly discussions with Validus while maintaining the option of merging with another company, but Validus rejected that proposal and instead relaunched its effort to remove Transatlantic’s board. Under Transatlantic’s bylaws, Validus had to wait 20 days to mail its consent solicitation to Transatlantic shareholders. Just as that time was set to expire, Herzeca, along with her partner Eduardo Gallardo, discovered that Validus’s proposal might be in violation of Transatlantic’s charter and Delaware law. They filed suit against Validus in Delaware, forcing Validus into a fresh 20-day waiting period.
But a few days later, Transatlantic’s board accepted Alleghany’s common stock or cash offer worth $61.14 per share, which caused Validus to officially drop its five-month hostile takeover bid. In early February, Transatlantic shareholders approved Alleghany’s acquisition, and it closed in early March. For Herzeca and Transatlantic, the vote was a giant pat on the back.
Deal In Brief
Value $3.4 billion
Firm’s Role Target’s Counsel