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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-175774
Offer to Exchange
Each Outstanding Share of Common Stock
(together with the associated preferred stock purchase rights)
of
TRANSATLANTIC HOLDINGS, INC.
for
1.5564 Validus Holdings, Ltd. Voting Common Shares
and
$8.00 in Cash
by
VALIDUS HOLDINGS, LTD.
Validus Holdings, Ltd., which we refer to as "Validus" or "we," "us" or "our," is offering, upon the terms and subject to the conditions set
forth in this prospectus/offer to exchange and in the accompanying letter of transmittal, to exchange 1.5564 voting common shares, par value $0.175 per share, of Validus, which we refer to as "Validus
common shares," and $8.00 in cash (less applicable withholding taxes and without interest) for each outstanding share of common stock of Transatlantic Holdings, Inc., which we refer to as
"Transatlantic," par value $1.00 per share (together with the associated preferred stock purchase rights), which we refer to as "shares of Transatlantic common stock," you validly tender
and do not properly withdraw before the expiration time of the exchange offer described below. In addition, you will receive cash in lieu of any fractional Validus common share to which you may be
entitled, as described herein. We refer to this offer as the "exchange offer."
THE
EXCHANGE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON FRIDAY, SEPTEMBER 30, 2011, OR THE "EXPIRATION TIME OF THE EXCHANGE OFFER," UNLESS
EXTENDED. SHARES OF TRANSATLANTIC COMMON STOCK TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION TIME OF THE EXCHANGE OFFER, BUT NOT DURING ANY SUBSEQUENT
OFFERING PERIOD.
Validus
common shares are listed on the New York Stock Exchange under the ticker symbol "VR." Shares of Transatlantic common stock are listed on the New York Stock Exchange under the
ticker symbol "TRH."
FOR A DISCUSSION OF RISKS AND OTHER FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER, PLEASE CAREFULLY READ THE SECTION OF THIS
PROSPECTUS/OFFER TO EXCHANGE TITLED "RISK FACTORS" BEGINNING ON PAGE 36.
Validus'
obligation to accept shares of Transatlantic common stock for exchange and to exchange any shares of Transatlantic common stock for Validus common shares is subject to
conditions, including a condition that Transatlantic stockholders shall have validly tendered and not withdrawn prior to the expiration time of the exchange offer at least that number of shares of
Transatlantic common stock that, when added to the shares of Transatlantic common stock then owned by Validus or any of its subsidiaries, shall constitute a majority of the
then-outstanding number of shares of Transatlantic common stock on a fully-diluted basis, and a condition that the Agreement and Plan of Merger, dated as of June 12, 2011, by and
among Transatlantic, Allied World Assurance Company Holdings, AG, a corporation limited by shares organized under the laws of Switzerland, which we refer to as "Allied World," and GO Sub, LLC,
a Delaware limited liability company and a wholly-owned subsidiary of Allied World, which we refer to as the "Allied World acquisition agreement," has been terminated. We refer to the proposed
acquisition of Transatlantic by Allied World pursuant to the Allied World acquisition agreement as the "proposed Allied World acquisition." The conditions to the exchange offer are described in the
section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer."
On
July 12, 2011, Validus publicly announced that it had delivered a written proposal to the Transatlantic board of directors to combine the businesses of Validus and
Transatlantic through a merger transaction in which Validus would acquire all of the issued and outstanding shares of Transatlantic common stock. The proposal contemplates that Transatlantic
stockholders would receive 1.5564 Validus common shares in the merger and $8.00 per share in cash pursuant to a one-time special dividend from Transatlantic immediately prior to closing of
the merger for each share of Transatlantic common stock they own. We refer to this proposal and the proposed transaction as the "Validus merger offer." In light of the uncertainty of entering into a
consensual transaction with Transatlantic, Validus is making the exchange offer directly to Transatlantic stockholders on the terms and conditions set forth in this prospectus/offer to exchange as an
alternative to the Validus merger offer.
Validus
has not authorized any person to provide any information or to make any representation in connection with the exchange offer other than the information contained or incorporated
by reference in this prospectus/offer to exchange and the accompanying letter of transmittal, and if any person provides any of this information or makes any representation of this kind, that
information or representation must not be relied upon as having been authorized by Validus.
VALIDUS
IS NOT ASKING YOU FOR A PROXY AS PART OF TENDERING INTO THE EXCHANGE OFFER AND YOU ARE REQUESTED NOT TO SEND A PROXY TO VALIDUS. As described in this prospectus/offer to
exchange, Validus is soliciting proxies against the adoption of the Allied World acquisition agreement at the special meeting of Transatlantic stockholders, called for the purpose of considering the
adoption of the Allied World acquisition agreement, which we refer to as the "Transatlantic special stockholder meeting," and intends to solicit proxies through separate proxy solicitation materials
in connection with various other matters that are described in the section of this prospectus/offer to exchange titled "Solicitation of Proxies."
Neither the Securities and Exchange Commission, which we refer to as the "SEC," nor any state securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this prospectus/offer to exchange. Any representation to the contrary is a criminal offense.
The
dealer manager for the exchange offer is:
The
date of this prospectus/offer to exchange is August 19, 2011.
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THIS PROSPECTUS/OFFER TO EXCHANGE INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT VALIDUS AND TRANSATLANTIC FROM DOCUMENTS FILED WITH THE SEC THAT
HAVE NOT BEEN INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS/OFFER TO EXCHANGE.
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THIS INFORMATION IS AVAILABLE AT THE INTERNET WEBSITE THE SEC MAINTAINS AT http://www.sec.gov, AS WELL AS FROM OTHER SOURCES. PLEASE SEE THE SECTION OF
THIS PROSPECTUS/OFFER TO EXCHANGE TITLED "WHERE YOU CAN FIND MORE INFORMATION." YOU ALSO MAY REQUEST COPIES OF THESE DOCUMENTS FROM VALIDUS, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO VALIDUS'
INFORMATION AGENT AT ITS ADDRESS OR TELEPHONE NUMBER SET FORTH BELOW AND ON THE BACK COVER OF THIS PROSPECTUS/OFFER TO EXCHANGE. IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS, YOU MUST MAKE
YOUR REQUEST NO LATER THAN SEPTEMBER 23, 2011, OR FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION TIME OF THE EXCHANGE OFFER, WHICHEVER IS LATER.
As described in the section of this prospectus/offer to exchange titled "Risk Factors" on page 40, Validus has only conducted a review of Transatlantic's publicly
available information and has not had access to Transatlantic's non-public information. As a result, Transatlantic stockholders should be aware that statements in this prospectus/offer to
exchange regarding synergies that could arise as a result of the proposed transaction, Transatlantic's strategic fit with Validus, the structural flexibility of a combined company and similar
statements reflecting the potential results of a combination of Validus and Transatlantic are based exclusively on publicly available information.
On August 12, 2011, Validus filed proxy solicitation materials complying with the requirements of Section 14(a) of the Securities Exchange Act of
1934, as amended, which we refer to as the "Exchange Act." As described in this prospectus/offer to exchange, Validus is soliciting proxies to vote against the adoption of the Allied World acquisition
agreement at a special meeting of Transatlantic stockholders and intends to solicit proxies through separate proxy solicitation materials in connection with various other matters which are described
in the section of this prospectus/offer to exchange titled "Solicitation of Proxies." Each stockholder is urged to read each proxy statement regarding the business to be conducted at the applicable
meeting, if and when it becomes available, because it contains, or will contain, important information. Any such proxy statement has been, or will be, filed with the SEC. When completed, each
definitive proxy statement of Validus and an accompanying proxy card of Validus will be made available to applicable stockholders and such stockholders will be able to obtain a free copy of any proxy
statement, as well as other filings containing information about the
parties (including information regarding the participants in any proxy solicitation (which may include Validus' officers and directors and other persons) and a description of their direct and indirect
interests, by security holdings or otherwise), from the SEC's web site at http://www.sec.gov. Each such proxy statement and these other documents, if and when available, may also be obtained for free
from Validus' web site at http://www.validusholdings.com or upon written or oral request to the information agent at Innisfree M&A Inc., 501 Madison Avenue, 20th Floor, New York, New
York 10022, banks and brokerage firms please call (212) 750-5833, all others call toll-free at (877) 717-3929.
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QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER
Below are some of the questions that you as a holder of shares of Transatlantic common stock may have regarding the exchange offer and
answers to those questions. The answers to these questions do not contain all the information relevant to your decision whether to tender your shares of Transatlantic common stock in the exchange
offer, and Validus urges you to read carefully the remainder of this prospectus/offer to exchange and the letter of transmittal circulated with this prospectus/offer to exchange.
The exchange offer is being made by Validus Holdings, Ltd., a Bermuda exempted company. Validus is a provider of reinsurance and
insurance, conducting its operations worldwide through two wholly-owned subsidiaries, Validus Reinsurance, Ltd., which we refer to as "Validus Re," and Talbot Holdings Ltd., which we
refer to as "Talbot." Validus Re is a Bermuda-based reinsurer focused on short-tail lines of reinsurance. Talbot is the Bermuda parent of the
specialty insurance group primarily operating within the Lloyd's insurance market through Syndicate 1183.
What classes and amounts of Transatlantic securities is Validus seeking for exchange in the exchange offer?
Validus
seeks to acquire all of the issued and outstanding shares of Transatlantic common stock.
Validus is offering, upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the
accompanying letter of transmittal, to exchange 1.5564 Validus common shares and $8.00 in cash (less applicable withholding taxes and without interest) for each outstanding share of Transatlantic
common stock you validly tender and do not properly withdraw before the expiration time of the exchange offer. Because no fractional Validus common shares will be issued in the exchange offer, to the
extent that you would be entitled to receive fractional Validus common shares in the exchange offer, you will receive cash in lieu of the fractional share interest to which you would otherwise be
entitled.
Please
also see the section of this prospectus/offer to exchange titled "Risk Factors" for a discussion, among other things, of the effect of fluctuations in the market price of Validus
common shares.
On July 12, 2011, Validus publicly announced that it had delivered the Validus merger offer to the Transatlantic board of
directors, pursuant to which the businesses of Validus and Transatlantic would be combined through a merger transaction in which Validus would acquire all of the issued and outstanding shares of
Transatlantic common stock. In the Validus merger offer, Transatlantic stockholders would receive 1.5564 Validus voting common shares and $8.00 per share in cash pursuant to a one-time
special dividend from Transatlantic immediately prior to closing of the merger for each share of Transatlantic common stock they own.
When
it made the Validus merger offer to Transatlantic, Validus stated that it is prepared to enter into a merger agreement with Transatlantic that includes substantially similar
non-price terms
and conditions to the Allied World acquisition agreement and delivered to the Transatlantic board of directors a merger agreement reflecting such terms and conditions. Although the stock and cash
consideration received in the exchange offer will be taxable to Transatlantic stockholders, Validus remains willing to discuss the Validus merger offer, which is structured to provide Transatlantic
stockholders tax-free treatment on their receipt of Validus common shares, with the Transatlantic board of directors.
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No, we have not. Transatlantic announced on July 19, 2011 that its board of directors had determined that the Validus merger
offer is reasonably likely to lead to a "superior proposal" and that the failure to enter into discussions regarding the Validus merger offer would result in a breach of the Transatlantic board of
directors' fiduciary duties under applicable law. On July 23, 2011, Transatlantic delivered a form of confidentiality agreement for Validus' execution as a precondition to the commencement of
discussions and exchange of confidential information. However, the form of confidentiality agreement included standstill provisions that would have prevented Validus from making the exchange offer
directly to Transatlantic stockholders. Transatlantic would not agree to the removal of such restrictive provisions. Later that evening, Validus delivered a form of confidentiality agreement to
Transatlantic that it would be prepared to execute, but has not received any response from Transatlantic as of the date of this prospectus/offer to exchange. While Validus continues to hope that it is
possible to reach a consensual transaction with Transatlantic, Validus does not believe that it is in Transatlantic stockholders' best interests to give the Transatlantic board of directors unilateral
control over whether the exchange offer is made available to Transatlantic stockholders.
Validus
commenced the exchange offer on July 25, 2011. On July 28, 2011, Transatlantic filed a Solicitation/Recommendation Statement on Schedule 14D-9
reporting that the Transatlantic board of directors had met on July 26, 2011 and reaffirmed its support of the proposed Allied World acquisition, and determined to recommend that Transatlantic
stockholders reject the exchange offer and not tender their shares of Transatlantic common stock pursuant to the exchange offer.
The exchange offer is intended to allow Validus to acquire all of the issued and outstanding shares of Transatlantic common stock. We
intend to, promptly after completion of the exchange offer, consummate a second-step merger of Transatlantic with a wholly-owned subsidiary of Validus, which we refer to as the
"second-step merger," pursuant to the General Corporation Law of the State of Delaware, as amended, which we refer to as the "DGCL." The purpose of the second-step merger is
for Validus to acquire all outstanding shares of Transatlantic common stock that are not acquired in the exchange offer. In this second-step merger, each remaining share of Transatlantic
common stock (other than shares held in treasury by Transatlantic and other than shares held by Transatlantic stockholders who properly exercise applicable dissenters' rights under Delaware law) will
be cancelled and converted into the right to receive the same number of Validus common shares and the same amount of cash (without interest) as are received by Transatlantic stockholders pursuant to
the exchange offer. After this second-step merger, Validus will own all of the issued and outstanding shares of Transatlantic common stock. Please see the sections of this prospectus/offer
to exchange titled "The Exchange Offer—Purpose and Structure of the Exchange Offer"; "The Exchange Offer—Second-Step Merger"; and "The Exchange
Offer—Plans for Transatlantic."
Validus is seeking to acquire Transatlantic. The Validus common shares to be issued and cash to be paid to Transatlantic stockholders
in exchange for shares of Transatlantic common stock in the exchange offer will provide Transatlantic stockholders with a compelling opportunity to participate in the growth and opportunities of the
combined company. Validus believes that the acquisition of Transatlantic represents a compelling combination and excellent strategic fit that will create a unique, global leader in reinsurance that
will:
- •
- deploy capital effectively to maximize underwriting profitability and achieve superior growth in book value per share,
- •
- continue to aggressively manage capital, consistent with Validus' past practice, and
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- •
- be a recognized leader in multiple classes, emphasizing short-tail lines while being
well-positioned for cycle management.
Validus believes that the combination of Validus and Transatlantic offers a number of benefits to holders of shares of Transatlantic
common stock, including the following:
The exchange offer provides a premium to Transatlantic stockholders compared to the proposed Allied World acquisition.
- •
- Based upon closing prices as of August 19, 2011, the last practicable date prior to the filing of this
prospectus/offer to exchange, the exchange offer had a value of $47.80 per share of Transatlantic common stock, which represented 6.6% premium to the consideration to be received by Transatlantic
stockholders in the proposed Allied World acquisition.
- •
- Information with respect to the range of closing prices for shares of Transatlantic common stock for certain dates and
periods is set forth in the section of this prospectus/offer to exchange titled "Comparative Market Price and Dividend Information." Validus urges Transatlantic stockholders to obtain a current market
quotation for shares of Transatlantic common stock and Validus common shares. Please also see the section of this prospectus/offer to exchange titled "Risk Factors" for a discussion, among other
things, of the effect of fluctuations in the market price of Validus common shares.
The Validus common shares to be issued to Transatlantic stockholders in exchange for shares of Transatlantic common stock pursuant to the exchange offer represent what we
believe is a superior currency to Allied World's common shares.
- •
- Superior Currency
- •
- Validus common shares have superior performance and liquidity characteristics to Allied World's common shares:
|
|
|
|
|
|
|
|
|
|
Validus |
|
Allied World |
|
Total Shareholder Return Since Validus IPO(a) |
|
|
+55% |
|
|
+24% |
|
Market Cap as of 6/10/11(b) |
|
$ |
3.0 billion |
|
$ |
2.2 billion |
|
Average Daily Trading Volume (3 month)(c) |
|
$ |
27.6 million |
|
$ |
14.6 million |
|
Average Daily Trading Volume (6 month)(d) |
|
$ |
22.4 million |
|
$ |
13.4 million |
|
Price / As-Reported Diluted Book (Unaffected)(e) |
|
|
0.97x |
|
|
0.78x |
|
Price / As-Reported Diluted Book (as of 7/12/11)(e) |
|
|
0.98x |
|
|
0.76x |
|
Dividend Yield as of 6/10/11 (Unaffected) |
|
|
3.3% |
(f) |
|
2.6% |
(g) |
- (a)
- Including
dividends. Based on the closing prices on June 10, 2011 and July 24, 2007. Source: SNL.
- (b)
- "Market
Cap as of 6/10/11" reflects Validus' and Allied World's unaffected market capitalization based on market prices of Validus and Allied
World prior to the announcement of the proposed Allied World acquisition on June 12, 2011. As of August 19, 2011, Validus' market capitalization was $2.5 billion and Allied
World's market capitalization was $1.9 billion.
- (c)
- Three
months prior to June 12, 2011, date of announcement of proposed Allied World acquisition of Transatlantic. Source: Bloomberg.
- (d)
- Six
months prior to June 12, 2011, date of announcement of proposed Allied World acquisition of Transatlantic. Source: Bloomberg.
- (e)
- Based
on March 31, 2011 GAAP diluted book value per share. Unaffected price / as-reported diluted book value measured
prior to June 12, 2011 announcement of proposed Allied World acquisition of Transatlantic. Current is as of closing prices of Validus and Allied World stock on July 12, 2011.
- (f)
- Based
on $0.25 per share quarterly dividend, as announced May 5, 2011.
- (g)
- Based
on $0.375 per share quarterly dividend, as disclosed in Allied World Form 8-K dated June 15, 2011.
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- •
- Moreover, Validus has maintained a premium valuation on a diluted book value per share multiple basis relative to its
peers over the past two years, including Allied World.(1) Our commitment to transparency and shareholder value creation has allowed Validus to build a long-term institutional
shareholder base.
- (1)
- Comparison
of Validus and selected peer median quarterly Price / Diluted Book Value Per Share based on share price on day immediately
following release of relevant quarter's earnings. Selected peer group consists of Allied World, Transatlantic, XL Group plc, Everest Re Group, Ltd., Arch Capital Group Ltd., Axis
Capital Holdings Limited, Alterra Capital Holdings Ltd., Aspen Insurance Holdings Limited, Endurance Specialty Holdings Ltd., Argo Group International Holdings, Ltd.,
PartnerRe Ltd., RenaissanceRe Holdings Ltd., Platinum Underwriters Holdings, Ltd., Montpelier Re Holdings Ltd., Greenlight Capital Re, Ltd. and Flagstone Reinsurance
Holdings SA. Source: FactSet, company filings, SNL.
We believe that a combined Validus and Transatlantic would be a superior company to Allied World following its acquisition of
Transatlantic.
- •
- Strategic Fit
- •
- The combination of Validus' strong positions in Bermuda and London and Transatlantic's operations in the United States,
continental Europe and Asia would produce a complementary business fit and a well-diversified company that will be a global leader in reinsurance. Validus intends that, following the
acquisition of Transatlantic, Validus' and Transatlantic's respective brands will continue to be utilized in their respective markets in order to preserve each company's brand
equity.(2)
- (2)
- Allied
World has also stated an intent to preserve the Transatlantic brand.
- •
- This combination will solidify Validus' leadership in property catastrophe, with pro forma managed catastrophe premiums of
over $1 billion,(3) while remaining within Validus' historical risk appetite. Validus has significant experience assimilating catastrophe portfolios, most recently its acquisition
of IPC Holdings, Ltd., which we refer to as "IPC," in 2009.
- (3)
- Based
on property catastrophe gross premiums written for Validus and net premiums written for Transatlantic in 2010. Pro forma for Validus
($572 million), Transatlantic ($431 million) and AlphaCat Re 2011 ($43 million).
- •
- Size and Market Position
- •
- This combination will create a geographically diversified company with a top six reinsurance industry position on a pro
forma basis,(4) and will make the combined company meaningfully larger than many of the companies considered to be in the mutual peer group of Validus and Transatlantic. The combined
company would have gross premiums written over the last twelve months of approximately $6.3 billion as of June 30, 2011, which is comparable in amount to the pro forma combination of
Transatlantic and Allied World.
- (4)
- Ranked
by 2009 net premiums written and excluding the Lloyd's market per Standard & Poor's Global Reinsurance Highlights 2010.
- •
- As the level of capital required to support risk will continue to rise globally, we believe that size will become an even
more important competitive advantage in the reinsurance market. The recent renewals at June 1 and July 1, 2011 reinforced this belief as Validus was able to significantly outperform
market rate levels—which Validus believes was a result of our size, superior analytics and Validus' ability to structure private transactions at better than market terms, while not
increasing Validus' overall risk levels.
- •
- Significant Structural Flexibility
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- •
- Given jurisdiction, size and market position benefits, we believe a combined Validus and Transatlantic would have
significant structural flexibility, including its ability to optimally deploy capital globally in different jurisdictions, e.g., through targeted growth initiatives and/or capital management.
- •
- Global, Committed Leader in Reinsurance
- •
- Validus believes that its business plan for the combined company will drive earnings by capturing the best priced segments
of the reinsurance market. A combined Validus / Transatlantic would derive a majority of its premiums from short-tail lines and 17% of premiums written from property catastrophe (compared
to 10% for Allied World / Transatlantic).(5) Validus believes this business mix allows for optimal cycle management as the attractive pricing in short tail reinsurance will allow the
combined company to better position itself for the eventual upturn in long tail lines. Validus also intends to fortify Transatlantic's reserve position through a planned $500 million
pre-tax reserve strengthening.
- (5)
- Based
on gross premiums written for Validus and net premiums written for Transatlantic in 2010.
Following a combination of Validus and Transatlantic, we believe the combined company would have significant capital availability that could be actively managed to the
benefit of the combined company's shareholders.
Active capital management is a core element of Validus' strategy which Validus believes has contributed to its premium
valuation.(6) From the inception of its repurchase program on November 11, 2009 through May 6, 2011, Validus repurchased 35 million Validus common shares for
approximately $947.2 million (approximately 26.7% of all Validus common shares outstanding since the inception of the repurchase program).
- (6)
- Comparison
of Validus and selected peer median quarterly Price / Diluted Book Value Per Share based on share price on day immediately
following release of relevant quarter's earnings. Selected peer group consists of Allied World, Transatlantic, XL Group plc, Everest Re Group, Ltd., Arch Capital Group Ltd., Axis
Capital Holdings Limited, Alterra Capital Holdings Ltd., Aspen Insurance Holdings Limited, Endurance Specialty Holdings Ltd., Argo Group International Holdings, Ltd.,
PartnerRe Ltd., RenaissanceRe Holdings Ltd., Platinum Underwriters Holdings, Ltd., Montpelier Re Holdings Ltd., Greenlight Capital Re, Ltd. and Flagstone Reinsurance
Holdings SA. Source: FactSet, company filings, SNL.
The
combination of Validus and Transatlantic would create a company with an estimated $1.1 billion of pre-synergy, pre-catastrophe
earnings,(7) which could be available for expanded share repurchase activity.(8) Validus intends to manage its capital following the acquisition of Transatlantic in a
manner consistent with its past practices in order to benefit the combined company's shareholders.
- (7)
- Based
upon combined last twelve months pre-catastrophe accident year earnings as of June 30, 2011.
- (8)
- The
timing, form and amount of the share repurchases under any program would depend on a variety of factors, including market conditions,
Validus' capital position relative to internal and rating agency targets, legal and regulatory requirements, contractual compliance and other factors. The repurchase program may be modified, extended
or terminated by Validus' board of directors at any time.
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We believe that the combination of Validus and Transatlantic would yield significant synergies.
In addition to the aggregate earnings power of the combined company, Validus believes there will be significant opportunities to expand
the combined company's earnings and return on equity through combination synergies. Once Validus and Transatlantic have combined, Validus believes potential synergies will arise from (1) the
elimination of Transatlantic's public company costs, (2) the restructuring of the combined company's legal organization, including restructuring Transatlantic's non-U.S.
subsidiaries, (3) the optimization of the combined company's catastrophe portfolio and harmonization of Validus' and Transatlantic's respective risk appetites, and (4) the maximization
of after-tax returns on the combined company's investment portfolio. Please see the section of this prospectus/offer to exchange titled "Risk Factors—Risk Factors Relating to
the Exchange Offer and the Second-Step Merger."
Validus offers Transatlantic a highly experienced, first class management team.
As reflected in Schedule I to this prospectus/offer to exchange, Validus offers Transatlantic a highly experienced, first-class
management team. Validus' management team has demonstrated the ability to execute growth strategies successfully, carefully manage risk and deliver enhanced shareholder value. Under the stewardship of
its current management, Validus has completed the acquisitions of Talbot and IPC and established a meaningful presence in the property casualty, specialty, energy and aviation markets. The excellent
performance of the leadership of the Validus management team is evidenced by the fact that Validus common shares traded at 0.98x and 1.02x, respectively, to Validus' as-reported diluted
book value and diluted tangible book value based on the closing price of Validus common shares on July 12, 2011, the last trading day prior to the announcement of the Validus merger offer.
Validus will also seek to retain the Transatlantic management team for the benefit of the combined company.
We believe that we would be able to complete the exchange offer in the fourth quarter of 2011, which is consistent with the publicly
announced timing of the proposed Allied World acquisition (subject to the satisfaction or waiver of the conditions to the exchange offer).
The exchange offer is conditioned upon, among other things, the following:
- •
- Transatlantic stockholders shall have validly tendered and not withdrawn prior to the expiration time of the exchange
offer at least that number of shares of Transatlantic common stock that, when added to the shares of Transatlantic common stock then owned by Validus or any of its subsidiaries, shall constitute a
majority of the then-outstanding number of shares of Transatlantic common stock on a fully-diluted basis. We refer to this condition as the "minimum tender condition."
- •
- The Allied World acquisition agreement shall have been validly terminated, and Validus shall reasonably believe that
Transatlantic has no liability, and Allied World shall not have asserted any claim of liability or breach against Transatlantic in connection with the Allied World acquisition agreement, other than
with respect to the possible payment of a maximum of $115 million in the aggregate in termination fees and reimbursement of permitted Allied World expenses thereunder, which we refer to in the
aggregate as the "Allied World termination fee."
- •
- The registration statement of which this prospectus/offer to exchange is a part shall have become effective under the
Securities Act of 1933, as amended, which we refer to as the "Securities Act," no stop order suspending the effectiveness of the registration statement shall have been
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- •
- Any clearance, approval, permit, authorization, waiver, determination, favorable review or consent of any governmental
authority, other than in connection with the matters set forth in the two foregoing bullet points, shall have been obtained and such approvals shall be in full force and effect, or any applicable
waiting periods for such clearances or approvals shall have expired.
The
exchange offer is subject to additional conditions referred to in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange
Offer," including that Transatlantic stockholders shall not have adopted the Allied World acquisition agreement and that there shall have been no business combination consummated between Transatlantic
and Allied World.
On
August 17, 2011 at 11:59 p.m. Eastern time, the applicable waiting period under the HSR Act for the acquisition by Validus of shares of Transatlantic common stock
pursuant to the exchange offer expired and the related condition to the exchange offer was satisfied.
Validus
has obtained amendments to its applicable credit facilities, satisfying the condition relating to its and its subsidiaries' credit facilities described above. Please see the
section of this prospectus/offer to exchange titled "The Exchange Offer—Source and Amount of Funds."
Validus has filed a preliminary proxy statement in connection with the solicitation of proxies from Transatlantic stockholders to vote
against the adoption of the Allied World acquisition agreement and vote against other proposals brought before the Transatlantic special stockholder meeting.
On July 12, 2011, Validus publicly announced that it had delivered a written proposal to the Transatlantic board of directors to
combine the businesses of Validus and Transatlantic through a merger transaction in which Validus would acquire all of the issued and outstanding shares of Transatlantic common stock. The exchange
offer is intended to allow Validus to acquire all of the issued and outstanding shares of Transatlantic common stock. The Validus merger offer and the exchange offer are alternative methods for
Validus to acquire all of the issued and outstanding shares of Transatlantic common stock. Ultimately, only one of these transactions can be pursued to completion. Validus intends to seek to combine
with Transatlantic by whichever method Validus determines is most likely to be completed.
Validus
has filed a preliminary proxy statement in connection with the solicitation against the adoption of the Allied World acquisition agreement and vote against other proposals
brought before any Transatlantic special stockholder meeting as discussed in more detail in such preliminary proxy statement. If the Allied World acquisition agreement is not adopted by Transatlantic
stockholders after a vote thereon, the Transatlantic board of directors will be able to terminate the Allied World acquisition agreement and enter into a merger agreement with Validus. If the
Transatlantic board of directors were to enter into a merger agreement with Validus promptly following the termination of the Allied World acquisition agreement, Validus believes the merger
contemplated by the Validus merger offer could be completed in the fourth quarter of 2011.
Validus
commenced the exchange offer on July 25, 2011. In light of the uncertainty of entering into a consensual transaction with Transatlantic, Validus is making the exchange
offer directly to Transatlantic stockholders on the terms and conditions set forth in this prospectus/offer to exchange as an alternative to the Validus merger offer. In the event that Validus accepts
shares of Transatlantic common stock for exchange in the exchange offer, Validus intends to acquire any additional outstanding shares of Transatlantic common stock pursuant to the
second-step merger. If Validus accepts shares of Transatlantic common stock for exchange and owns 90% or more of the outstanding shares of Transatlantic common stock after the exchange
offer is completed, the second-step merger can be effected as a "short form" merger under Delaware law without the consent of any stockholder
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(other
than Validus) and without the approval of the Transatlantic board of directors. However, if Validus does not acquire at least 90% of the outstanding shares of Transatlantic common stock in the
exchange offer or otherwise, then both Transatlantic board approval and Transatlantic stockholder approval will be required to effect the second-step merger. In connection with
consummation of the exchange offer or the second-step merger, and subject to applicable law, Validus currently expects to replace Transatlantic's existing board of directors.
Do I need to grant proxies to Validus in connection with the proxy solicitation described above if I wish to accept the exchange offer? Do I have to vote against
the proposed Allied World acquisition?
No.
Your ability to tender your shares of Transatlantic common stock in the exchange offer is not conditioned on your granting proxies to Validus in connection with any of the proxy
solicitations described above. However, a tendering stockholder will irrevocably appoint designees of Validus as such stockholder's agents, attorneys-in-fact and proxies,
effective as of the time and only to the extent that Validus accepts such tendered shares of Transatlantic common stock for exchange. Until such time as Validus accepts tendered shares of
Transatlantic common stock for exchange from a Transatlantic stockholder, each such stockholder will be able to vote in connection with any proxy solicitation.
You
may validly tender your shares of Transatlantic common stock in the exchange offer, regardless of whether or how you vote on the proposed Allied World acquisition. However, at least
a majority of Transatlantic stockholders must either vote against the proposed Allied World acquisition or abstain from voting at the Transatlantic special stockholder meeting in order to ensure that
the Allied World acquisition agreement will not be adopted. If the Allied World acquisition agreement is not adopted by Transatlantic stockholders after a vote thereon, this will permit the
Transatlantic board of directors to terminate the Allied World acquisition agreement, which is one of the conditions to the exchange offer. We do not intend to waive this condition.
Your vote is not required in connection with the exchange offer. You simply need to tender your shares of Transatlantic common stock if
you choose to do so. However, Validus intends to complete the exchange offer only if a sufficient number of shares of Transatlantic common stock are tendered in the exchange offer such that the
minimum tender condition is satisfied.
In
the event that Validus accepts shares of Transatlantic common stock for exchange in the exchange offer, Validus intends to acquire any additional outstanding shares of Transatlantic
common stock pursuant to the second-step merger. If Validus accepts shares of Transatlantic common stock for exchange and owns 90% or more of the outstanding shares of Transatlantic common
stock after the exchange offer is completed, the second-step merger can be effected as a "short-form merger" under Delaware law without the consent of any stockholder (other
than Validus) and without the approval of the Transatlantic board of directors. However, if Validus does not acquire at least 90% of the outstanding shares of Transatlantic common stock in the
exchange offer or otherwise, then both Transatlantic board approval and Transatlantic stockholder approval will be required to effect the second-step merger.
If
Validus owned more than a majority but less than 90% of outstanding shares of Transatlantic common stock following the consummation of the exchange offer, it would have the voting
power to approve the second-step merger, either through a written consent or at a stockholder meeting called for such purposes, without the vote of any other Transatlantic stockholder. In
such a case, if Validus determines to seek approval of the second-step merger pursuant to a special meeting of stockholders, proxy solicitation materials will be delivered to Transatlantic
stockholders at the appropriate time. We are not asking for your vote at this time.
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What will the composition of the Transatlantic board of directors and Validus board of directors be following the exchange offer and the second-step
merger?
In
connection with consummation of the exchange offer or the second-step merger, subject to applicable law, Validus currently expects to replace Transatlantic's existing board of
directors. Upon consummation of the exchange offer, Validus' board of directors would be composed of the same directors as those serving on the board of directors of Validus before the completion of
the exchange offer.
Will I be taxed on the Validus common shares I receive in the exchange offer and the second-step merger?
The
exchange offer and second-step merger will be a taxable transaction for U.S. federal income tax purposes. U.S. holders of shares of Transatlantic common stock generally
will recognize gain or loss equal to the difference, if any, between (1) the sum of the cash and fair market value of the Validus common shares received by such U.S. holder in the exchange
offer and second-step merger (including cash received in lieu of fractional shares) and (2) such U.S. holder's adjusted tax basis in the shares of Transatlantic common stock
surrendered in exchange therefor. Any gain or loss recognized upon the exchange offer or second-step merger generally will be treated as capital gain or loss. For more information, please
see the section of this prospectus/offer to exchange titled "The Exchange Offer—Certain Material U.S. Federal Income Tax Consequences."
Tax matters are complicated and the tax consequences of the exchange offer and the second-step merger to you will depend upon the facts of your
particular circumstances. Because individual circumstances may differ, Validus urges you to consult with your own tax advisor as to the specific tax consequences of the exchange offer and
second-step merger to you, including the applicability of U.S. federal, state, local, non-U.S. and other tax laws.
If you are the record owner of your shares of Transatlantic common stock and you tender your shares of Transatlantic common stock in
the exchange offer, you will not have to pay any brokerage fees, commissions or similar expenses. If you own your shares of Transatlantic common stock through a broker, dealer, commercial bank, trust
company or other nominee and your broker, dealer, commercial bank, trust company or other nominee tenders your shares of Transatlantic common stock on your behalf, your broker, dealer, commercial
bank, trust company or other nominee may charge a fee for doing so. You should consult your broker, dealer, commercial bank, trust company or other nominee to determine whether any charges will apply.
Is Validus' financial condition relevant to my decision to tender shares of Transatlantic common stock in the exchange offer?
Yes.
Validus' financial condition is relevant to your decision to tender your shares of Transatlantic common stock because the consideration you will receive if your shares of
Transatlantic common stock are exchanged in the exchange offer will consist of a combination of Validus common shares and cash. You should therefore consider Validus' financial condition before you
decide to become one of Validus' shareholders through the exchange offer. You should also consider the likely effect that Validus' acquisition of Transatlantic will have on Validus' financial
condition. This prospectus/offer to exchange contains financial information regarding Validus and Transatlantic, as well as pro forma financial information (which does not reflect any of our expected
synergies) for the acquisition of all of the issued and outstanding shares of Transatlantic common stock by Validus, all of which we encourage you to review.
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Does Validus have the financial resources to complete the exchange offer and the second-step merger?
The
exchange offer consideration will consist of Validus common shares and cash (including, cash paid in lieu of any fractional Validus common shares to which any Transatlantic
stockholder may be entitled). The exchange offer is not subject to a financing condition.
Validus
has received commitment letters from J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. to provide, subject to certain conditions, $200 million for the
purpose of financing a portion of the cash component of the consideration to be paid for each share of Transatlantic common stock, as well as for other payments made in connection with the exchange
offer. Validus plans to fund the remaining cash component of the consideration and payments through the drawdown of existing credit facilities. Validus has obtained amendments to its applicable credit
facilities, satisfying a condition to the exchange offer. Please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Source and Amount of Funds." Please see the
section of this prospectus/offer to exchange titled "The Exchange Offer—Source and Amount of Funds."
The
estimated amount of cash required is based on Validus' due diligence review of Transatlantic's publicly available information to date and is subject to change. For a further
discussion of the risks relating to Validus' limited due diligence review, please see the section of this prospectus/offer to exchange titled "Risk Factors—Risk Factors Relating to the
Exchange Offer and the Second-Step Merger."
What percentage of Validus common shares will former holders of shares of Transatlantic common stock own after the exchange offer?
Based
on Validus' and Transatlantic's respective capitalizations as of June 30, 2011, the exchange ratio of 1.5564, and assuming dissenters' rights are not properly exercised
under Delaware law in connection with the second-step merger, Validus estimates that if all shares of Transatlantic common stock are exchanged pursuant to the exchange offer and/or the
second-step merger, former Transatlantic stockholders would own, in the aggregate, approximately 48% of the aggregate Validus common shares and non-voting common shares, par
value $0.175 per share of Validus, which we refer to as "Validus non-voting common shares," on a fully-diluted basis. For a detailed discussion of the assumptions on which this estimate is
based, please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Ownership of Validus After the Exchange Offer."
The exchange offer is scheduled to expire at 5:00 p.m., Eastern time, on Friday, September 30, 2011, which is the
expiration time of the exchange offer, unless further extended by Validus. When we make reference to the "expiration time of the exchange offer" anywhere in this prospectus/offer to exchange, this is
the time to which we are referring, including when applicable, any extension period that may apply. For more information, please see the section of this prospectus/offer to exchange titled "The
Exchange Offer—Extension, Termination and Amendment."
Can the exchange offer be extended and, if so, under what circumstances?
Validus may, in its sole discretion, extend the exchange offer at any time or from time to time until 9:00 a.m., Eastern time,
on the first business day after the previously scheduled expiration time of the exchange offer. For instance, the exchange offer may be extended if any of the conditions specified in "The Exchange
Offer—Conditions of the Exchange Offer" are not satisfied prior to the scheduled expiration time of the exchange offer. The expiration time of the exchange offer may also be subject to
multiple extensions and any decision to extend the exchange offer, and if so, for how long, will be made by Validus. Any decision by Validus to extend the exchange offer will
be made public by an announcement regarding such extension as described in the section of this prospectus/offer to exchange titled "The Exchange Offer—Extension, Termination and
Amendment."
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Validus
may also elect to provide a "subsequent offering period" for the exchange offer. A subsequent offering period would not be an extension of the exchange offer. Rather, a
subsequent offering period would be an additional period of time, beginning after Validus has accepted for exchange all shares of Transatlantic common stock tendered during the exchange offer, during
which Transatlantic stockholders who did not tender their shares of Transatlantic common stock in the exchange offer may tender their shares of Transatlantic common stock and receive the same
consideration provided in the exchange offer. Validus does not currently intend to include a subsequent offering period, although it reserves the right to do so.
To tender your shares of Transatlantic common stock represented by physical certificates into the exchange offer, you must deliver the
certificates representing your shares of Transatlantic common stock, together with a completed letter of transmittal and any other documents required by the letter of transmittal, to BNY Mellon
Shareowner Services, the exchange agent for the exchange offer, not later than the expiration time of the exchange offer. The letter of transmittal is enclosed with this prospectus/offer to exchange.
If
your shares of Transatlantic common stock are held in "street name" (i.e., through a broker, dealer, commercial bank, trust company or other nominee), your shares of
Transatlantic common stock can be
tendered by your nominee by book-entry transfer through The Depository Trust Company.
If
you are unable to deliver any required document or instrument to the exchange agent by the expiration time of the exchange offer, you may have a limited amount of additional time by
having a broker, a bank or other fiduciary that is an eligible guarantor institution guarantee that the missing items will be received by the exchange agent by using the enclosed notice of guaranteed
delivery circulated with this prospectus/offer to exchange, which we refer to as the "notice of guaranteed delivery." For the tender to be valid, however, the exchange agent must receive the missing
items within three NYSE trading days after the date of execution of such notice of guaranteed delivery. In all cases, an exchange of tendered shares of Transatlantic common stock will be made only
after timely receipt by the exchange agent of certificates for such shares of Transatlantic common stock (or of a confirmation of a book-entry transfer of such shares) and a properly
completed and duly executed letter of transmittal and any other required documents.
For
a complete discussion on the procedures for tendering your shares of Transatlantic common stock, please see the section of this prospectus/offer to exchange titled "The Exchange
Offer—Procedure for Tendering."
You may withdraw previously tendered shares of Transatlantic common stock any time prior to the expiration time of the exchange offer,
and, if Validus has not accepted your shares of Transatlantic common stock for exchange by the expiration time of the exchange offer, at any time following 60 days from commencement of the
exchange offer. Shares of Transatlantic common stock tendered during the subsequent offering period, if one is provided, may not be withdrawn. For a complete discussion on the procedures for
withdrawing your shares of Transatlantic common stock, please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Withdrawal Rights."
To withdraw previously tendered shares of Transatlantic common stock, you must deliver a written or facsimile notice of withdrawal with
the required information to the exchange agent while you still have the right to withdraw. If you tendered shares of Transatlantic common stock by giving instructions to a broker, dealer, commercial
bank, trust company or other nominee, you must instruct the broker, dealer, commercial bank, trust company or other nominee to arrange for the withdrawal of your shares
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of
Transatlantic common stock. For a complete discussion on the procedures for withdrawing your shares of Transatlantic common stock, please see the section of this prospectus/offer to exchange titled
"The Exchange Offer—Withdrawal Rights."
When and how will I receive the exchange offer consideration in exchange for my tendered shares of Transatlantic common stock?
Validus
will exchange all validly tendered and not properly withdrawn shares of Transatlantic common stock promptly after the expiration time of the exchange offer, subject to the terms
thereof and the satisfaction or waiver of the conditions to the exchange offer, as set forth in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of
the Exchange Offer." Validus will deliver the consideration for your validly tendered and not properly withdrawn shares of Transatlantic common stock by depositing the consideration therefor with the
exchange agent, which will act as your agent for the purpose of receiving the exchange offer consideration from Validus and transmitting such consideration to you. In all cases, an exchange of
tendered shares of Transatlantic common stock will be made only after timely receipt by the exchange agent of certificates for such shares of Transatlantic common stock (or of a confirmation of a
book-entry transfer of such shares of Transatlantic common stock as set forth in the section of this prospectus/offer to exchange titled "The Exchange Offer—Procedure for
Tendering") and a properly completed and duly executed letter of transmittal (or Agent's Message (as defined below)) and any other required documents.
If the second-step merger occurs, Transatlantic will become a wholly-owned subsidiary of Validus and will no longer be
publicly owned. Even if the second-step merger does not occur, if Validus exchanges all shares of Transatlantic
common stock which have been tendered, there may be so few remaining stockholders and publicly-held shares that shares of Transatlantic common stock will no longer be eligible to be traded
on the NYSE or any other securities market, there may not be a public trading market for such shares, and Transatlantic may cease making filings with the SEC or otherwise cease being required to
comply with applicable law and SEC rules relating to publicly-held companies. Please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Plans for
Transatlantic" and "The Exchange Offer—Effect of the Exchange Offer on the Market for Shares of Transatlantic Common Stock; New York Stock Exchange Listing; Registration Under the Exchange
Act; Margin Regulations."
Are dissenters' or appraisal rights available in either the exchange offer and/or the second-step merger?
No
dissenters' or appraisal rights are available in connection with the exchange offer. However, upon consummation of the second-step merger, Transatlantic stockholders who
have not tendered their shares of Transatlantic common stock in the exchange offer and who, if a stockholder vote is required, vote against approval of the second-step merger will have
rights under Delaware law to dissent from the second-step merger and demand appraisal of their shares of Transatlantic common stock. Stockholders at the time of a "short form" merger under
Delaware law would also be entitled to exercise dissenters' rights pursuant to such a "short form" merger. Stockholders who perfect dissenters' rights by complying with the procedures set forth in
Section 262 of the DGCL will be entitled to receive a cash payment equal to the "fair value" of their shares of Transatlantic common stock, as determined by a Delaware court. Please see the
section of this prospectus/offer to exchange titled "The Exchange Offer—Appraisal/Dissenters' Rights."
On July 12, 2011, the last trading day before Validus made the Validus merger offer, the closing price of a share of
Transatlantic common stock was $49.02. On August 19, 2011, the last practicable date prior to the filing of this prospectus/offer to exchange, the closing price of a share of Transatlantic
common stock was $50.00. Transatlantic stockholders are encouraged to obtain a recent quotation for shares of Transatlantic common stock before deciding whether or not to tender such shares.
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You can find more information about Validus and Transatlantic from various sources described in the section of this prospectus/offer to
exchange titled "Where You Can Find More Information."
You can call the information agent or the dealer manager for the exchange offer.
The
information agent for the exchange offer is:
501
Madison Avenue, 20th Floor
New York, New York 10022
Banks
and Brokerage Firms, Please Call: (212) 750-5833
All
Others Call Toll-Free: at (877) 717-3929
The dealer manager for the exchange offer is:
Greenhill & Co., LLC
300 Park Avenue
New York, New York 10022
Call Toll-Free: (888) 504-7336
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SUMMARY OF THE EXCHANGE OFFER
This summary highlights the material information in this prospectus/offer to exchange. To more fully understand
the exchange offer to holders of shares of Transatlantic common stock, and for a more complete description of the terms of the exchange offer and the second-step merger, you should read
carefully this entire document, including the exhibits, schedules and documents incorporated by reference herein, and the other documents referred to herein. For information on how to obtain the
documents that are on file with the SEC, please see the section of this prospectus/offer to exchange titled "Where You Can Find More Information."
The Companies (See page 42)
Validus is a Bermuda exempted company with its principal executive offices located at 29 Richmond Road, Pembroke, Bermuda HM 08. The
telephone number of Validus is (441) 278-9000. Validus is a provider of reinsurance and insurance, conducting its operations worldwide through two wholly-owned subsidiaries, Validus
Re and Talbot. Validus Re is a Bermuda-based reinsurer focused on short-tail lines of reinsurance. Talbot is the Bermuda parent of the specialty insurance group primarily operating within
the Lloyd's insurance market through Syndicate 1183. At June 30, 2011, Validus had total shareholders' equity of approximately $3.5 billion and total assets of approximately
$8.3 billion. Validus common shares are listed on the NYSE under the ticker symbol "VR" and, as of August 19, 2011, the last practicable date prior to the filing of this prospectus/offer
to exchange, Validus had a market capitalization of approximately $2.5 billion. Validus has approximately 460 employees.
As
of the date of the filing of this prospectus/offer to exchange with the SEC, Validus was the holder of 200 shares of Transatlantic common stock, or less than 1% of the amount
outstanding.
The following description of Transatlantic is taken from the registration statement on Form S-4 filed by Allied
World on July 7, 2011, as amended, which we refer to as the "Allied World/Transatlantic S-4." Please see the section of this prospectus/offer to exchange titled "Note on
Transatlantic Information."
Transatlantic
is a holding company incorporated in the State of Delaware. Transatlantic, through its wholly-owned subsidiaries, Transatlantic Reinsurance Company® ("TRC"),
Trans Re Zurich Reinsurance Company Ltd., acquired by TRC in 1996, and Putnam Reinsurance Company ("Putnam") (contributed by Transatlantic to TRC in 1995), offers reinsurance capacity for a
full range of property and casualty products, directly and through brokers, to insurance and reinsurance companies, in both the domestic and international markets on both a treaty and facultative
basis. One or both of TRC and Putnam is licensed, accredited, authorized or can serve as a reinsurer in 50 states and the District of Columbia in the United States and in Puerto Rico and Guam. Through
its international locations, Transatlantic has operations worldwide, including Bermuda, Canada, seven locations in Europe, three locations in Central and South America, two locations in Asia
(excluding Japan), and one location in each of Japan, Australia and Africa. TRC is licensed in Bermuda, Canada, Japan, the United Kingdom, the Dominican Republic, the Hong Kong Special Administrative
Region, the People's Republic of China and Australia. Transatlantic was originally formed in 1986 under the name PREINCO Holdings, Inc. as a holding company for Putnam. Transatlantic's name was
changed to Transatlantic Holdings, Inc. on April 18, 1990 following the acquisition on April 17, 1990 of all of the common stock of TRC in exchange for shares of common stock of
Transatlantic.
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Shares
of Transatlantic common stock are listed on the NYSE under the ticker symbol "TRH." Transatlantic's principal executive offices are located at 80 Pine Street, New York, New York
10005 and its telephone number is 212-365-2200.
The Exchange Offer (See page 57)
Validus is offering to exchange for each outstanding share of Transatlantic common stock that is validly tendered and not properly
withdrawn prior to the expiration time of the exchange offer, 1.5564 Validus common shares and $8.00 in cash (less applicable withholding taxes and without interest) upon the terms and subject to the
conditions contained in this prospectus/offer to exchange and the accompanying letter of transmittal. In addition, you will receive cash in lieu of any fractional Validus common share to which you may
be entitled.
Reasons for the Exchange Offer (See page 53)
The Validus common shares to be issued and cash to be paid to Transatlantic stockholders in exchange for shares of Transatlantic common
stock in the exchange offer will provide Transatlantic stockholders with a compelling opportunity to participate in the growth and opportunities of the combined company. Validus believes that the
acquisition of Transatlantic represents a compelling combination and excellent strategic fit that will create a unique, global leader in reinsurance that will
- •
- deploy capital effectively to maximize underwriting profitability and achieve superior growth in book value per share,
- •
- continue to aggressively manage capital, consistent with Validus' past practice, and
- •
- be a recognized leader in multiple classes, emphasizing short-tail lines while being
well-positioned for cycle management.
Conditions of the Exchange Offer (See page 79)
The exchange offer is conditioned upon, among other things, the following:
- •
- Transatlantic stockholders shall have validly tendered and not withdrawn prior to the expiration time of the exchange
offer at least that number of shares of Transatlantic common stock that, when added to the shares of Transatlantic common stock then owned by Validus or any of its subsidiaries, shall constitute a
majority of the then-outstanding number of shares of Transatlantic common stock on a fully-diluted basis.
- •
- The Allied World acquisition agreement shall have been validly terminated, and Validus shall reasonably believe that
Transatlantic has no liability, and Allied World shall not have asserted any claim of liability or breach against Transatlantic in connection with the Allied World acquisition agreement, other than
with respect to the possible payment of a maximum of $115 million in the aggregate in termination fees and reimbursement of permitted Allied World expenses thereunder in respect of the Allied
World termination fee.
- •
- The registration statement of which this prospectus/offer to exchange is a part shall have become effective under the
Securities Act, no stop order suspending the effectiveness of the registration statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC,
and Validus shall have received all necessary state securities law or "blue sky" authorizations.
- •
- The Transatlantic board of directors shall have approved the acquisition of the shares of Transatlantic common stock
pursuant to the exchange offer and second-step merger under Section 203 of the DGCL, or Validus shall be satisfied that Section 203 of the DGCL does not apply to or otherwise
restrict such acquisition.
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- •
- The Transatlantic board of directors shall have redeemed the rights issued pursuant to the Transatlantic rights plan, or
the rights shall have been redeemed or otherwise rendered inapplicable to the exchange offer and the second-step merger.
- •
- The shareholders of Validus shall have approved the issuance of the Validus common shares pursuant to the exchange offer
and the second-step merger as required under the rules of the NYSE.
- •
- The Validus common shares to be issued to Transatlantic stockholders as a portion of the exchange offer consideration in
exchange for shares of Transatlantic common stock in the exchange offer and the second-step merger shall have been authorized for listing on the NYSE, subject to official notice of
issuance.
- •
- There shall be no pending litigation, suit, claim, action, proceeding or investigation by or before any governmental
authority (and Validus shall not have disclosed the receipt of written notice from any person stating that such person intends to commence any litigation, suit, claim, action, proceeding or
investigation against Validus) that, in the judgment of Validus, is reasonably expected to, directly or indirectly, restrain or prohibit (or which alleges a violation of law in connection with) the
exchange offer or is reasonably expected to prohibit or limit the full rights of ownership of shares of Transatlantic common stock by Validus or any of its affiliates.
- •
- Since December 31, 2010, there shall not have been any material adverse effect on Transatlantic and its
subsidiaries, taken as a whole, subject to certain expections and limitations.
- •
- Each of Transatlantic and its subsidiaries shall have carried on their respective businesses in the ordinary course
consistent with past practice at all times on or after the date of this prospectus/offer to exchange and prior to the expiration time of the exchange offer.
- •
- All amendments or waivers under Validus' and its subsidiaries' credit facilities necessary to consummate the exchange
offer, the second-step merger and the other transactions contemplated by this prospectus/offer to exchange shall have been obtained and be in full force and effect.
- •
- The New York State Insurance Department shall have approved Validus' application for acquisition of control of
Transatlantic Reinsurance Company and Putnam Reinsurance Company, New York domiciled insurance companies and wholly-owned subsidiaries of Transatlantic, pursuant to Section 1506 of the New York
Insurance Code and such approval shall be in full force and effect.
- •
- Any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
which we refer to as the "HSR Act," and, if applicable, any agreement with the Federal Trade Commission, which we refer to as the "FTC," or Antitrust Division of the U.S. Department of Justice, which
we refer to as the "Antitrust Division," not to accept shares of Transatlantic common stock for exchange in the exchange offer, shall have expired or shall have been terminated prior to the expiration
time of the exchange offer.
- •
- Any clearance, approval, permit, authorization, waiver, determination, favorable review or consent of any governmental
authority, other than in connection with the matters set forth in the two foregoing bullet points, shall have been obtained and such approvals shall be in full force and effect, or any applicable
waiting periods for such clearances or approvals shall have expired.
The
exchange offer is subject to additional conditions referred to in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange
Offer," including
that Transatlantic stockholders shall not have adopted the Allied World acquisition agreement and that there shall have been no business combination consummated between Transatlantic and Allied World.
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On
August 17, 2011 at 11:59 p.m. Eastern time, the applicable waiting period under the HSR Act for the acquisition by Validus of shares of Transatlantic common stock
pursuant to the exchange offer expired and the related condition to the exchange offer was satisfied.
Validus
has obtained amendments to its applicable credit facilities, satisfying the condition relating to its and its subsidiaries' credit facilities described above. Please see the
section of this prospectus/offer to exchange titled "The Exchange Offer—Source and Amount of Funds."
Ownership of Validus After the Exchange Offer (See page 66)
Based on Validus' and Transatlantic's respective capitalizations as of June 30, 2011, the exchange ratio of 1.5564, and assuming
dissenters' rights are not properly exercised under Delaware law in connection with the second-step merger, Validus estimates that if all shares of Transatlantic common stock are exchanged
pursuant to the exchange offer and/or the second-step merger, former Transatlantic stockholders would own, in the aggregate, approximately 48% of the aggregate Validus common shares and
Validus non-voting common shares, on a fully-diluted basis. For a detailed discussion of the assumptions on which this estimate is based, please see the section of this prospectus/offer to
exchange titled "The Exchange Offer—Ownership of Validus After the Exchange Offer."
Comparative Market Price and Dividend Information (See page 34)
Validus common shares are listed on the NYSE under the ticker symbol "VR." Shares of Transatlantic common stock are listed on the NYSE
under the ticker symbol "TRH." The following table sets forth the closing prices of Validus and Transatlantic as reported on July 12, 2011, the last trading day of trading before Validus'
public announcement of delivery of the Validus
merger offer to the Transatlantic board of directors, and August 19, 2011, the last practicable trading day prior to the filing of this prospectus/offer to exchange. The table also shows the
equivalent value of one share of Transatlantic common stock in the exchange offer, which was calculated by multiplying the July 12, 2011 and August 19, 2011 closing prices for one
Validus common share by the exchange ratio of 1.5564 and adding $8.00 in cash.
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus Share close |
|
Transatlantic Stock close |
|
Equivalent Validus Per Share Amount |
|
July 12, 2011 |
|
$ |
30.81 |
|
$ |
49.02 |
|
$ |
55.95 |
|
August 19, 2011 |
|
$ |
25.57 |
|
$ |
50.00 |
|
$ |
47.80 |
|
The value of the exchange offer consideration will change as the market prices of Validus common shares and shares of Transatlantic common stock fluctuate during
the exchange offer period and thereafter, and may therefore be different from the prices set forth above at the expiration time of the exchange offer and at the time you receive your Validus common
shares. Please see the section of this prospectus/offer to exchange titled "Risk Factors." Transatlantic stockholders are encouraged to obtain current market quotations for Validus common shares and
shares of Transatlantic common stock prior to making any decision with respect to the exchange offer.
Interest of Executive Officers and Directors of Validus in the Exchange Offer (See page 94)
Except as set forth in this prospectus/offer to exchange, neither we nor, after due inquiry and to the best of our knowledge and
belief, any of our directors, executive officers or other affiliates has any contract, arrangement, understanding or relationship with any other person with respect to any securities of Transatlantic,
including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities, joint ventures, loan or option arrangements, puts or
calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies.
18
Table of Contents
Validus
does not believe that the exchange offer and the second-step merger will result in a change in control under any of Validus' stock option plans or any employment
agreement between Validus and any of its employees. As a result, no options or other equity grants held by such persons will vest as a result of the exchange offer and the second-step
merger. Please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Certain Relationships With Transatlantic and Interests of Validus in the Exchange Offer."
Appraisal/Dissenters' Rights (See page 76)
No dissenters' or appraisal rights are available in connection with the exchange offer. However, upon consummation of the
second-step merger, Transatlantic stockholders who have not tendered their shares of Transatlantic common stock in the exchange offer and who, if a stockholder vote is required, vote
against approval of the second-step merger will have rights under Delaware law to dissent from the second-step merger and demand appraisal of their shares of Transatlantic
common stock. Stockholders at the time of a "short form" merger under Delaware law would also be entitled to exercise dissenters' rights pursuant to such a "short form" merger. Stockholders who
perfect dissenters' rights by complying with the procedures set forth in Section 262 of the DGCL will be entitled to receive a cash payment equal to the "fair value" of their shares of
Transatlantic common stock, as determined by a Delaware court.
Certain Material U.S. Federal Income Tax Consequences (See page 67)
The exchange offer and second-step merger will be a taxable transaction for U.S. federal income tax purposes. U.S. holders
of shares of Transatlantic common stock generally will recognize gain or loss equal to the difference, if any, between (1) the sum of the cash and fair market value of the Validus common shares
received by such U.S. holder in the exchange offer and second-step merger (including cash received in lieu of fractional shares) and (2) such U.S. holder's adjusted tax basis in the
shares of Transatlantic common stock surrendered in exchange therefor. Any gain or loss recognized upon the exchange offer or second-step merger generally will be treated as capital gain
or loss.
For
more information, please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Certain Material U.S. Federal Income Tax Consequences."
This prospectus/offer to exchange contains a general description of certain material U.S. federal income tax consequences of the exchange offer and
second-step merger. Tax matters are complicated and the tax consequences of the exchange offer and the second-step merger to you will depend upon the facts of your particular
circumstances. Because individual circumstances may differ, Validus urges you to consult with your own tax advisor as to the specific tax consequences of the exchange offer and second-step
merger to you, including the applicability of U.S. federal, state, local, non-U.S. and other tax laws.
Accounting Treatment (See page 96)
Validus will account for the acquisition of shares of Transatlantic common stock under the acquisition method of accounting in
accordance with Accounting Standards Codification Topic 805, "Business Combinations," which we refer to as "ASC 805," under which the total consideration paid in the exchange offer will be allocated
among acquired assets and assumed liabilities based on the fair values of the assets acquired and liabilities assumed. In the event there is an excess of the total consideration paid in the exchange
offer over the fair values, the excess will be accounted for as goodwill. Intangible assets with definite lives will be amortized over their estimated useful lives. Goodwill resulting from the
exchange offer will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that the management of Validus
determines that the value of goodwill has become impaired, an accounting
19
Table of Contents
charge
will be taken in the fiscal quarter in which such determination is made. In the event there is an excess of the fair values of the acquired assets and liabilities assumed over the total
consideration paid in the exchange offer, the excess will be accounted for as a gain to be recognized through the income statement at the close of the transaction, in accordance with ASC 805. Validus
anticipates the acquisition will result in an excess of the fair values of the acquired assets and liabilities assumed over the total consideration paid.
Regulatory Approval and Status (See page 91)
U.S. Antitrust Clearance
The exchange offer is subject to review by the FTC, and the Antitrust Division. Under the HSR Act, the exchange offer may not be
completed until certain information has been provided to the FTC and the Antitrust Division and a required waiting period has expired or has been terminated.
Validus
filed the required Notification and Report Form with respect to the exchange offer with the Antitrust Division and the FTC on July 18, 2011. On August 17, 2011 at
11:59 p.m. Eastern time, the applicable waiting period under the HSR Act for the acquisition by Validus of shares of Transatlantic common stock pursuant to the exchange offer expired and the
related condition to the exchange offer was satisfied.
U.S. Insurance Regulatory Approvals
The insurance laws and regulations of all 50 U.S. states and the District of Columbia generally require that, prior to the acquisition
of an insurance company, either through the acquisition of or merger with the insurance company or a holding company of that insurance company, the acquiring company must obtain approval from the
insurance commissioner of the insurance company's state of domicile or, in certain jurisdictions, where such insurance company is commercially domiciled.
Transatlantic
owns Transatlantic Reinsurance Company and Putnam Reinsurance Company, each of which are insurance companies domiciled in New York. Accordingly, before it can acquire
indirect control of each of Transatlantic Reinsurance Company and Putnam Reinsurance Company through its acquisition of Transatlantic, Validus will be required to obtain approval for acquisition of
control under Section 1506 of the New York Insurance Code. Validus does not believe based on publicly available information that Transatlantic Reinsurance Company or Putnam Reinsurance Company
is commercially domiciled in any U.S. State.
Other Regulatory Approvals
The exchange offer and the second-step merger will also be subject to review by antitrust, insurance and other authorities
in jurisdictions outside the U.S. Validus has filed and is in the process of filing as soon as practicable all applications and notifications determined by Validus to be necessary or advisable under
the laws of the respective jurisdictions for the consummation of the exchange offer and the second-step merger.
For
more information, please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Certain Legal Matters; Regulatory Approvals."
Listing of Validus Common Shares to be Issued Pursuant to the Exchange Offer and the Second-Step Merger (See
page 78)
Validus will submit the necessary applications to cause the Validus common shares to be issued as a portion of the exchange offer
consideration and the consideration in the second-step merger to be authorized for listing on the NYSE. Approval of this listing is a condition to the exchange offer.
20
Table of Contents
Comparison of Shareholders' and Stockholders' Rights (See page 98)
You will receive Validus common shares as a portion of the exchange offer consideration if you tender your shares of Transatlantic
common stock in the exchange offer. Because Validus is incorporated under Bermuda law and Transatlantic is incorporated under the laws of the State of Delaware, there are a number of differences
between the rights of a stockholder of
Transatlantic and the rights of a shareholder of Validus. Validus urges you to review the discussion in the section of this prospectus/offer to exchange titled "Comparison of Shareholders' Rights."
Expiration Time of the Exchange Offer (See page 58)
The exchange offer is scheduled to expire at 5:00 p.m., Eastern time, on Friday, September 30, 2011, which is the
expiration time of the exchange offer, unless further extended by Validus. For more information, you should read the discussion in the section of this prospectus/offer to exchange titled "The Exchange
Offer—Extension, Termination and Amendment."
Extension, Termination and Amendment (See page 58)
To the extent legally permissible, Validus also reserves the right, in its sole discretion, at any time or from time to time (except as
expressly limited below) until the expiration time of the exchange offer:
- •
- to extend, for any reason, the period of time during which the exchange offer is open;
- •
- to delay acceptance for exchange of, or exchange of, any shares of Transatlantic common stock in order to comply in whole
or in part with applicable law;
- •
- to terminate the exchange offer without accepting for exchange, or exchanging, any shares of Transatlantic common stock if
any of the individually subheaded conditions referred to in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer" have not been
satisfied immediately prior to the expiration time of the exchange offer or if any event specified in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions
of the Exchange Offer" under the subheading "Other Conditions" has occurred;
- •
- to amend or terminate the exchange offer without accepting for exchange, or exchanging, any shares of Transatlantic common
stock if Validus or any of its affiliates enters into a definitive agreement or announces an agreement in principle with Transatlantic providing for a merger, acquisition or other business combination
or transaction with or involving Transatlantic or any of its subsidiaries, or the purchase or exchange of securities or assets of Transatlantic or any of its subsidiaries, or Validus and Transatlantic
reach any other agreement or understanding, in either case, pursuant to which it is agreed or provided that the exchange offer will be terminated; and
- •
- to amend the exchange offer or waive any conditions to the exchange offer;
in
each case, by giving oral or written notice of such delay, termination, waiver or amendment to the exchange agent and by making public announcement thereof.
The
expiration time of the exchange offer may be subject to multiple extensions and any decision to extend the exchange offer will be made prior to the expiration time of the exchange
offer. Additionally, Validus may elect to provide a subsequent offering period of at least three business days following the expiration time of the exchange offer.
For
more information, please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Extension, Termination and Amendment."
21
Table of Contents
Procedure for Tendering Shares (See page 62)
The procedure for tendering shares of Transatlantic common stock varies depending on whether you possess physical certificates, a
nominee holds your certificates for you, or whether you or a nominee hold your shares of Transatlantic common stock in
book-entry form. Validus urges you to read the section of this prospectus/offer to exchange titled "The Exchange Offer—Procedure for Tendering" as well as the transmittal
materials, including the letter of transmittal.
Withdrawal Rights (See page 65)
You can withdraw tendered shares of Transatlantic common stock at any time until the exchange offer has expired and, if Validus has not
accepted your shares of Transatlantic common stock for exchange by the expiration time of the exchange offer, at any time following 60 days from commencement of the exchange offer. If Validus
decides to provide a subsequent offering period, it will accept shares of Transatlantic common stock validly tendered during that period immediately and you will not be able to withdraw shares
tendered in the exchange offer during any subsequent offering period. Please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Withdrawal Rights."
Exchange of Shares of Transatlantic Common Stock; Delivery of Exchange Offer Consideration (See page 60)
Upon the terms and subject to the conditions of the exchange offer (including, if the exchange offer is extended or amended, the terms
and conditions of any such extension or amendment), Validus will accept for exchange, and will exchange for Validus common shares and cash promptly after the expiration time of the exchange offer, all
shares of Transatlantic common stock validly tendered and not properly withdrawn. If Validus elects to provide a subsequent offering period following the expiration time of the exchange offer, shares
of Transatlantic common stock validly tendered during such subsequent offering period will be accepted for exchange immediately upon tender and will be promptly exchanged for the exchange offer
consideration. For more information, please see the section of this prospectus/offer to exchange under the caption titled "The Exchange Offer—Acceptance for Exchange, and Exchange, of
Shares of Transatlantic Common Stock; Delivery of Exchange Offer Consideration."
Risk Factors (See page 36)
The exchange offer and the second-step merger are, and if the exchange offer and the second-step merger are
consummated, the combined
company will be, subject to several risks which you should carefully consider prior to participating in the exchange offer.
22
Table of Contents
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF VALIDUS
Set forth below is certain selected historical consolidated financial data relating to Validus. The financial data has been derived
from Validus' Quarterly Report on Form 10-Q for the six months ended June 30, 2011, which is incorporated by reference into this prospectus/offer to exchange, and which we
refer to as the "Validus 10-Q," and Validus' Annual Report on Form 10-K for the year ended December 31, 2010, which is incorporated into this prospectus/offer to
exchange, and which we refer to as the "Validus 10-K." You should not take historical results as necessarily indicative of the results that may be expected for the remainder of this fiscal
year or any other future period. This financial data should be read in conjunction with the financial statements and the related notes and other financial information contained in the Validus
10-Q and the Validus 10-K. More comprehensive financial information, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," is
contained in the Validus 10-Q and Validus 10-K, and the following summary is qualified in its entirety by reference to the Validus 10-Q and Validus 10-K
and all of the financial information and notes contained therein. Please see the section of the prospectus/offer to exchange titled "Where You Can Find More Information."
23
Table of Contents
The
following table sets forth summarized operational data for the periods ended December 31, 2010, 2009, 2008, 2007 and 2006 and June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
Year Ended December 31, |
|
|
|
2011 |
|
2010 |
|
2010 |
|
2009(12) |
|
2008 |
|
2007 |
|
2006 |
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
1,455,283 |
|
$ |
1,387,795 |
|
$ |
1,990,566 |
|
$ |
1,621,241 |
|
$ |
1,362,484 |
|
$ |
988,637 |
|
$ |
540,789 |
|
Reinsurance premiums ceded |
|
|
(242,166 |
) |
|
(158,465 |
) |
|
(229,482 |
) |
|
(232,883 |
) |
|
(124,160 |
) |
|
(70,210 |
) |
|
(63,696 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
1,213,117 |
|
|
1,229,330 |
|
|
1,761,084 |
|
|
1,388,358 |
|
|
1,238,324 |
|
|
918,427 |
|
|
477,093 |
|
Change in unearned premiums |
|
|
(357,944 |
) |
|
(333,692 |
) |
|
39 |
|
|
61,219 |
|
|
18,194 |
|
|
(60,348 |
) |
|
(170,579 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
855,173 |
|
|
895,638 |
|
|
1,761,123 |
|
|
1,449,577 |
|
|
1,256,518 |
|
|
858,079 |
|
|
306,514 |
|
Gain on bargain purchase, net of expenses(13) |
|
|
— |
|
|
— |
|
|
— |
|
|
287,099 |
|
|
— |
|
|
— |
|
|
— |
|
Net investment income |
|
|
56,469 |
|
|
69,108 |
|
|
134,103 |
|
|
118,773 |
|
|
139,528 |
|
|
112,324 |
|
|
58,021 |
|
Realized gain on repurchase of debentures |
|
|
— |
|
|
— |
|
|
— |
|
|
4,444 |
|
|
8,752 |
|
|
— |
|
|
— |
|
Net realized gains (losses) on investments |
|
|
17,931 |
|
|
23,839 |
|
|
32,498 |
|
|
(11,543 |
) |
|
(1,591 |
) |
|
1,608 |
|
|
(1,102 |
) |
Net unrealized (losses) gains on investments |
|
|
5,698 |
|
|
57,053 |
|
|
45,952 |
|
|
84,796 |
|
|
(79,707 |
) |
|
12,364 |
|
|
— |
|
Other income |
|
|
2,201 |
|
|
3,585 |
|
|
5,219 |
|
|
4,634 |
|
|
5,264 |
|
|
3,301 |
|
|
— |
|
Foreign exchange (losses) gains |
|
|
(2,458 |
) |
|
(12,863 |
) |
|
1,351 |
|
|
(674 |
) |
|
(49,397 |
) |
|
6,696 |
|
|
2,157 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
935,014 |
|
|
1,036,360 |
|
|
1,980,246 |
|
|
1,937,106 |
|
|
1,279,367 |
|
|
994,372 |
|
|
365,590 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
683,505 |
|
|
673,425 |
|
|
987,586 |
|
|
523,757 |
|
|
772,154 |
|
|
283,993 |
|
|
91,323 |
|
Policy acquisition costs |
|
|
155,526 |
|
|
150,302 |
|
|
292,899 |
|
|
262,966 |
|
|
234,951 |
|
|
134,277 |
|
|
36,072 |
|
General and administrative expenses(1) |
|
|
109,318 |
|
|
105,948 |
|
|
209,290 |
|
|
185,568 |
|
|
123,948 |
|
|
100,765 |
|
|
38,354 |
|
Share compensation expenses |
|
|
19,677 |
|
|
13,422 |
|
|
28,911 |
|
|
27,037 |
|
|
27,097 |
|
|
16,189 |
|
|
7,878 |
|
Finance expenses |
|
|
30,362 |
|
|
28,369 |
|
|
55,870 |
|
|
44,130 |
|
|
57,318 |
|
|
51,754 |
|
|
8,789 |
|
Fair value of warrants issued |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,893 |
|
|
77 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
998,388 |
|
|
971,466 |
|
|
1,574,556 |
|
|
1,043,458 |
|
|
1,215,468 |
|
|
589,871 |
|
|
182,493 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before taxes |
|
|
(63,374 |
) |
|
64,894 |
|
|
405,690 |
|
|
893,648 |
|
|
63,899 |
|
|
404,501 |
|
|
183,097 |
|
Taxes |
|
|
1,488 |
|
|
(3,490 |
) |
|
(3,126 |
) |
|
3,759 |
|
|
(10,788 |
) |
|
(1,505 |
) |
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(61,886 |
) |
|
61,404 |
|
|
402,564 |
|
|
897,407 |
|
|
53,111 |
|
|
402,996 |
|
|
183,097 |
|
Net income attributable to non controlling interest |
|
|
(594 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available (attributable) to Validus |
|
$ |
(62,480 |
) |
$ |
61,404 |
|
$ |
402,564 |
|
$ |
897,407 |
|
$ |
53,111 |
|
$ |
402,996 |
|
$ |
183,097 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains arising during the period(2) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(332 |
) |
Foreign currency translation adjustments |
|
|
936 |
|
|
(1,875 |
) |
|
(604 |
) |
|
3,007 |
|
|
(7,809 |
) |
|
(49 |
) |
|
— |
|
Adjustment for reclassification of losses realized in income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,102 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(61,544 |
) |
$ |
59,529 |
|
$ |
401,960 |
|
$ |
900,414 |
|
$ |
45,302 |
|
$ |
402,947 |
|
$ |
183,867 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
Year Ended December 31, |
|
|
|
2011 |
|
2010 |
|
2010 |
|
2009(12) |
|
2008 |
|
2007 |
|
2006 |
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
Earnings per share(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share equivalents outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
98,165,132 |
|
|
123,821,415 |
|
|
116,018,364 |
|
|
93,697,194 |
|
|
74,677,903 |
|
|
65,068,093 |
|
|
58,477,130 |
|
Diluted |
|
|
98,165,132 |
|
|
125,661,729 |
|
|
120,630,945 |
|
|
97,168,409 |
|
|
75,819,413 |
|
|
67,786,673 |
|
|
58,874,567 |
|
Basic (loss) earnings per share |
|
$ |
(0.68 |
) |
$ |
0.47 |
|
$ |
3.41 |
|
$ |
9.51 |
|
$ |
0.62 |
|
$ |
6.19 |
|
$ |
3.13 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share |
|
$ |
(0.68 |
) |
$ |
0.46 |
|
$ |
3.34 |
|
$ |
9.24 |
|
$ |
0.61 |
|
$ |
5.95 |
|
$ |
3.11 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share |
|
$ |
0.50 |
|
|
0.44 |
|
$ |
0.88 |
|
$ |
0.80 |
|
$ |
0.80 |
|
$ |
— |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses ratio(4) |
|
|
79.9 |
% |
|
75.2 |
% |
|
56.1 |
% |
|
36.1 |
% |
|
61.5 |
% |
|
33.1 |
% |
|
29.8 |
% |
Policy acquisition cost ratio(5) |
|
|
18.2 |
% |
|
16.8 |
% |
|
16.6 |
% |
|
18.1 |
% |
|
18.7 |
% |
|
15.6 |
% |
|
11.8 |
% |
General and administrative expense ratio(6) |
|
|
15.1 |
% |
|
13.3 |
% |
|
13.5 |
% |
|
14.7 |
% |
|
12.0 |
% |
|
13.3. |
% |
|
15.1 |
% |
Expense ratio(7) |
|
|
33.3 |
% |
|
30.1 |
% |
|
30.1 |
% |
|
32.8 |
% |
|
30.7 |
% |
|
28.9 |
% |
|
26.9 |
% |
Combined ratio(8) |
|
|
113.2 |
% |
|
105.3 |
% |
|
86.2 |
% |
|
68.9 |
% |
|
92.2 |
% |
|
62.0 |
% |
|
56.7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity(9) |
|
|
(3.7 |
)% |
|
3.2 |
% |
|
10.8 |
% |
|
31.8 |
% |
|
2.7 |
% |
|
26.9 |
% |
|
17.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth summarized balance sheet data as of December 31, 2010, 2009, 2008, 2007 and 2006 and June 30, 2011
and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
As of December 31, |
|
|
|
2011 |
|
2010 |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
Summary Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value |
|
$ |
5,347,538 |
|
$ |
5,270,869 |
|
$ |
5,118,859 |
|
$ |
5,388,759 |
|
$ |
2,831,537 |
|
$ |
2,662,021 |
|
$ |
1,376,387 |
|
Cash and cash equivalents |
|
|
815,921 |
|
|
492,489 |
|
|
620,740 |
|
|
387,585 |
|
|
449,848 |
|
|
444,698 |
|
|
63,643 |
|
Total assets |
|
|
8,259,788 |
|
|
7,614,623 |
|
|
7,060,878 |
|
|
7,019,140 |
|
|
4,322,480 |
|
|
4,144,224 |
|
|
1,646,423 |
|
Reserve for losses and loss expenses |
|
|
2,620,360 |
|
|
1,978,130 |
|
|
2,035,973 |
|
|
1,622,134 |
|
|
1,305,303 |
|
|
926,117 |
|
|
77,363 |
|
Unearned premiums |
|
|
1,192,772 |
|
|
1,176,603 |
|
|
728,516 |
|
|
724,104 |
|
|
539,450 |
|
|
557,344 |
|
|
178,824 |
|
Senior notes payable |
|
|
246,928 |
|
|
246,820 |
|
|
246,874 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Debentures payable |
|
|
289,800 |
|
|
289,800 |
|
|
289,800 |
|
|
289,800 |
|
|
304,300 |
|
|
350,000 |
|
|
150,000 |
|
Total liabilities |
|
|
4,716,576 |
|
|
4,011,697 |
|
|
3,556,047 |
|
|
2,988,020 |
|
|
2,383,746 |
|
|
2,209,424 |
|
|
453,900 |
|
Total shareholders' equity |
|
|
3,543,212 |
|
|
3,602,926 |
|
|
3,504,831 |
|
|
4,031,120 |
|
|
1,938,734 |
|
|
1,934,800 |
|
|
1,192,523 |
|
Book value per common share(10) |
|
|
34.51 |
|
|
32.34 |
|
|
35.76 |
|
|
31.38 |
|
|
25.64 |
|
|
26.08 |
|
|
20.39 |
|
Diluted book value per common share(11) |
|
|
31.91 |
|
|
30.30 |
|
|
32.98 |
|
|
29.68 |
|
|
23.78 |
|
|
24.00 |
|
|
19.73 |
|
- (1)
- General
and administrative expenses for the years ended December 31, 2007 and 2006 include $4,000,000 and $1,000,000 respectively,
related to our advisory agreement with Aquiline Capital Partners, LLC, which, together with its related companies, we refer to as "Aquiline." Our advisory agreement with Aquiline terminated
upon completion of our initial public offering, in connection with which Validus recorded general and administrative expense of $3,000,000 in the year ended December 31, 2007.
- (2)
- Validus
adopted ASC 820 and ASC 825 as of January 1, 2007 and elected the fair value option on all securities previously accounted for
as available-for-sale. Unrealized gains and losses on available-for-sale investments at December 31, 2006 of $875,000, previously included in
accumulated other comprehensive income, were treated as a cumulative-effect adjustment as of January 1, 2007. The cumulative-effect adjustment transferred the balance of unrealized gains and
losses from accumulated other comprehensive income to retained earnings and had no impact on the results of operations for the annual or interim periods beginning January 1, 2007. Validus'
investments were accounted for as trading for the annual or interim periods beginning January 1, 2007 and as such all unrealized gains and losses are included in net income.
25
Table of Contents
- (3)
- ASC
718 requires that any unrecognized stock-based compensation expense that will be recorded in future periods be included as proceeds for
purposes of treasury stock repurchases, which is applied against the unvested restricted shares balance. On March 1, 2007 we effected a 1.75 for 1 reverse stock split of our outstanding common
shares. The stock split does not affect our financial statements other than to the extent it decreases the number of outstanding shares and correspondingly increases per share information for all
periods presented. The share consolidation has been reflected retroactively in this financial data.
- (4)
- The
losses and loss expense ratio is calculated by dividing losses and loss expenses by net premiums earned.
- (5)
- The
policy acquisition cost ratio is calculated by dividing policy acquisition costs by net premiums earned.
- (6)
- The
general and administrative expense ratio is calculated by dividing the sum of general and administrative expenses and share compensation
expenses by net premiums earned. The general and administrative expense ratio for the year ended December 31, 2007 is calculated by dividing the total of general and administrative expenses
plus share compensation expenses less the $3,000,000 termination fee payable to Aquiline by net premiums earned.
- (7)
- The
expense ratio is calculated by combining the policy acquisition cost ratio and the general and administrative expense ratio.
- (8)
- The
combined ratio is calculated by combining the losses and loss expense ratio, the policy acquisition cost ratio and the general and
administrative expense ratio.
- (9)
- Annualized
return on average equity is calculated by dividing the net income for the period by the average shareholders' equity during the
period. Annual average shareholders' equity is the average of the beginning, ending and intervening quarter-end shareholders' equity balances.
- (10)
- Book
value per common share is defined as total shareholders' equity available to Validus divided by the number of common shares outstanding
as at the end of the period, giving no effect to dilutive securities.
- (11)
- Diluted
book value per common share is calculated based on total shareholders' equity plus the assumed proceeds from the exercise of
outstanding options and warrants, divided by the sum of common shares, unvested restricted shares, options and warrants outstanding (assuming their exercise). Diluted book value per common share is a
Non-GAAP financial measure as described under Item 7, "Management's Discussion and Analysis of Financial condition and Results of Operations—Financial Measures," in the
Validus Form 10-K.
- (12)
- Operating
results of IPC Holdings, Ltd. have been included from the September 2009 date of acquisition.
- (13)
- The
gain on bargain purchase, net of expenses is from the acquisition of IPC Holdings, Ltd. in September 2009 and is net of
transaction expenses.
26
Table of Contents
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF TRANSATLANTIC
The following disclosure is taken from Transatlantic's Quarterly Report on Form 10-Q for the six months ended June
30, 2011, which we refer to as the "Transatlantic 10-Q," and Transatlantic's Annual Report on Form 10-K for the year ended December 31, 2010, which we refer to as
the "Transatlantic 10-K." Please see the section of this prospectus/offer to exchange titled "Note on Transatlantic Information."
Set
forth below is certain selected historical consolidated financial data relating to Transatlantic. The financial data has been derived from the Transatlantic 10-Q, which
is incorporated by reference into this prospectus/offer to exchange, and the Transatlantic 10-K, which is incorporated by reference into this prospectus/offer to exchange. You should not
take historical results as necessarily indicative of the results that may be expected for any future period. This financial data should be read in conjunction with the financial statements and the
related notes and other financial information contained in the Transatlantic 10-Q and the Transatlantic 10-K. More comprehensive financial information, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations," is contained in other documents filed by Transatlantic with the SEC, and the following summary is qualified in its entirety
by reference to such other documents and all of the financial information and notes contained in those documents.
Please see the section of this prospectus/offer to exchange titled "Where You Can Find More Information."
The
following table sets forth summarized balance sheet data as of June 30, 2011 and 2010, and as of December 31, 2010, 2009, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, |
|
Years Ended December 31, |
|
|
|
2011 |
|
2010 |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
|
|
(Dollars in thousands, except per share amounts and ratios)
|
|
Total investments |
|
$ |
13,510,673 |
|
$ |
12,301,043 |
|
$ |
12,972,739 |
|
$ |
12,315,395 |
|
$ |
10,229,557 |
|
$ |
12,500,540 |
|
$ |
11,130,832 |
|
Cash and cash equivalents |
|
|
341,673 |
|
|
327,530 |
|
|
284,491 |
|
|
195,723 |
|
|
288,920 |
|
|
255,432 |
|
|
205,264 |
|
Total assets |
|
|
16,706,353 |
|
|
15,249,845 |
|
|
15,705,354 |
|
|
14,943,659 |
|
|
13,376,938 |
|
|
15,484,327 |
|
|
14,268,464 |
|
Unpaid losses and loss adjustment expenses |
|
|
9,950,709 |
|
|
8,789,300 |
|
|
9,020,610 |
|
|
8,609,105 |
|
|
8,124,482 |
|
|
7,926,261 |
|
|
7,467,949 |
|
Unearned premiums |
|
|
1,349,101 |
|
|
1,183,155 |
|
|
1,212,535 |
|
|
1,187,526 |
|
|
1,220,133 |
|
|
1,226,647 |
|
|
1,144,022 |
|
Senior notes |
|
|
1,005,785 |
|
|
1,033,298 |
|
|
1,030,511 |
|
|
1,033,087 |
|
|
722,243 |
|
|
746,930 |
|
|
746,633 |
|
Total stockholders' equity |
|
|
4,233,932 |
|
|
4,049,606 |
|
|
4,284,459 |
|
|
4,034,380 |
|
|
3,198,220 |
|
|
3,349,042 |
|
|
2,958,270 |
|
Book value per common share(1) |
|
$ |
67.76 |
|
$ |
63.53 |
|
$ |
68.83 |
|
$ |
60.77 |
|
$ |
48.19 |
|
$ |
50.56 |
|
$ |
44.80 |
|
- (1)
- Book
value per common share is stockholders' equity divided by common shares outstanding.
27
Table of Contents
The following table sets forth operational data as of June 30, 2011 and 2010, and as of December 31, 2010, 2009, 2008, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, |
|
Years Ended December 31, |
|
|
|
2011 |
|
2010 |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
|
|
(Dollars in thousands, except per share amounts and ratios)
|
|
Net premiums written |
|
$ |
2,040,472 |
|
$ |
1,973,888 |
|
$ |
3,881,693 |
|
$ |
3,986,101 |
|
$ |
4,108,092 |
|
$ |
3,952,899 |
|
$ |
3,633,440 |
|
Net premiums earned |
|
$ |
1,911,758 |
|
$ |
1,966,347 |
|
$ |
3,858,620 |
|
$ |
4,039,082 |
|
$ |
4,067,389 |
|
$ |
3,902,669 |
|
$ |
3,604,094 |
|
Net losses and loss adjustment expenses incurred |
|
|
(1,850,178 |
) |
|
(1,437,867 |
) |
|
(2,681,774 |
) |
|
(2,679,171 |
) |
|
(2,907,227 |
) |
|
(2,638,033 |
) |
|
(2,462,666 |
) |
Net commissions |
|
|
(481,202 |
) |
|
(473,341 |
) |
|
(932,820 |
) |
|
(927,918 |
) |
|
(980,626 |
) |
|
(980,121 |
) |
|
(903,666 |
) |
Increase (decrease) in deferred policy acquisition costs |
|
|
43,420 |
|
|
(2,615 |
) |
|
2,898 |
|
|
(12,406 |
) |
|
6,956 |
|
|
16,901 |
|
|
13,471 |
|
Other underwriting expenses |
|
|
(77,326 |
) |
|
(88,828 |
) |
|
(177,624 |
) |
|
(158,181 |
) |
|
(131,555 |
) |
|
(115,760 |
) |
|
(102,339 |
) |
Underwriting (loss) profit(1) |
|
|
(453,528 |
) |
|
(36,304 |
) |
|
69,300 |
|
|
261,406 |
|
|
54,937 |
|
|
185,656 |
|
|
148,894 |
|
Net investment income |
|
|
226,348 |
|
|
228,384 |
|
|
473,547 |
|
|
467,402 |
|
|
440,451 |
|
|
469,772 |
|
|
434,540 |
|
Realized net capital gains (losses)(2) |
|
|
54,646 |
|
|
6,388 |
|
|
30,101 |
|
|
(70,641 |
) |
|
(435,541 |
) |
|
9,389 |
|
|
10,862 |
|
(Loss) gain on early extinguishment of debt |
|
|
(1,179 |
) |
|
— |
|
|
(115 |
) |
|
9,869 |
|
|
10,250 |
|
|
— |
|
|
— |
|
Interest on senior notes |
|
|
(33,587 |
) |
|
(34,142 |
) |
|
(68,272 |
) |
|
(43,454 |
) |
|
(43,359 |
) |
|
(43,421 |
) |
|
(43,405 |
) |
Other expenses, net |
|
|
(18,725 |
) |
|
(14,651 |
) |
|
(31,773 |
) |
|
(28,549 |
) |
|
(23,515 |
) |
|
(25,644 |
) |
|
(10,983 |
) |
(Loss) income before income taxes |
|
|
(226,025 |
) |
|
149,675 |
|
|
472,788 |
|
|
596,033 |
|
|
3,223 |
|
|
595,752 |
|
|
539,908 |
|
Income (taxes) benefits |
|
|
116,755 |
|
|
(23,290 |
) |
|
(70,587 |
) |
|
(118,371 |
) |
|
99,031 |
|
|
(108,611 |
) |
|
(111,756 |
) |
Net (loss) income |
|
$ |
(109,270 |
) |
$ |
126,385 |
|
$ |
402,201 |
|
$ |
477,662 |
|
$ |
102,254 |
|
$ |
487,141 |
|
$ |
428,152 |
|
Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic |
|
$ |
(1.75 |
) |
$ |
1.94 |
|
$ |
6.28 |
|
$ |
7.20 |
|
$ |
1.54 |
|
$ |
7.37 |
|
$ |
6.49 |
|
| |
Diluted |
|
|
(1.75 |
) |
|
1.92 |
|
|
6.19 |
|
|
7.15 |
|
|
1.53 |
|
|
7.31 |
|
|
6.46 |
|
Cash dividends declared |
|
|
0.43 |
|
|
0.41 |
|
|
0.83 |
|
|
0.79 |
|
|
0.73 |
|
|
0.62 |
|
|
0.53 |
|
Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic |
|
|
62,430 |
|
|
65,085 |
|
|
64,092 |
|
|
66,381 |
|
|
66,270 |
|
|
66,124 |
|
|
65,955 |
|
| |
Diluted |
|
|
62,430 |
|
|
65,785 |
|
|
64,930 |
|
|
66,802 |
|
|
66,722 |
|
|
66,654 |
|
|
66,266 |
|
Ratios:(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio |
|
|
96.8 |
% |
|
73.1 |
% |
|
69.5 |
% |
|
66.3 |
% |
|
71.5 |
% |
|
67.6 |
% |
|
68.3 |
% |
| |
Commission ratio |
|
|
22.9 |
|
|
24.2 |
|
|
24.1 |
|
|
23.3 |
|
|
23.9 |
|
|
24.7 |
|
|
24.7 |
|
| |
Other underwriting expense ratio |
|
|
4.0 |
|
|
4.5 |
|
|
4.6 |
|
|
3.9 |
|
|
3.2 |
|
|
2.9 |
|
|
2.9 |
|
Underwriting expense ratio |
|
|
26.9 |
|
|
28.7 |
|
|
28.7 |
|
|
27.2 |
|
|
27.1 |
|
|
27.6 |
|
|
27.6 |
|
Combined ratio |
|
|
123.7 |
% |
|
101.8 |
% |
|
98.2 |
% |
|
93.5 |
% |
|
98.6 |
% |
|
95.2 |
% |
|
95.9 |
% |
- (1)
- Includes
pre-tax net catastrophe (costs) of $(612) million in the first six months of 2011, $(157) million in the first six
months of 2010, ($202) million in the full year 2010, $6 million in the full year 2009, ($170) million in the full year 2008, ($55) million in the full year 2007 and ($29) million in the full
year 2006.
- (2)
- Includes
other-than-temporary impairment write-downs charged to earnings of ($3) million in the first six months of
2011, ($6) million in the first six months of 2010, ($8) million in the full year 2010, ($83) million in the full year 2009, ($318) million in the full year 2008, ($27) million in the full year 2007
and ($1) million in the full year 2006.
- (3)
- The
loss ratio represents the absolute value of net losses and loss adjustment expenses incurred expressed as a percentage of net premiums
earned. The underwriting expense ratio represents the sum of the commission ratio and the other underwriting expense ratio. The commission ratio represents the absolute value of the sum of net
commission and the (decrease) increase in deferred policy acquisition costs expressed as a percentage of net premiums earned. The other underwriting expense ratio represents the absolute value of
other underwriting expenses expressed as a percentage of net premiums earned. The combined ratio represents the sum of the loss ratio and the underwriting expense ratio.
28
Table of Contents
SELECTED UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
The following tables set forth selected unaudited condensed consolidated pro forma financial information for the six months ended
June 30, 2011 and the year ended December 31, 2010 to provide you with information about how the acquisition of Transatlantic might have affected the historical financial statements of
Validus if it had been consummated at such times. The selected unaudited condensed consolidated pro forma financial information is for illustrative purposes only and has been prepared using
Transatlantic's publicly available financial statements and disclosures, without the benefit of inspection of Transatlantic's books and records. Therefore, certain pro forma adjustments, such as
recording fair value of assets and liabilities and adjustments for consistency of accounting policy, are not reflected in these unaudited condensed consolidated pro forma financial statements. The
following selected unaudited condensed consolidated pro forma financial information does not necessarily reflect the financial position or results of operations that would have actually resulted had
the acquisition occurred as of the dates indicated, nor should they be taken as necessarily indicative of the future financial position or results of operations of Validus or a combined company. The
adjustments and assumptions reflected in the pro forma financial information are discussed in the section of this prospectus/offer to exchange titled "Unaudited Condensed Consolidated Pro Forma
Financial Information."
The
following selected unaudited condensed consolidated pro forma financial information is based on the historical financial statements of Validus and Transatlantic and on publicly
available information and certain assumptions that we believe are reasonable, which are described in the notes to the "Unaudited Condensed Consolidated Pro Forma Financial Information." The following
should be read in connection with the section of this prospectus/offer to exchange titled "Unaudited Condensed Consolidated Pro Forma Financial Information," and other information included in or
incorporated by reference into this prospectus/offer to, including the Validus 10-Q, the Validus 10-K, the Transatlantic 10-Q and the Transatlantic
10-K, which are filed with the SEC.
This
pro forma information is subject to risks and uncertainties, including those discussed in the section of this prospectus/offer to exchange titled "Risk Factors."
29
Table of Contents
The
following table sets forth summarized pro forma statement of operations data as of June 30, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2011 |
|
Year Ended
December 31, 2010 |
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
Revenues |
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
3,603,695 |
|
$ |
6,118,376 |
|
Reinsurance premiums ceded |
|
|
(350,106 |
) |
|
(475,599 |
) |
| |
|
|
|
|
|
Net premiums written |
|
|
3,253,589 |
|
|
5,642,777 |
|
Change in unearned premiums |
|
|
(486,658 |
) |
|
(23,034 |
) |
| |
|
|
|
|
|
Net premiums earned |
|
|
2,766,931 |
|
|
5,619,743 |
|
Net investment income |
|
|
280,069 |
|
|
601,654 |
|
Net realized gains on investments |
|
|
75,716 |
|
|
70,571 |
|
Net unrealized gains (losses) on investments |
|
|
95,955 |
|
|
(17,557 |
) |
Loss on early extinguishment of debt |
|
|
(1,179 |
) |
|
(115 |
) |
Other income |
|
|
2,201 |
|
|
5,219 |
|
Foreign exchange losses |
|
|
(2,458 |
) |
|
1,351 |
|
| |
|
|
|
|
|
Total revenues |
|
|
3,217,235 |
|
|
6,280,866 |
|
Expenses |
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
2,533,683 |
|
|
3,669,360 |
|
Policy acquisition costs |
|
|
593,308 |
|
|
1,222,821 |
|
General and administrative expenses |
|
|
181,219 |
|
|
383,387 |
|
Share compensation expenses |
|
|
37,327 |
|
|
64,211 |
|
Finance expenses |
|
|
72,074 |
|
|
140,392 |
|
| |
|
|
|
|
|
Total expenses |
|
|
3,417,611 |
|
|
5,480,171 |
|
| |
|
|
|
|
|
Net (loss) income before taxes |
|
|
(200,376 |
) |
|
800,695 |
|
Income tax benefit (expense) |
|
|
84,133 |
|
|
(52,436 |
) |
| |
|
|
|
|
|
Net (loss) income |
|
|
(116,243 |
) |
|
748,259 |
|
Net income attributable to noncontrolling interest |
|
|
(594 |
) |
|
— |
|
| |
|
|
|
|
|
Net (loss) income (attributable) available to Validus |
|
$ |
(116,837 |
) |
$ |
748,259 |
|
| |
|
|
|
|
|
Comprehensive (loss) income |
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax |
|
|
21,191 |
|
|
119,957 |
|
Net unrealized appreciation (depreciation) of investments, net of tax |
|
|
— |
|
|
— |
|
Change in retirement plan liability, net of tax |
|
|
(593 |
) |
|
452 |
|
| |
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(96,239 |
) |
$ |
868,668 |
|
| |
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
Weighted average number of common shares and common share equivalents outstanding |
|
|
|
|
|
|
|
Basic |
|
|
195,414,898 |
|
|
213,255,252 |
|
Diluted |
|
|
195,414,898 |
|
|
219,172,096 |
|
Basic (loss) earnings per share |
|
$ |
(0.62 |
) |
$ |
3.48 |
|
Diluted (loss) earnings per share |
|
$ |
(0.62 |
) |
$ |
3.41 |
|
Selected financial ratios |
|
|
|
|
|
|
|
Losses and loss expenses ratio |
|
|
91.6 |
% |
|
65.2 |
% |
Policy acquisition cost ratio |
|
|
21.4 |
% |
|
21.8 |
% |
General and administrative expense ratio |
|
|
7.9 |
% |
|
8.0 |
% |
Expense ratio |
|
|
29.3 |
% |
|
29.8 |
% |
Combined ratio |
|
|
120.9 |
% |
|
95.0 |
% |
| |
|
|
|
|
|
30
Table of Contents
The following table sets forth summarized pro forma balance sheet data as of June 30, 2011:
|
|
|
|
|
|
|
As of June 30, 2011 |
|
|
|
(Dollars in thousands, except share and
per share amounts)
|
|
Summary Balance Sheet Data: |
|
|
|
|
Investments at fair value |
|
$ |
18,751,211 |
|
Cash and cash equivalents |
|
|
1,157,594 |
|
Total assets |
|
|
25,001,204 |
|
Reserve for losses and loss expenses |
|
|
13,062,287 |
|
Unearned premiums |
|
|
2,538,951 |
|
Senior notes payable and credit facility payable |
|
|
1,752,713 |
|
Debentures Payable |
|
|
289,800 |
|
Total liabilities |
|
|
18,173,003 |
|
Total shareholders' equity |
|
|
6,828,201 |
|
Book value per common share |
|
|
34.15 |
|
Diluted book value per common share |
|
|
32.44 |
|
31
Table of Contents
COMPARATIVE PER SHARE DATA
The Transatlantic historical per share data is taken from the Allied World/Transatlantic S-4. Please see the section
of this prospectus/offer to exchange titled "Note on Transatlantic Information." The pro forma combined data is taken from the section of this prospectus/offer to exchange titled "Unaudited Condensed
Consolidated Pro Forma Financial Information."
The
historical earnings per share, dividends, and book value of Validus and Transatlantic shown in the table below are derived from their respective audited consolidated financial
statements as of and for the year ended December 31, 2010 and unaudited consolidated financial statements as of and for the six months ended June 30, 2010. The unaudited pro forma
comparative basic and diluted earnings per share data give effect to the acquisition contemplated by this prospectus/offer to exchange using the acquisition method of accounting as if the acquisition
had been completed on January 1, 2010. The unaudited pro forma book value and diluted book value per share information was computed as if the acquisition had been completed on
December 31, 2010 and June 30, 2011.
The
historical earnings per share, dividends, and book value of Validus and Transatlantic shown in the table below are derived from their respective audited consolidated financial
statements as of and for the year ended December 31, 2010 and unaudited consolidated financial statements as of and for the six months ended June 30, 2011. The unaudited pro forma
comparative basic and diluted earnings per share data give effect to the acquisition using the acquisition method of accounting as if the acquisition had been completed on January 1, 2010. The
unaudited pro forma book value and diluted book value per share information was computed as if the acquisition had been completed on June 30, 2011. You should read this information in
conjunction with the historical financial information of Validus and of Transatlantic included or incorporated elsewhere in this prospectus/offer to exchange, including Validus' and Transatlantic's
financial statements and related notes. The unaudited pro forma data is not necessarily indicative of actual results had the acquisition occurred during the periods indicated. The unaudited pro forma
data is not necessarily indicative of future operations of Validus.
This
pro forma financial information does not give consideration to the impact of possible revenue enhancements, expense efficiencies, synergies, strategy modifications, asset
dispositions or other actions. This pro forma information is subject to risks and uncertainties, including those discussed in the section of this prospectus/offer to exchange titled "Risk Factors."
Per
share data for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Validus(1) |
|
Historical
Transatlantic |
|
Validus
Pro forma
combined |
|
Equivalent
per share of
Transatlantic
common stock(1)(2) |
|
Equivalent
per share of
Transatlantic
common stock(1)(2) |
|
|
|
(For the year ended December 31, 2010)
|
|
Basic earnings per common share |
|
$ |
3.41 |
|
$ |
6.28 |
|
$ |
3.48 |
|
$ |
5.42 |
|
$ |
5.42 |
|
Diluted earnings per common share |
|
$ |
3.34 |
|
$ |
6.19 |
|
$ |
3.41 |
|
$ |
5.31 |
|
$ |
5.31 |
|
Diluted operating earnings per common share(3) |
|
$ |
2.68 |
|
$ |
5.89 |
|
$ |
3.13 |
|
$ |
4.87 |
|
$ |
4.87 |
|
Cash dividends declared per common share |
|
$ |
0.88 |
|
$ |
0.83 |
|
$ |
0.88 |
|
$ |
1.37 |
|
$ |
1.37 |
|
Book value per common share (at period end) |
|
$ |
35.76 |
|
$ |
68.83 |
|
$ |
34.97 |
|
$ |
54.43 |
(4) |
$ |
58.41 |
(5) |
Diluted book value per common share (at period end) |
|
$ |
32.98 |
|
$ |
66.77 |
|
$ |
33.20 |
|
$ |
51.67 |
(4) |
$ |
55.28 |
(5) |
32
Table of Contents
Per share data for the period ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Validus(1) |
|
Historical
Transatlantic |
|
Validus
Pro forma
combined |
|
Equivalent
per share of
Transatlantic
common stock(1)(2) |
|
Equivalent
per share of
Transatlantic
common stock(1)(2) |
|
|
|
(For the six months ended June 30, 2011)
|
|
Basic loss per common share |
|
$ |
(0.68 |
) |
$ |
(1.75 |
) |
$ |
(0.62 |
) |
$ |
(0.96 |
) |
$ |
(0.96 |
) |
Diluted loss per common share |
|
$ |
(0.68 |
) |
$ |
(1.75 |
) |
$ |
(0.62 |
) |
$ |
(0.96 |
) |
$ |
(0.96 |
) |
Diluted operating earnings per common share(3) |
|
$ |
(0.85 |
) |
$ |
(2.31 |
) |
$ |
(1.19 |
) |
$ |
(1.85 |
) |
$ |
(1.85 |
) |
Cash dividends declared per common share |
|
$ |
0.50 |
|
$ |
0.43 |
|
$ |
0.50 |
|
$ |
0.78 |
|
$ |
0.78 |
|
Book value per common share (at period end) |
|
$ |
34.51 |
|
$ |
67.76 |
|
$ |
34.15 |
|
$ |
53.15 |
(4) |
$ |
57.12 |
(5) |
Diluted book value per common share (at period end) |
|
$ |
31.91 |
|
$ |
65.77 |
|
$ |
32.44 |
|
$ |
50.49 |
(4) |
$ |
54.09 |
(5) |
- (1)
- Validus'
investments in fixed maturities are classified as trading and carried at fair value, with related net unrealized gains or losses
included in earnings. Transatlantic classifies its fixed maturities as either held to maturity or available for sale. Reclassifying these securities as trading would result in these unrealized gains
and losses being reported as components of the income statements. As a result, historical Transatlantic and equivalent per share of Transatlantic common stock are not comparable.
- (2)
- Equivalent
per share amounts are calculated by multiplying Validus pro forma per share amounts by the exchange offer ratio of 1.5564.
- (3)
- Net
operating income (loss), a non-GAAP financial measure, is defined by Validus as net income (loss) excluding net realized and
unrealized gains (losses) on investments, foreign exchange gains (losses) and non-recurring items. This measure focuses on the underlying fundamentals of operations without the influence
of gains (losses) from the sale of investments, translation of non-U.S.$ currencies and non-recurring items. Gains (losses) from the sale of investments are driven by the
timing of the disposition of investments, not by operating performance. Gains (losses) arising from translation of non-U.S.$ denominated balances are unrelated to underlying business.
- (4)
- For
purposes of calculating equivalent per share of Transatlantic common stock values for book value per common share, the equivalent per
share amount does not include the $8.00 per Transatlantic share cash consideration.
- (5)
- For
purposes of calculating equivalent per share of Transatlantic common stock values for book value per common share, the equivalent per
share amount includes the $8.00 per Transatlantic share cash consideration.
33
Table of Contents
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth the high and low sales prices per share of Validus common shares and shares of Transatlantic common
stock for the periods indicated as reported on the consolidated tape of the NYSE as well as cash dividends per common share, as reported in the Validus 10-K and the Transatlantic
10-K, respectively, with respect to the years 2009 and 2010, and thereafter as reported in publicly available sources. The Transatlantic dividend information was taken from the Allied
World/Transatlantic S-4. Please see the section of this prospectus/offer to exchange titled "Note on Transatlantic Information."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus |
|
Transatlantic |
|
|
|
High |
|
Low |
|
Dividend |
|
High |
|
Low |
|
Dividend |
|
Year Ended December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter (through August 19, 2011) |
|
$ |
31.35 |
|
$ |
23.28 |
|
|
N/A |
|
$ |
53.00 |
|
$ |
44.74 |
|
|
N/A |
|
Second Quarter |
|
$ |
34.95 |
|
$ |
29.44 |
|
$ |
0.25 |
|
$ |
51.23 |
|
$ |
43.85 |
|
$ |
0.21 |
|
First Quarter |
|
$ |
33.72 |
|
$ |
28.86 |
|
$ |
0.25 |
|
$ |
52.68 |
|
$ |
46.17 |
|
$ |
0.21 |
|
Year Ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
30.83 |
|
$ |
26.13 |
|
$ |
0.22 |
|
$ |
54.08 |
|
$ |
49.68 |
|
$ |
0.21 |
|
Third quarter |
|
$ |
26.94 |
|
$ |
24.31 |
|
$ |
0.22 |
|
$ |
51.50 |
|
$ |
46.05 |
|
$ |
0.21 |
|
Second quarter |
|
$ |
27.64 |
|
$ |
23.14 |
|
$ |
0.22 |
|
$ |
53.39 |
|
$ |
44.08 |
|
$ |
0.21 |
|
First quarter |
|
$ |
28.25 |
|
$ |
25.62 |
|
$ |
0.22 |
|
$ |
54.25 |
|
$ |
46.67 |
|
$ |
0.20 |
|
Year Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
27.35 |
|
$ |
24.52 |
|
$ |
0.20 |
|
$ |
56.42 |
|
$ |
49.01 |
|
$ |
0.20 |
|
Third Quarter |
|
$ |
26.42 |
|
$ |
20.95 |
|
$ |
0.20 |
|
$ |
51.36 |
|
$ |
41.48 |
|
$ |
0.20 |
|
Second Quarter |
|
$ |
24.76 |
|
$ |
20.88 |
|
$ |
0.20 |
|
$ |
46.83 |
|
$ |
34.92 |
|
$ |
0.20 |
|
First Quarter |
|
$ |
26.71 |
|
$ |
21.16 |
|
$ |
0.20 |
|
$ |
40.52 |
|
$ |
26.16 |
|
$ |
0.19 |
|
The
following table sets out the trading information for Validus common shares and shares of Transatlantic common stock on July 12, 2011, the last full trading day before Validus'
public announcement of delivery of the Validus merger offer to the Transatlantic board of directors, and August 19, 2011, the last practicable trading day prior to the filing of this
prospectus/offer to exchange.
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus
Common
Share close |
|
Transatlantic
Common
Stock close |
|
Equivalent
Validus
Per Share
Amount |
|
July 12, 2011 |
|
$ |
30.81 |
|
$ |
49.02 |
|
$ |
55.95 |
|
August 19, 2011 |
|
$ |
25.57 |
|
$ |
50.00 |
|
$ |
47.80 |
|
Equivalent
per share amounts are calculated by multiplying Validus per share amounts by the exchange offer ratio of 1.5564 and adding $8.00 in cash per share of Transatlantic common
stock.
The value of the exchange offer consideration will change as the market prices of Validus common shares and shares of Transatlantic common stock fluctuate during
the exchange offer period and thereafter, and may therefore be different from the prices set forth above at the expiration time of the exchange offer and at the time you receive the exchange offer
consideration. Please see the section of this prospectus/offer to exchange titled "Risk Factors." Transatlantic stockholders are encouraged to obtain current market quotations for Validus common
shares and shares of Transatlantic common stock prior to making any decision with respect to the exchange offer.
Please
also see the section of this prospectus/offer to exchange titled "The Exchange Offer—Effect of the Exchange Offer on the Market for Shares of Transatlantic Common
Stock; Registration Under the Exchange Act; Margin Regulations" for a discussion of the possibility that shares of Transatlantic common stock will cease to be listed on the NYSE.
34
Table of Contents
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges and ratio of earnings to fixed charges excluding Funds at Lloyd's costs, which we refer to as
"FAL costs" are measures of Validus' ability to cover fixed costs with current period earnings. For purposes of computing the following ratios, earnings consist of net income before income tax expense
plus fixed charges to the extent that such charges are included in the determination of earnings. Fixed charges consist of interest, amortization of debt issuance costs and credit facility fees and an
imputed interest portion on operating leases. The following table is derived from unaudited results for the six months ended June 30, 2011 and audited results for the years ended
December 31, 2010 and 2009. In addition, the table presents the pro forma combined ratio of earnings to fixed charges for the six months ended June 30, 2011 and year ended
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
Six Months
Ended
June 30, 2011(2) |
|
Pro Forma
Combined
Year Ended
December 31, 2010 |
|
Six Months
Ended
June 30, 2011(3) |
|
Year Ended
December 31, 2010 |
|
Year Ended
December 31, 2009 |
|
Ratio of Earnings to Fixed Charges |
|
|
— |
|
|
6.68 |
|
|
— |
|
|
8.18 |
|
|
20.93 |
|
Ratio of Earnings to Fixed Charges Excluding FAL Costs(1) |
|
|
— |
|
|
6.81 |
|
|
— |
|
|
8.61 |
|
|
30.67 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
- (1)
- FAL
costs represent both fixed and variable costs paid for financing the Validus' operations at Lloyd's. The ratio of earnings to fixed
charges excluding FAL costs demonstrates the degree to which the ratio changes if FAL costs are treated as variable rather than fixed costs.
- (2)
- Earnings
are inadequate to cover fixed charges. $200,970 represents the amount of coverage deficiency.
- (3)
- Earnings
are inadequate to cover fixed charges. $63,968 represents the amount of coverage deficiency.
35
Table of Contents
RISK FACTORS
In addition to the risk factors set forth below, you should read and consider other risk factors specific to
each of the Validus and Transatlantic businesses that will also affect Validus after consummation of the exchange offer and the second-step merger, described in Part I,
Item 1A of each company's annual report on Form 10-K for the year ended December 31, 2010 and other documents that have been filed with the SEC, all of which are
incorporated by reference into this prospectus/offer to exchange. If any of the risks described below or in the reports incorporated by reference into this prospectus/offer to exchange actually
occurs, the respective businesses, financial results, financial conditions, operating results or share prices of Validus or Transatlantic could be materially adversely
affected.
Risk Factors Relating to the Exchange Offer and the Second-Step Merger
The value of the Validus common shares that the Transatlantic stockholders receive in the exchange offer will vary as a result of the fixed exchange ratio and possible
fluctuations in the price of Validus common shares.
Upon consummation of the exchange offer, each share of Transatlantic common stock validly tendered into the exchange offer and accepted
by Validus for exchange will be converted into the right to receive Validus common shares equal to the exchange ratio, $8.00 in cash (less applicable withholding taxes and without interest) and cash
in lieu of fractional shares. Because the exchange ratio is fixed at 1.5564 Validus common shares for each share of Transatlantic common stock, the market value of the Validus common shares issued in
exchange for shares of Transatlantic common stock in the exchange offer will depend upon the market price of a Validus common share at the date the exchange offer is consummated. If the price of
Validus common shares declines, Transatlantic stockholders could receive less value for their shares of Transatlantic common stock upon the consummation of the exchange offer than the value calculated
pursuant to the exchange ratio on the date the exchange offer was announced or as of the date of the filing of this prospectus/offer to exchange. Stock price changes may result from a variety of
factors that are beyond the companies' control, including general market conditions, changes in business prospects, catastrophic events, both natural and man-made, and regulatory
considerations. In addition, the ongoing business of Validus may be adversely affected by actions taken by Validus in connection with the exchange offer, including as a result of (1) the
attention of management of Validus having been diverted to the exchange offer instead of being directed solely to Validus' own operations and pursuit of other opportunities that could have been
beneficial to Validus and the combined entity and (2) payment by Validus of certain costs relating to the exchange offer, including certain legal, accounting and financial and capital markets
advisory fees.
Because
the exchange offer and the second-step merger will not be completed until certain conditions have been satisfied or, where relevant, waived (please see the section of
this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer"), a period of time, which may be significant, may pass between the commencement of the
exchange offer and the time that Validus accepts shares of Transatlantic common stock for exchange. Therefore, at the time when you tender your shares of Transatlantic common stock pursuant to the
exchange offer, you will not know the exact market value of the Validus common shares that will be issued if Validus accepts such shares of Transatlantic common stock for exchange. However, tendered
shares of Transatlantic common stock may be withdrawn at any time prior to the expiration time of the exchange offer and at any time following 60 days from commencement of the exchange offer.
Please see the sections of this prospectus/offer to exchange titled "Comparative Market Price and Dividend Information" for the historical high and low closing prices of Validus common shares and
shares of Transatlantic common stock, as well as cash dividends per share of Validus common shares and shares of Transatlantic common stock respectively for each quarter of the period 2009 through
2011 and "The Exchange Offer—Withdrawal Rights."
Furthermore,
in connection with the exchange offer and the second-step merger, Validus estimates that it will need to issue approximately 97,249,766 Validus common shares.
The increase in the number
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of
Validus common shares may lead to sales of such Validus common shares or the perception that such sales may occur, either of which may adversely affect the market for, and the market price of,
Validus common shares.
Transatlantic
stockholders are urged to obtain market quotations for Validus common shares and shares of Transatlantic common stock when they consider whether to tender their shares of
Transatlantic common stock pursuant to the exchange offer. Please see the section of this prospectus/offer to exchange titled "Comparative Market Price and Dividend Information."
The exchange offer may adversely affect the liquidity and value of non-tendered shares of Transatlantic common stock.
In the event that not all shares of Transatlantic common stock are tendered in the exchange offer and we accept for exchange those
shares of Transatlantic common stock tendered into the exchange offer, the number of stockholders and the number of shares of Transatlantic common stock held by individual holders will be greatly
reduced. As a result, Validus' acceptance of shares of Transatlantic common stock for exchange in the exchange offer could adversely affect the liquidity and could also adversely affect the market
value of the remaining shares of Transatlantic common stock held by the public. Additionally, subject to the rules of the NYSE, Validus may delist the shares of Transatlantic common stock on the NYSE.
As a result of such delisting, each issued and outstanding share of Transatlantic common stock not tendered pursuant to the exchange offer may become illiquid and may be of reduced value. Please see
the section of this prospectus/offer to exchange titled "The Exchange Offer—Plans for Transatlantic."
Validus must obtain governmental, regulatory and insurance department approvals to consummate the exchange offer, which, if delayed or not granted, may jeopardize or delay
the exchange offer, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the combination contemplated by the exchange offer and the
second-step merger.
The exchange offer is conditioned on the receipt of all governmental and regulatory authorizations, consents, orders and approvals
determined to be necessary or advisable by Validus, including without limitation, approval from the New York State Department of Insurance and the expiration or termination of the applicable waiting
period under the HSR Act. If Validus does not
receive these approvals, then Validus will not be obligated to accept shares of Transatlantic common stock for exchange in the exchange offer.
The
governmental and regulatory agencies from which Validus will seek these approvals have broad discretion in administering the applicable governing regulations. As a condition to their
approval of the transactions contemplated by this prospectus/offer to exchange, agencies may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of
the combined company's business. These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the consummation of the exchange offer or may reduce the anticipated
benefits of the combination contemplated by the exchange offer. Further, no assurance can be given that the required consents and approvals will be obtained or that the required conditions to the
exchange offer will be satisfied, and, if all required consents and approvals are obtained and the conditions to the consummation of the exchange offer are satisfied, no assurance can be given as to
the terms, conditions and timing of the consents and approvals. If Validus agrees to any material requirements, limitations, costs, divestitures or restrictions in order to obtain any consents or
approvals required to consummate the exchange offer, these requirements, limitations, additional costs or restrictions could adversely affect Validus' ability to integrate the operations of Validus
and Transatlantic or reduce the anticipated benefits of the combination contemplated by the exchange offer. This could have a material adverse effect on the business, financial condition and results
of operations of the combined company and the market value of Validus common shares after the acquisition. In addition, a third party could attempt to intervene in any governmental or regulatory
filings to be made by Validus or otherwise object to the
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granting
to Validus of any such governmental or regulatory authorizations, consents, orders or approvals, which may cause a delay in obtaining, or the imposition of material requirements, limitations,
costs, divestitures or restrictions on, or the failure to obtain, any such authorizations, consents, orders or approvals. Please see the section titled "The Exchange Offer—Conditions of
the Exchange Offer" for a discussion of the conditions to the exchange offer and the section titled "The Exchange Offer—Certain Legal Matters; Regulatory Approvals" for a description of
the regulatory approvals necessary in connection with the exchange offer and the second-step merger.
The exchange offer remains subject to other conditions that Validus cannot control.
The exchange offer is subject to other conditions, including tender without withdrawal of a sufficient number of shares of
Transatlantic common stock to satisfy the minimum tender condition, the termination of the Allied World acquisition agreement, the approval by our shareholders of the issuance of Validus common shares
to be issued as a portion of the exchange offer consideration in exchange for shares of Transatlantic common stock in the exchange offer and the second-step merger, no material adverse
effect having occurred with respect to Transatlantic and its subsidiaries and Transatlantic and its subsidiaries continuing to operate in the ordinary course of business consistent with past practice.
There are no assurances that all of the
conditions to the exchange offer will be satisfied. In addition, the Transatlantic board of directors may seek to take actions that will delay, or frustrate, the satisfaction of one or more
conditions. If the conditions to the exchange offer are not met, then Validus may allow the exchange offer to expire, or could amend or extend the exchange offer.
Please
see the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer" for a discussion of the conditions to the exchange
offer.
Even if the exchange offer is completed, full integration of Transatlantic's operations with Validus may be delayed if Validus does not hold at least 90% of the outstanding
shares of Transatlantic common stock following consummation of the exchange offer.
The exchange offer is subject to the minimum tender condition, which provides that, prior to the expiration time of the exchange offer,
Transatlantic stockholders shall have validly tendered and not withdrawn at least that number of shares of Transatlantic common stock that, when added to the shares of Transatlantic common stock then
owned by Validus or any of its subsidiaries, shall constitute a majority of the then-outstanding number of shares of Transatlantic common stock on a fully-diluted basis. If Validus accepts
shares of Transatlantic common stock for exchange and owns 90% or more of the outstanding shares of Transatlantic common stock after the exchange offer is completed, the second-step merger
can be effected as a "short form" merger under Delaware law without the consent of any stockholder (other than Validus) and without the approval of the Transatlantic board of directors. If Validus
does not acquire at least 90% of the outstanding shares of Transatlantic common stock in the exchange offer or otherwise, then both Transatlantic board approval and Transatlantic stockholder approval
will be required to effect the second-step merger. While the requirements of a Transatlantic stockholder and Transatlantic board of director approval would not prevent the
second-step merger from occurring, because Validus would hold sufficient shares of Transatlantic common stock to approve the second-step merger, it could delay the consummation
of the second-step merger and could delay the realization of some or all of the anticipated benefits from integrating Transatlantic's operations with Validus, including, among others,
achieving some or all of the synergies associated with the acquisition of Transatlantic by Validus.
The exchange offer is conditioned on termination of the Allied World acquisition agreement, which could under certain circumstances result in the payment of the Allied World
termination fee.
If the Transatlantic stockholders vote against the proposed Allied World acquisition, Transatlantic may be bound to pay the Allied
World termination fee, including in the circumstance where
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Transatlantic
subsequently agrees to enter into an agreement with a third party in respect of another business combination.
You may be unable to assert a claim against Transatlantic's independent auditors under Section 11 of the Securities Act.
Section 11(a) of the Securities Act provides that if part of a registration statement at the time it becomes effective contains
an untrue statement of a material fact or omits a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to
such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may assert a claim against, among others, any accountant or expert
who has consented to be named as having certified any part of the registration statement or as having prepared any report for use in connection with the registration statement. Although audit reports
were issued on Transatlantic's historical financial statements and are included in Transatlantic's filings with the SEC, Transatlantic's independent auditors have not permitted the use of their
reports in Validus' registration statement of which this prospectus/offer to exchange forms a part. Validus is requesting and has, as of the date hereof, not received the consent of such
independent auditors. In reliance on Rule 437 under the Securities Act, the registration statement has been filed without including a written consent from Transatlantic's independent auditors
with respect to Transatlantic's audited financial statements. Accordingly, you may not be able to assert a claim against Transatlantic's independent auditors under Section 11 of the Securities
Act.
Risk Factors Relating to Transatlantic's Businesses
You should read and consider other risk factors specific to Transatlantic's businesses that will also affect Validus after the
acquisition contemplated by this prospectus/offer to exchange, described in Part I, Item 1A of the Transatlantic 10-K and other documents
that have been filed by Transatlantic with the SEC and which are incorporated by reference into this document.
Risk Factors Relating to Validus' Businesses
You should read and consider other risk factors specific to Validus' businesses that will also affect Validus after the acquisition
contemplated by this prospectus/offer to exchange, described in Part I, Item 1A of the Validus 10-K and other documents that have been filed by Validus with the SEC and which
are incorporated by reference into this prospectus/offer to exchange.
Risk Factors Relating to Validus Following the Exchange Offer
Validus may experience difficulties integrating Transatlantic's businesses, which could cause Validus to fail to realize the anticipated benefits of the acquisition.
If Validus' acquisition of Transatlantic is consummated, achieving the anticipated benefits of the acquisition will depend in part upon
whether the two companies integrate their businesses in an effective and efficient manner. The companies may not be able to accomplish this integration process smoothly or successfully. The
integration of certain operations following the acquisition will take time and will require the dedication of significant management resources, which may temporarily distract management's attention
from the routine business of the combined entity.
Any
delay or inability of management to successfully integrate the operations of the two companies could compromise the combined entity's potential to achieve the anticipated
long-term strategic benefits of the acquisition and could have a material adverse effect on the business, financial condition and results of operations of the combined company and the
market value of Validus common shares after the acquisition.
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Validus has only conducted a review of Transatlantic's publicly available information and has not had access to Transatlantic's non-public information.
Therefore, Validus may be subject to unknown liabilities of Transatlantic which may have a material adverse effect on Validus' profitability, financial condition and results of operations.
To date, Validus has only conducted a due diligence review of Transatlantic's publicly available information. The consummation of the
exchange offer may constitute a default, or an event that, with or without notice or lapse of time or both, would constitute a default, or result in the acceleration or other change of any right or
obligation (including, without limitation, any payment obligation) under agreements of Transatlantic that are not publicly available. As a result, after the consummation of the exchange offer, Validus
may be subject to unknown liabilities of Transatlantic, which may have a material adverse effect on the business, financial condition and results of operations of the combined company and the market
value of Validus common shares after the acquisition.
In
addition, the exchange offer may also permit a counter-party to an agreement with Transatlantic to terminate that agreement because completion of the exchange offer or the
second-step merger would cause a default or violate an anti-assignment, change of control or similar clause. If this happens, Validus may have to seek to replace that agreement
with a new agreement. Validus cannot assure you that it will be able to replace a terminated agreement on comparable terms or at all. Depending on the importance of a terminated agreement to
Transatlantic's business, failure to replace that agreement on similar terms or at all may increase the costs to Validus of operating Transatlantic's business or prevent Validus from operating part or
all of Transatlantic's business.
In
respect of all information relating to Transatlantic presented in, incorporated by reference into or omitted from, this prospectus/offer to exchange, Validus has relied upon publicly
available information, including information publicly filed by Transatlantic with the SEC. Although Validus has no knowledge that would indicate that any statements contained herein regarding
Transatlantic's condition, including its financial or operating condition (based upon such publicly filed reports and documents) are inaccurate, incomplete or untrue, Validus was not involved in the
preparation of such information and statements. For example, Validus has made adjustments and assumptions in preparing the pro forma financial information presented in this prospectus/offer to
exchange that have necessarily involved Validus' estimates with respect to Transatlantic's financial information. Any financial, operating or other information regarding Transatlantic that may be
detrimental to Validus following Validus' acquisition of Transatlantic that has not been publicly disclosed by Transatlantic, or errors in Validus' estimates due to
the lack of cooperation from Transatlantic, may have a material adverse effect on the business, financial condition and results of operations of the combined company and the market value of Validus
common shares after the acquisition.
The acquisition may result in one or more ratings organizations taking actions which may adversely affect the combined companies' business, financial condition and operating
results, as well as the market price of Validus common shares.
Ratings with respect to claims paying ability and financial strength are important factors in maintaining customer confidence in
Validus and its ability to market insurance and reinsurance products and compete with other insurance and reinsurance companies. Rating organizations regularly analyze the financial performance and
condition of insurers and reinsurers and will likely reevaluate the ratings of Validus and its reinsurance subsidiaries following the consummation of the second-step merger, if applicable.
Although none of Standard & Poor's, A.M. Best or Moody's took any formal action with respect to modifying Validus' ratings or Transatlantic's ratings following the announcement of the
Validus merger offer or second-step merger, following the closing of the exchange offer, any ratings downgrades, or the potential for ratings downgrades, of Validus or its subsidiaries
(including the newly acquired Transatlantic operating companies) could adversely affect Validus' ability to market and distribute products and services and successfully compete in the marketplace,
which could have a
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material
adverse effect on the business, financial condition and results of operations of the combined company and the market value of Validus common shares after the acquisition.
The occurrence of severe catastrophic events after the completion of the exchange offer and the second-step merger could cause Validus' financial results to be
more volatile and may affect the financial results of Validus differently than if the exchange offer did not take place.
Because following the exchange offer Validus will, among other items, underwrite a large concentration of property catastrophe
insurance and reinsurance and have large aggregate exposures to natural and man-made disasters, Validus expects that its loss experience generally will include infrequent events of great
severity. Consequently, the occurrence of losses from catastrophic events is likely to cause substantial volatility in the Validus' financial results following the consummation of the exchange offer
and second-step merger. In addition, because catastrophes will continue to be an inherent risk of the Validus' business following the consummation of the exchange offer, a major event or
series of events can be expected to occur from time to time and to have a material adverse effect on the business, financial condition and results of operations of Validus and the market value of
Validus common shares after the acquisition.
Future results of the combined company may differ materially from the Selected Unaudited Condensed Consolidated Pro Forma Financial Information of Validus and Transatlantic
presented in this prospectus/offer to exchange.
The future results of Validus following the consummation of the exchange offer may be materially different from those shown in the
Selected Unaudited Condensed Consolidated Pro Forma Financial Information presented in this prospectus/offer to exchange, which show only a combination of Validus' and Transatlantic's historical
results after giving effect to the exchange offer. Validus has estimated that it will record approximately $32.375 million in transaction expenses, as described in the notes to the Selected Unaudited
Condensed Consolidated Pro Forma Financial Information included in this prospectus/offer to exchange. In addition, the final amount of any charges relating to acquisition accounting adjustments that
Validus may be required to record will not be known until following the consummation of exchange offer and second-step merger. These and other expenses and charges may be higher or lower
than estimated.
The recent downgrade in the U.S. credit rating could materially adversely affect the business, financial condition and results of operations of Validus and Transatlantic and
have an adverse effect on the exchange offer.
On August 5, 2011, Standard & Poor's lowered its long term sovereign credit rating on the United States of America from
AAA to AA+. The current U.S. debt ceiling and budget deficit concerns have increased the possibility of other credit-rating downgrades and an economic slowdown. The impact of the downgrade is
inherently unpredictable and could have a material adverse effect on the financial markets and economic conditions in the United States and throughout the world. In turn this could have a material
adverse effect on the business, financial condition and results of operations of Validus and Transatlantic, including with respect to assets in their investment portfolios, as well as assets in trusts
or other collateral arrangements posted by or to them. A decrease in the market value of investments held by Validus and Transatlantic could adversely affect the capital adequacy of such companies,
which could require them to raise additional capital during a period of distress in financial markets, potentially at a higher cost. Additionally, rating agencies could impose higher capital
requirements for Validus and Transatlantic to maintain their existing credit and financial strength ratings. Domestic and international equity markets have also recently experienced heightened
volatility and turmoil, which may have an adverse effect on the market price of Validus common shares at the date the exchange offer is consummated. No prediction can be made as to the extent,
severity and duration of the impact of the U.S. downgrade, a possible economic slowdown or of other recent events on the business, results of operations and financial condition of Validus and
Transatlantic or on the exchange offer.
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THE COMPANIES
Validus
Validus is a Bermuda exempted company with its principal executive offices located at 29 Richmond Road, Pembroke, Bermuda HM 08. The
telephone number of Validus is (441) 278-9000. Validus is a provider of reinsurance and insurance, conducting its operations worldwide through two wholly-owned subsidiaries, Validus
Re and Talbot. Validus Re is a Bermuda-based reinsurer focused on short-tail lines of reinsurance. Talbot is the Bermuda parent of the specialty insurance group primarily operating within
the Lloyd's insurance market through Syndicate 1183. At June 30, 2011, Validus had total shareholders' equity of approximately $3.5 billion and total assets of approximately
$8.3 billion. Validus common shares are listed on the NYSE under the ticker symbol "VR" and, as of August 19, 2011, the last practicable date prior to the filing of this prospectus/offer
to exchange, Validus had a market capitalization of approximately $2.5 billion. Validus has approximately 460 employees.
As
of the date of the filing of this prospectus/offer to exchange with the SEC, Validus was the holder of 200 shares of Transatlantic common stock, or less than 1% of the amount
outstanding.
Transatlantic
The following description of Transatlantic is taken from the Allied World/Transatlantic S-4. Please see the section of this
prospectus/offer to exchange titled "Note on Transatlantic Information."
Transatlantic
is a holding company incorporated in the State of Delaware. Transatlantic, through its wholly-owned subsidiaries, TRC, Trans Re Zurich Reinsurance Company Ltd.,
acquired by TRC in 1996, and Putnam (contributed by Transatlantic to TRC in 1995), offers reinsurance capacity for a full range of property and casualty products, directly and through brokers, to
insurance and reinsurance companies, in both the domestic and international markets on both a treaty and facultative basis. One or both of TRC and Putnam is licensed, accredited, authorized or can
serve as a reinsurer in 50 states and the District of Columbia in the United States and in Puerto Rico and Guam. Through its international locations, Transatlantic has operations worldwide, including
Bermuda, Canada, seven locations in Europe, three locations in Central and South America, two locations in Asia (excluding Japan), and one location in each of Japan, Australia and Africa. TRC is
licensed in Bermuda, Canada, Japan, the United Kingdom, the Dominican Republic, the Hong Kong Special Administrative Region, the People's Republic of China and Australia. Transatlantic was originally
formed in 1986 under the name PREINCO Holdings, Inc. as a holding company for Putnam. Transatlantic's name was changed to Transatlantic Holdings, Inc. on April 18, 1990 following
the acquisition on April 17, 1990 of all of the common stock of TRC in exchange for shares of common stock of Transatlantic.
Shares
of Transatlantic common stock are listed on the NYSE under the symbol "TRH." Transatlantic's principal executive offices are located at 80 Pine Street, New York, New York 10005
and its telephone number is 212-365-2200.
Internet
Address: Transatlantic's Internet address is www.transre.com and the investor relations section of its website is located at http://ir1.transre.com.
Transatlantic makes available free of charge, through the investor relations section of its website, annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.
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THE ACQUISITION, BACKGROUND AND REASONS FOR THE EXCHANGE OFFER
The Acquisition
In order to consummate the acquisition of Transatlantic, Validus is simultaneously pursuing the following alternative
transactions:
- (1)
- the
Validus merger offer; and
- (2)
- the
exchange offer.
The
Validus merger offer and the exchange offer are alternative methods for Validus to acquire all of the issued and outstanding shares of Transatlantic common stock. Ultimately, only
one of these transactions can be pursued to completion. Validus intends to seek to combine with Transatlantic by whichever method Validus determines is most likely to be completed.
On
July 12, 2011, Validus publicly announced that it had delivered Validus merger offer to the Transatlantic board of directors to combine the businesses of Validus and
Transatlantic through a merger transaction in which Validus would acquire all of the issued and outstanding shares of Transatlantic common stock. The proposal contemplates that Transatlantic
stockholders would receive 1.5564 Validus common shares in the merger and $8.00 per share in cash pursuant to a one-time special dividend from Transatlantic immediately prior to closing of
the merger for each share of Transatlantic common stock they own. Transatlantic announced on July 19, 2011 that
the Transatlantic board of directors had determined that the Validus merger offer did not constitute a "superior proposal" under the terms of the Allied World acquisition agreement and reaffirmed its
support of the proposed Allied World acquisition. However, Transatlantic also announced that the Transatlantic board of directors had determined that the Validus merger offer is reasonably likely to
lead to a "superior proposal" and that the failure to enter into discussions regarding the Validus merger offer would result in a breach of the Transatlantic board of directors' fiduciary duties under
applicable law.
Validus
has filed a preliminary proxy statement in connection with the solicitation against the adoption of the Allied World acquisition agreement and a vote against other proposals
brought before any Transatlantic special stockholder meeting as discussed in more detail in such preliminary proxy statement. If the Allied World acquisition agreement is not adopted by Transatlantic
stockholders after a vote thereon, the Transatlantic board of directors will be able to terminate the Allied World acquisition agreement and enter into a merger agreement with Validus. If the
Transatlantic board of directors were to enter into a merger agreement with Validus promptly following the termination of the Allied World acquisition agreement, Validus believes the merger
contemplated by the Validus merger offer could be completed in the fourth quarter of 2011.
Validus
commenced the exchange offer on July 25, 2011. In light of the uncertainty of entering into a consensual transaction with Transatlantic, Validus is making the exchange
offer directly to Transatlantic stockholders on the terms and conditions set forth in this prospectus/offer to exchange as an alternative to the Validus merger offer. In the event that Validus accepts
shares of Transatlantic common stock for exchange in the exchange offer, Validus intends to acquire any additional outstanding shares of Transatlantic common stock pursuant to the
second-step merger. If Validus accepts shares of Transatlantic common stock for exchange and owns 90% or more of the outstanding shares of Transatlantic common stock after the exchange
offer is completed, the second-step merger can be effected as a "short form" merger under Delaware law without the consent of any stockholder (other than Validus) and without the approval
of the Transatlantic board of directors. If Validus does not acquire at least 90% of the outstanding shares of Transatlantic common stock in the exchange offer or otherwise, then both Transatlantic
board approval and Transatlantic stockholder approval will be required to effect the second-step merger. In connection with consummation of the exchange offer or the second-step merger,
subject to applicable law, Validus currently expects to replace Transatlantic's existing board of directors.
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While
Validus continues to hope that it is possible to reach a consensual transaction with Transatlantic, Validus does not believe that it is in Transatlantic stockholders' best
interests to give the Transatlantic board of directors a veto right over Validus pursuing its proposal for Transatlantic.
Based
on Validus' and Transatlantic's respective capitalizations as of June 30, 2011, the exchange ratio of 1.5564, and assuming dissenters' rights are not properly exercised
under Delaware law in connection with the second-step merger, Validus estimates that if all shares of Transatlantic common stock are exchanged pursuant to the exchange offer and/or the
second-step merger, former Transatlantic stockholders would own, in the aggregate, approximately 48% of the aggregate Validus common shares and Validus non-voting common shares
on a fully-diluted basis.
For
more details relating to the structure of the exchange offer, please see the section of this prospectus/offer to exchange titled "The Exchange Offer."
Background of the Exchange Offer
Since Validus' formation in 2005, Validus has explored all available avenues for profitable growth, including evaluating opportunities
for strategic acquisitions which fit Validus' criteria. In connection with such strategic evaluation, Validus has in the past had preliminary discussions with Transatlantic regarding a potential
business combination transaction.
On
June 3, 2011, Edward J. Noonan, the Chief Executive Officer and Chairman of the Board of Directors of Validus, spoke by telephone with Robert F. Orlich, President, Chief
Executive Officer and a Director of Transatlantic. Mr. Noonan discussed with Mr. Orlich a potential business combination transaction between Validus and Transatlantic.
On
June 7, 2011, Validus delivered a letter to Transatlantic reiterating its interest in exploring a business combination transaction with Transatlantic.
On
June 12, 2011, Transatlantic and Allied World announced that they had entered into the Allied World acquisition agreement.
On
July 7, 2011, Allied World filed the Allied World/Transatlantic S-4 with the SEC. The Allied World/Transatlantic S-4 purports to provide a summary of
the events leading to Allied World and Transatlantic entering into the Allied World acquisition agreement.
In
the afternoon of July 12, 2011, Mr. Noonan placed a telephone call to Mr. Orlich. Mr. Noonan spoke to Mr. Orlich and stated that Validus would be
making a proposal to acquire Transatlantic in a merger pursuant to which Transatlantic stockholders would receive 1.5564 Validus common share in the merger
and $8.00 per share in cash pursuant to a one-time special dividend from Transatlantic immediately prior to closing of the merger. Mr. Noonan also noted that while Validus preferred
to work cooperatively with Transatlantic to complete a consensual transaction, it was also prepared to take the Validus merger offer directly to Transatlantic stockholders if necessary.
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Following
this telephone call, in the afternoon of July 13, 2011, Validus delivered a proposal letter containing the Validus Transaction Proposal to the Transatlantic Board in
care of Messrs. Press and Orlich and issued a press release announcing the Validus merger offer. The letter reads as follows:
July 12,
2011
Board of Directors of Transatlantic Holdings, Inc.
c/o Richard S. Press, Chairman
c/o Robert F. Orlich, President and Chief Executive Officer
80 Pine Street
New York, New York 10005
Re: Superior Proposal by Validus Holdings, Ltd. to Transatlantic Holdings, Inc.
Dear
Sirs:
On
behalf of Validus, I am pleased to submit this proposal to combine the businesses of Validus and Transatlantic through a merger in which Validus would acquire all of the outstanding stock of
Transatlantic. Pursuant to our proposal, Transatlantic stockholders would receive 1.5564 Validus voting common shares in the merger and $8.00 per share in cash pursuant to a one-time
special dividend from Transatlantic immediately prior to closing of the merger for each share of Transatlantic common stock they own. This combination, which is highly compelling from both a strategic
and financial perspective, would create superior value for our respective shareholders.
Based
on our closing stock price on July 12, 2011, the proposed transaction provides Transatlantic stockholders with total consideration of $55.95 per share of Transatlantic common stock based
on the Validus closing price on July 12, 2011, which represents a 27.1% premium to Transatlantic's closing price on June 10, 2011, the last trading day prior to the announcement of the
proposed acquisition of Transatlantic by Allied World Assurance Company Holdings, AG. Our proposal also represents a 12.1%
premium over the value of stock consideration to be paid to Transatlantic stockholders as part of the proposed acquisition of Transatlantic by Allied World based on the closing prices of Allied World
and Validus shares on July 12, 2011. Additionally, our proposed transaction is structured to be tax-free to Transatlantic stockholders with respect to the Validus voting common
shares they receive in the merger. The Allied World acquisition of Transatlantic is a fully-taxable transaction and does not include a cash component to pay taxes. Based on recent public
statements by a number of significant Transatlantic stockholders, we believe that Transatlantic stockholders would welcome and support our proposed tax-free transaction, which provides
higher value, both currently and in the long-term, to Transatlantic stockholders than Transatlantic's proposed acquisition by Allied World.
Our
Board of Directors and senior management have great respect for Transatlantic and its business. As you know from our previous outreaches to you and past discussions, including our recent
conversation on June 3rd and our letter dated June 7th, Validus has been interested in exploring a mutually beneficial business combination with Transatlantic for some time. We
continue to believe in the compelling logic of a transaction between Transatlantic and Validus. Each of us has established superb reputations with our respective brokers and ceding companies in the
markets we serve. The Flaspöhler 2010 Broker Report rated Transatlantic #3 and Validus #7 for "Best Overall" reinsurer and Validus #4 and Transatlantic #7 for "Best
Overall—Property Catastrophe." These parallel reputations for excellent service, creativity and underwriting consistency, when combined with the enhanced capital strength and worldwide
scope of a combined Validus and Transatlantic, would afford us the opportunity to execute a transaction that would be mutually beneficial to our respective shareholders and customers, and more
attractive than the proposed acquisition of Transatlantic by Allied World.
45
Table of Contents
We
believe that our proposal clearly constitutes a "Superior Proposal" under the terms of the proposed Allied World merger agreement for the compelling reasons set forth
below:
- 1.
- Superior Value. Our proposal of 1.5564 Validus voting common shares in the merger and $8.00 in cash pursuant
to a pre-closing dividend for each share of Transatlantic common stock, which represents total consideration of $55.95 per share of Transatlantic common stock based on the Validus closing
price on July 12, 2011, delivers a significantly higher value to Transatlantic stockholders than does the proposed acquisition of Transatlantic by Allied World. As noted above, as of such date,
our proposal represents a 27.1% premium to Transatlantic's closing price on June 10, 2011, the last trading day prior to the announcement of the proposed acquisition of Transatlantic by Allied
World, and a 12.1% premium over the value of stock consideration to be paid to Transatlantic stockholders in the proposed acquisition of Transatlantic by Allied World based on the closing prices of
Allied World and Transatlantic shares on July 12, 2011. Our proposal also delivers greater certainty of value because it includes a meaningful pre-closing cash dividend payable to
Transatlantic stockholders in contrast to the all-stock Allied World offer.
- 2.
- Tax-Free Treatment. In addition to the meaningful premium and cash consideration, the proposed
transaction with Validus is structured to be tax-free to Transatlantic stockholders with respect to the Validus voting common shares they receive in the merger (unlike the fully-taxable
proposed acquisition of Transatlantic by Allied World).
- 3.
- Relative Ownership. Upon consummation of the proposed transaction, Transatlantic stockholders would own
approximately 48% of Validus' outstanding common shares on a fully-diluted basis.(9)
- (9)
- Fully
diluted shares calculated using treasury stock method.
- 4.
- Superior Currency. Validus' voting common shares have superior performance and liquidity characteristics
compared to Allied World's stock:
|
|
|
|
|
|
|
|
|
|
Validus |
|
Allied World |
|
Total Shareholder Return Since Validus IPO(a) |
|
|
+55% |
|
|
+24% |
|
Market Cap as of 6/10/11(b) |
|
$ |
3.0 billion |
|
$ |
2.2 billion |
|
Average Daily Trading Volume (3 month)(c) |
|
$ |
27.6 million |
|
$ |
14.6 million |
|
Average Daily Trading Volume (6 month)(d) |
|
$ |
22.4 million |
|
$ |
13.4 million |
|
Price / As-Reported Diluted Book (Unaffected)(e) |
|
|
0.97x |
|
|
0.78x |
|
Price / As-Reported Diluted Book (Current)(e) |
|
|
0.98x |
|
|
0.76x |
|
Dividend Yield as of 6/10/11 (Unaffected) |
|
|
3.3% |
(f) |
|
2.6% |
(g) |
- (a)
- Including
dividends. Based on the closing prices on June 10, 2011 and July 24, 2007. Source: SNL.
- (b)
- "Market
Cap as of 6/10/11" reflects Validus' and Allied World's unaffected market capitalization based on market prices of Validus and Allied
World prior to the announcement of the proposed Allied World acquisition on June 12, 2011 (and as reported in the July 12, 2011 letter). As of August 19, 2011, Validus' market
capitalization was $2.5 billion and Allied World's market capitalization was $1.9 billion.
- (c)
- Three
months prior to June 12, 2011, date of announcement of proposed Allied World acquisition of Transatlantic. Source: Bloomberg.
- (d)
- Six
months prior to June 12, 2011, date of announcement of proposed Allied World acquisition of Transatlantic. Source: Bloomberg.
- (e)
- Based
on March 31, 2011 GAAP diluted book value per share. Unaffected price / as-reported diluted book value measured
prior to June 12, 2011 announcement of proposed Allied World acquisition of Transatlantic. Current is as of closing prices of Validus and Allied World stock on July 12, 2011.
- (f)
- Based
on $0.25 per share quarterly dividend, as announced May 5, 2011.
- (g)
- Based
on $0.375 per share quarterly dividend, as disclosed in Allied World Form 8-K dated June 15, 2011.
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Moreover,
Validus has maintained a premium valuation on a diluted book value per share multiple basis relative to its peers over the past two years, including Allied World. Our commitment to
transparency and shareholder value creation has allowed us to build a long-term institutional shareholder base, even as our initial investors have reduced their ownership in Validus.
- 5.
- Robust Long-Term Prospects. We believe that a combined Validus and Transatlantic would be a
superior company to Allied World following its acquisition of Transatlantic:
- •
- Strategic Fit:
- •
- The combination of Validus' strong positions in Bermuda and London and Transatlantic's operations in the United States,
continental Europe and Asia would produce a rare example of a complementary business fit with minimal overlap.
- •
- This combination will produce a well-diversified company that will be a global leader in reinsurance.
- •
- This combination will solidify Validus' leadership in property catastrophe, with pro forma managed catastrophe premiums of
over $1 billion,(10) while remaining within Validus' historical risk appetite. Validus has significant experience assimilating catastrophe portfolios, most recently its
acquisition of IPC Holdings, Ltd. in 2009.
- (10)
- Based
on property catastrophe gross premiums written for Validus and net premiums written for Transatlantic in 2010. Pro forma for Validus
($572 million), Transatlantic ($431 million) and AlphaCat Re 2011 ($43 million).
- •
- Finally, we believe that there is a natural division of expertise among our key executives in line with our complementary
businesses.
- •
- Size and Market Position: This combination would create a geographically diversified company with a top six reinsurance
industry position on a pro forma basis,(11) and makes the combined company meaningfully larger than many of the companies considered to be in our mutual peer group. Our merged companies
would have gross premiums written over the last twelve months of approximately $6.1 billion as of March 31, 2011.
- (11)
- Ranked
by 2009 net premiums written and excluding the Lloyd's market per Standard & Poor's Global Reinsurance Highlights 2010.
- •
- As the level of capital required to support risk will continue to rise globally, we believe that size will become an even
more important competitive advantage in the reinsurance market. The recent renewals at June 1 and July 1, 2011 reinforced this belief as Validus was able to significantly outperform
market rate levels—which we believe was a result of our size, superior analytics and our ability to structure private transactions at better than market terms, while not increasing our
overall risk levels.
- •
- Significant Structural Flexibility: Given jurisdiction, size and market position benefits, a combined Validus and
Transatlantic would have significant structural flexibility, including its ability to optimally deploy capital globally in different jurisdictions, e.g., through targeted growth initiatives
and/or capital management.
- •
- Global, Committed Leader in Reinsurance: Validus has a superior business plan for the combined company that will drive
earnings by capturing the best priced segments of the reinsurance market. A combined Validus / Transatlantic would derive a majority of its premiums from short-tail lines and 17% of
premiums written from property catastrophe (compared to 10% for Allied World / Transatlantic).(12) Validus believes this business mix allows for optimal cycle management as the
attractive pricing in short tail reinsurance will allow the combined company to better position itself for the eventual upturn in long tail lines. Validus also intends to fortify Transatlantic's
reserve position through a planned $500 million pre-tax reserve strengthening.
- (12)
- Based
on gross premiums written for Validus and net premiums written for Transatlantic in 2010.
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Table of Contents
We
have reviewed the Allied World merger agreement and would be prepared to enter into a merger agreement with Transatlantic that includes substantially similar non-price terms and
conditions as the Allied World merger agreement. We are also open to discussing an increase to the size of Validus' Board of Directors to add representation from the Transatlantic Board of Directors.
In order to facilitate your review of our proposal, we have delivered to you a draft merger agreement.
Additionally,
we expect that the proposed transaction with Validus would be subject to customary closing conditions, including the receipt of domestic and foreign antitrust and insurance regulatory
approvals and consents in the United States and other relevant jurisdictions. Based upon discussions with our advisors, we anticipate that all necessary approvals and consents can be completed in a
timely manner and will involve no undue delay in comparison to Transatlantic's proposed acquisition by Allied World.
Validus
expects that the pre-closing special dividend would be financed entirely by new indebtedness incurred by Transatlantic. As such, Validus has received a highly confident letter from
J.P. Morgan Securities LLC in connection with the arrangement of the full amount of financing required for the Transatlantic pre-closing special dividend.
Validus
has completed two large acquisitions since 2007, and has a proven track record of assimilating and enhancing the performance of businesses that it acquires to create additional value for
shareholders. As such, we are confident that we will be able to successfully integrate Transatlantic's and Validus' businesses in a manner that will quickly maximize the benefits of the transaction
for our respective shareholders.
Given
the importance of our proposal to our respective shareholders, we feel it appropriate to make this letter public. We believe that our proposal presents a compelling opportunity for both our
companies and our respective shareholders, and look forward to the Transatlantic Board of Directors' response by July 19, 2011. We are confident that, after the Transatlantic Board of Directors
has considered our proposal, it will agree that our terms are considerably more attractive to Transatlantic stockholders than the proposed acquisition of Transatlantic by Allied World and that our
proposal constitutes, or is reasonably likely to lead to, a "Superior Proposal" under the terms of Transatlantic's merger agreement with Allied World.
We
understand that, after the Transatlantic Board of Directors has made this determination and provided the appropriate notice to Allied World under the merger agreement, it can authorize
Transatlantic's management to enter into discussions with us and provide information to us. We are prepared to immediately enter into a mutually acceptable confidentiality agreement, and we would be
pleased to provide Transatlantic with a proposed confidentiality agreement.
We
understand that the terms of Transatlantic's merger agreement with Allied World do not currently permit Transatlantic to terminate the merger agreement in order to accept a "Superior Proposal," but
rather Transatlantic has committed to bring the proposed acquisition of Transatlantic by Allied World to a stockholder vote. We are prepared to communicate the benefits of our proposal as compared to
Allied World's proposed acquisition of Transatlantic directly to Transatlantic stockholders. In addition, while we would prefer to work cooperatively with the Transatlantic Board of Directors to
complete a consensual transaction, we are prepared to take our proposal directly to Transatlantic stockholders if necessary.
We
have already reviewed Transatlantic's publicly available information and would welcome the opportunity to review the due diligence information that Transatlantic previously provided to Allied
World. We are also prepared to give Transatlantic and its representatives access to Validus'
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Table of Contents
non-public
information for purposes of the Transatlantic Board of Directors' due diligence review of us.
Our
Board of Directors has unanimously approved the submission of this proposal. Of course, any definitive transaction between Validus and Transatlantic would be subject to the final approval of our
Board of Directors, and the issuance of Validus voting common shares contemplated by our proposal
will require the approval of our shareholders. We do not anticipate any difficulty in obtaining the required approvals and are prepared to move forward promptly at an appropriate time to seek these
approvals.
This
letter does not create or constitute any legally binding obligation by Validus regarding the proposed transaction, and, other than any confidentiality agreement to be entered into with
Transatlantic, there will be no legally binding agreement between us regarding the proposed transaction unless and until a definitive merger agreement is executed by Transatlantic and Validus.
We
believe that time is of the essence, and we, our financial advisors, Greenhill & Co., LLC and J.P. Morgan Securities LLC, and our legal advisor, Skadden, Arps, Slate
Meagher & Flom LLP, are prepared to move forward expeditiously with our proposal to pursue this transaction. We believe that our proposal presents a compelling opportunity for both
companies and our respective shareholders, and we look forward to receiving your response by July 19, 2011.
Sincerely,
/s/ Edward J. Noonan
Edward J. Noonan
Chairman and Chief Executive Officer
Enclosure
On
the morning of July 13, 2011, Transatlantic issued a press release acknowledging receipt of the letter from Validus containing the Validus merger offer and a separate press
release announcing the record date for the Transatlantic special stockholders meeting as of the close of business on July 22, 2011.
Also
on the morning of July 13, 2011, Allied World issued a press release announcing the record date for its extraordinary general meeting of its shareholders relating to the
proposed Allied World acquisition as of the close of business on July 22, 2011.
On
the afternoon of July 17, 2011, Validus delivered supplemental materials relating to the superior economics and other benefits of the Validus merger offer to the board of
directors of Transatlantic and, in the evening of July 17, 2011, Validus issued a press release describing the supplemental materials.
On
July 18, 2011, Validus filed a Notification and Report Form with the FTC and Antitrust Department under the HSR Act, relating to the Validus merger offer and the exchange
offer. On August 17, 2011 at 11:59 p.m. Eastern time, the applicable waiting period under the HSR Act for the acquisition by Validus
of shares of Transatlantic common stock pursuant to the exchange offer expired and the related condition to the exchange offer was satisfied.
On
July 19, 2011, Transatlantic issued a press release announcing that the Transatlantic board of directors determined that the Validus merger offer does not constitute a
"superior proposal" under the terms of the Allied World acquisition agreement and reaffirmed its support of the proposed Allied World acquisition. However, Transatlantic also announced that the
Transatlantic board of directors had determined that the Validus merger offer is reasonably likely to lead to a "superior proposal" and that
49
Table of Contents
the
failure to enter into discussions with Validus regarding the Validus merger offer would result in a breach of the Transatlantic board of directors' fiduciary duties under applicable law.
On
July 20, 2011, Validus filed a preliminary proxy statement with the SEC with respect to soliciting votes against adoption of the Allied World acquisition agreement at the
Transatlantic special stockholder meeting and issued a press release responding to the Transatlantic board of directors' response to the Validus merger offer.
On
the morning of July 23, 2011, following the expiration of a three business days' notice period under the Allied World acquisition agreement, Transatlantic delivered a form of
confidentiality agreement that included standstill provisions that would have prevented Validus from pursuing its proposal for Transatlantic for Validus' execution prior to the commencement of
discussions and exchange of confidential information.
On
the evening of July 23, 2011, in-house and outside counsel from Transatlantic (Gibson, Dunn & Crutcher LLP) and Validus (Skadden, Arps, Slate,
Meagher & Flom LLP) spoke via telephone to discuss the form of confidentiality agreement delivered by Transatlantic earlier that day. On this call, Transatlantic and Validus were unable to come
to agreement regarding the removal of the restrictive standstill provisions. Later that same evening, Validus delivered a form of confidentiality agreement to Transatlantic that it would be prepared
to execute.
On
the morning of July 25, 2011, Validus sent a letter to the Transatlantic board of directors regarding Transatlantic's refusal to enter into a confidentiality agreement that
would not foreclose Validus from pursuing its proposal for Transatlantic and informed the Transatlantic board that Validus was commencing the exchange offer that morning. The letter reads as follows:
July 25,
2011
Board
of Directors of Transatlantic Holdings, Inc.
c/o Richard S. Press, Chairman
c/o Robert F. Orlich, President and Chief Executive Officer
80 Pine Street
New York, New York 10005
Dear
Messrs. Press and Orlich:
I
am writing regarding your letter of July 23, 2011 and the draft confidentiality agreement you provided to us. We have commented on this draft, returned it to Transatlantic and
are prepared to execute the confidentiality agreement we returned so that our two companies may commence discussions and exchange information. Our revision to the agreement removes the standstill
provisions that you included which would contractually prohibit us from pursuing our Superior Proposal for Transatlantic without Transatlantic Board approval.
In
light of the statements in your press release of last Tuesday that the Transatlantic Board determined that the failure to enter into discussions with Validus would result in a breach
of its fiduciary duties, I was surprised to learn that you are insisting that we agree to standstill provisions as a precondition to such discussions. Were we to agree to such restrictions, we would
be foregoing our right to pursue our Superior Proposal for Transatlantic. In fact, we would be precluded from making any offer for Transatlantic without your express consent, as well as being
precluded from encouraging Transatlantic's stockholders to vote against the proposed inferior Allied World acquisition of Transatlantic. We believe that Transatlantic preconditioning any discussions
on our agreement to these restrictive provisions is inconsistent with the Transatlantic Board's fiduciary duties to its stockholders and is not required by your merger agreement with Allied World.
Clearly
50
Table of Contents
this
is not a condition that we can accept and your position causes us to question whether your overture of last week was genuine.
While
we continue to hope that it is possible to reach a consensual transaction with Transatlantic, we do not believe that it is in your stockholders' best interests to give the
Transatlantic Board a veto right over whether our Superior Proposal is made available to them. Accordingly, we are proceeding with our previously announced course to take our Superior Proposal
directly to Transatlantic stockholders by commencing an Exchange Offer for all of the outstanding shares of common stock of Transatlantic for 1.5564 Validus voting common shares and $8.00 in cash per
share of Transatlantic common stock and to continue to solicit Transatlantic stockholders to vote against the approval of your sale to Allied World.
On behalf of your stockholders, we would encourage you not to take further action against their best interests by attempting to set roadblocks in our path.
We
remain open to engaging in discussions with Transatlantic and exchanging information regarding Validus' Superior Proposal. However, such discussions cannot be constrained by
preconditions that eliminate Validus' ability to pursue our Superior Proposal.
Sincerely,
/s/ Edward J. Noonan
Edward J. Noonan
Chairman and Chief Executive Officer
On
July 25, 2011, Validus commenced the exchange offer and filed its Registration Statement on Form S-4, which included a prospectus/offer to exchange.
On
July 25, 2011, prior to the open of the trading day, Validus issued a press release containing the foregoing letter and announcing the commencement of the exchange offer.
On
the morning of July 28, 2011, Transatlantic filed a Schedule 14D-9 reporting that the Transatlantic board of directors had met on July 26, 2011 and
reaffirmed its support of the proposed Allied World acquisition, and determined to recommend that Transatlantic stockholders reject the exchange offer and not tender their shares of Transatlantic
common stock pursuant to the exchange offer.
Also
on the morning of July 28, 2011, Transatlantic filed a Form 8-K with the SEC announcing that it had adopted the Transatlantic rights plan, which has a term
of one year and a 10% beneficial ownership threshold.
Additionally,
on the morning of July 28, 2011, Transatlantic announced that it had filed a complaint against Validus in the United States District Court for the District of
Delaware, alleging that Validus violated the securities laws by making false and misleading statements to Transatlantic's stockholders in connection with the exchange offer and its opposition to the
proposed Allied World acquisition. Validus believes that this suit is meritless. On August 10, 2011, Validus moved to dismiss this complaint for failure to state a claim.
On
the afternoon of July 28, 2011, Validus issued a press release reiterating that the exchange offer is superior to the proposed Allied World acquisition and challenging
misleading statements that had been made by Transatlantic earlier that day.
On
August 1, 2011, Validus filed with the SEC an amendment to its preliminary proxy statement with respect to soliciting votes against adoption of the Allied World acquisition
agreement at the Transatlantic special stockholder meeting.
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Table of Contents
On
August 2, 2011, Validus obtained amendments to its applicable credit facilities necessary for satisfying a condition to the exchange offer.
On
August 3, 2011, Validus filed with the SEC an amendment to its Registration Statement on Form S-4, including an amended prospectus/offer to exchange.
Also
on August 3, 2011, Validus filed with the SEC a preliminary proxy statement with respect to a special meeting of Validus shareholders at which Validus will seek the approval
of the issuance of Validus voting common shares in connection with the exchange offer or other acquisition transaction involving Transatlantic.
On
August 4, 2011, at Transatlantic's request, Mr. Noonan and Joseph E. (Jeff) Consolino, Validus' President and Chief Financial Officer, met with Mr. Orlich and
Michael Sapnar, Transatlantic's Executive Vice President and Chief Operating Officer, to discuss the potential terms of a confidentiality agreement between Validus and Transatlantic.
On
August 5, 2011, at Validus' request, representatives of Skadden, Arps and Gibson Dunn met to discuss the potential terms of a confidentiality agreement between Validus and
Transatlantic.
On
August 7, 2011, Transatlantic announced that it had received on August 5, 2011 a proposal from National Indemnity Company to acquire all of the outstanding shares of
Transatlantic common stock for $52.00 per share.
On
August 8, 2011, Transatlantic announced that the proposal from National Indemnity Company does not constitute a "superior proposal" under the terms of the Allied World
acquisition agreement, but is reasonably likely to lead to a "superior proposal," and that the failure to enter into discussions regarding the proposal from National Indemnity Company would result in
a breach of the Transatlantic board of directors' fiduciary duties under applicable law.
Also
on August 10, 2011, Validus filed a complaint in the Court of Chancery of the State of Delaware against Transatlantic, the members of its board of directors, and Allied
World. The complaint alleges that Transatlantic directors have breached and are breaching their fiduciary duties by refusing to recommend against the proposed Allied World acquisition, refusing to
engage Validus in discussions about the Validus offer, and making false and misleading statements and omissions in connection with seeking stockholder approval of the Allied World acquisition. The
complaint also alleges that Allied World has aided and abetted these breaches of fiduciary duty. On August 16, 2011, Validus filed a motion seeking (i) a preliminary injunction seeking a
declaratory judgment regarding Transatlantic's interpretation of Section 5.5(e) of the Allied World acquisition agreement and whether the Transatlantic board of directors has breached its
fiduciary duties by refusing to enter into discussions and exchange information with Validus and (ii) expedited discovery in connection with the preliminary injunction hearing.
Also
on August 10, 2011, Validus sent a letter to the Transatlantic board of directors regarding the above referenced Delaware Chancery Court complaint and notifying the
Transatlantic board of directors that Validus' outside legal counsel, Skadden, Arps, would be delivering to Transatlantic's outside legal counsel, Gibson Dunn, an executed one-way
confidentiality agreement that would permit Transatlantic to receive and review non-public information regarding Validus, and which would not contain a standstill or prevent Transatlantic
from disclosing such information as it may be legally required.
Additionally,
on August 10, 2011, Skadden, Arps delivered to Gibson Dunn the above referenced executed one-way confidentiality agreement.
On
August 12, 2011, Validus filed with the SEC an amendment to its Registration Statement on Form S-4, including an amended prospectus/offer to exchange.
52
Table of Contents
Also
on August 12, 2011, Validus filed with the SEC an amendment to its preliminary proxy statement with respect to soliciting votes against adoption of the Allied World
acquisition agreement at the Transatlantic special stockholder meeting.
On
August 19, 2011, Validus filed with the SEC an amendment to its Registration Statement on Form S-4, including an amended prospectus/offer to exchange.
On
August 19, 2011, Validus filed with the SEC an amendment to its preliminary proxy statement with respect to a special meeting of Validus shareholders at which Validus will seek
the approval of the issuance of Validus voting common shares in connection with the exchange offer or other acquisition transaction involving Transatlantic.
Reasons for the Exchange Offer
While Validus continues to hope that it is possible to reach a consensual transaction with Transatlantic, Validus does
not believe that it is in Transatlantic stockholders' best interests to give the Transatlantic board of directors a veto right over Validus pursuing its proposal for Transatlantic Transatlantic's
stockholders. Accordingly, Validus commenced the exchange offer.
Validus
believes that the acquisition of Transatlantic represents a compelling combination and excellent strategic fit that will create a unique, global leader in reinsurance that will
- •
- deploy capital effectively to maximize underwriting profitability and achieve superior growth in book value per share,
- •
- continue to aggressively manage capital, consistent with Validus' past practice, and
- •
- be a recognized leader in multiple classes, emphasizing short-tail lines while being
well-positioned for cycle management.
The
Validus common shares to be issued and cash to be paid to Transatlantic stockholders in exchange for shares of Transatlantic common stock in the exchange offer will provide
Transatlantic stockholders
with a compelling opportunity to participate in the growth and opportunities of the combined company. Validus believes that the combination of Validus and Transatlantic offers a number of benefits to
holders of shares of Transatlantic common stock, including the following:
The exchange offer provides a premium to Transatlantic stockholders compared to the proposed Allied World acquisition.
- •
- Based upon closing prices as of August 19, 2011, the last practicable date prior to the filing of this
prospectus/offer to exchange, the exchange offer had a value of $47.80 per share of Transatlantic common stock, which represented 6.6% premium to the consideration to be received by Transatlantic
stockholders in the proposed Allied World acquisition.
- •
- Information with respect to the range of closing prices for shares of Transatlantic common stock for certain dates and
periods is set forth in the section of this prospectus/offer to exchange titled "Comparative Market Price and Dividend Information." Validus urges Transatlantic stockholders to obtain a current market
quotation for shares of Transatlantic common stock and Validus common shares. Please also see the section of this prospectus/offer to exchange titled "Risk Factors" for a discussion, among other
things, of the effect of fluctuations in the market price of Validus common shares.
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Table of Contents
The Validus common shares to be issued to Transatlantic stockholders in exchange for shares of Transatlantic common stock pursuant to the exchange offer represent what we
believe is a superior currency to Allied World's common shares.
- •
- Superior Currency
- •
- Validus common shares have superior performance and liquidity characteristics to Allied World's common shares:
|
|
|
|
|
|
|
|
|
|
Validus |
|
Allied World |
|
Total Shareholder Return Since Validus IPO(a) |
|
|
+55% |
|
|
+24% |
|
Market Cap as of 6/10/11(b) |
|
$ |
3.0 billion |
|
$ |
2.2 billion |
|
Average Daily Trading Volume (3 month)(c) |
|
$ |
27.6 million |
|
$ |
14.6 million |
|
Average Daily Trading Volume (6 month)(d) |
|
$ |
22.4 million |
|
$ |
13.4 million |
|
Price / As-Reported Diluted Book (Unaffected)(e) |
|
|
0.97x |
|
|
0.78x |
|
Price / As-Reported Diluted Book (as of 7/12/11)(e) |
|
|
0.98x |
|
|
0.76x |
|
Dividend Yield as of 6/10/11 (Unaffected) |
|
|
3.3% |
(f) |
|
2.6% |
(g) |
- (a)
- Including
dividends. Based on the closing prices on June 10, 2011 and July 24, 2007. Source: SNL.
- (b)
- "Market
Cap as of 6/10/11" reflects Validus' and Allied World's unaffected market capitalization based on market prices of Validus and Allied
World prior to the announcement of the proposed Allied World acquisition on June 12, 2011. As of August 19, 2011, Validus' market capitalization was $2.5 billion and Allied
World's market capitalization was $1.9 billion.
- (c)
- Three
months prior to June 12, 2011, date of announcement of proposed Allied World acquisition of Transatlantic. Source: Bloomberg.
- (d)
- Six
months prior to June 12, 2011, date of announcement of proposed Allied World acquisition of Transatlantic. Source: Bloomberg.
- (e)
- Based
on March 31, 2011 GAAP diluted book value per share. Unaffected price / as-reported diluted book value measured
prior to June 12, 2011 announcement of proposed Allied World acquisition of Transatlantic. Current is as of closing prices of Validus and Allied World stock on July 12, 2011.
- (f)
- Based
on $0.25 per share quarterly dividend, as announced May 5, 2011.
- (g)
- Based
on $0.375 per share quarterly dividend, as disclosed in Allied World Form 8-K dated June 15, 2011.
- •
- Moreover, Validus has maintained a premium valuation on a diluted book value per share multiple basis relative to its
peers over the past two years, including Allied World.(12) Our commitment to transparency and shareholder value creation has allowed Validus to build a long-term
institutional shareholder base, even as Validus' initial investors have reduced their ownership in Validus.
- (13)
- Comparison
of Validus and selected peer median quarterly Price / Diluted Book Value Per Share based on share price on day immediately
following release of relevant quarter's earnings. Selected peer group consists of Allied World, Transatlantic, XL Group plc, Everest Re Group, Ltd., Arch Capital Group Ltd., Axis
Capital Holdings Limited, Alterra Capital Holdings Ltd., Aspen Insurance Holdings Limited, Endurance Specialty Holdings Ltd., Argo Group International Holdings, Ltd.,
PartnerRe Ltd., RenaissanceRe Holdings Ltd., Platinum Underwriters Holdings, Ltd., Montpelier Re Holdings Ltd., Greenlight Capital Re, Ltd. and Flagstone Reinsurance
Holdings SA. Source: FactSet, company filings, SNL.
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We believe that a combined Validus and Transatlantic would be a superior company to Allied World following its acquisition of Transatlantic.
- •
- Strategic Fit
- •
- The combination of Validus' strong positions in Bermuda and London and Transatlantic's operations in the United States,
continental Europe and Asia would produce a complementary business fit and a well-diversified company that will be a global leader in reinsurance. Validus intends that, following the
acquisition of Transatlantic, Validus' and Transatlantic's respective brands will continue to be utilized in their respective markets in order to preserve each company's brand
equity.(14)
- •
- This combination will solidify Validus' leadership in property catastrophe, with pro forma managed catastrophe premiums of
over $1 billion,(15) while remaining within Validus' historical risk appetite. Validus has significant experience assimilating catastrophe portfolios, most recently its
acquisition of IPC Holdings, Ltd., which we refer to as "IPC," in 2009.
- (14)
- Allied
World has also stated an intent to preserve the Transatlantic brand.
- (15)
- Based
on property catastrophe gross premiums written for Validus and net premiums written for Transatlantic in 2010. Pro forma for Validus
($572 million), Transatlantic ($431 million) and AlphaCat Re 2011 ($43 million).
- •
- Size and Market Position
- •
- This combination will create a geographically diversified company with a top six reinsurance industry position on a pro
forma basis,(16) and will make the combined company meaningfully larger than many of the companies considered to be in the mutual peer group of Validus and Transatlantic. The combined
company would have gross premiums written over the last twelve months of approximately $6.3 billion as of June 30, 2011, which is comparable in amount to the pro forma combination of
Transatlantic and Allied World.
- (16)
- Ranked
by 2009 net premiums written and excluding the Lloyd's market per Standard & Poor's Global Reinsurance Highlights 2010.
- •
- As the level of capital required to support risk will continue to rise globally, we believe that size will become an even
more important competitive advantage in the reinsurance market. The recent renewals at June 1 and July 1, 2011 reinforced this belief as Validus was able to significantly outperform
market rate levels—which Validus believes was a result of our size, superior analytics and Validus' ability to structure private transactions at better than market terms, while not
increasing Validus' overall risk levels.
- •
- Significant Structural Flexibility
- •
- Given jurisdiction, size and market position benefits, we believe a combined Validus and Transatlantic would have
significant structural flexibility, including its ability to optimally deploy capital globally in different jurisdictions, e.g., through targeted growth initiatives and/or capital management.
- •
- Global, Committed Leader in Reinsurance
- •
- Validus believes that its business plan for the combined company will drive earnings by capturing the best priced segments
of the reinsurance market. A combined Validus / Transatlantic would derive a majority of its premiums from short-tail lines and 17% of premiums written from property catastrophe (compared
to 10% for Allied World / Transatlantic).(17) Validus believes this business mix allows for optimal cycle management as the attractive pricing in short tail reinsurance will allow the
combined company to better position itself for the eventual upturn in long tail lines. Validus also intends to fortify Transatlantic's reserve position through a planned $500 million
pre-tax reserve strengthening.
- (17)
- Based
on gross premiums written for Validus and net premiums written for Transatlantic in 2010.
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Following a combination of Validus and Transatlantic, we believe the combined company would have significant capital availability that could be actively managed to the
benefit of the combined company's shareholders.
Active capital management is a core element of Validus' strategy which Validus believes has contributed to its premium
valuation.(18) From the inception of its repurchase program on November 11, 2009 through May 6, 2011, Validus repurchased 35 million Validus common shares for
approximately $947.2 million (approximately 26.7% of all Validus common shares outstanding since the inception of the repurchase program).
- (18)
- Comparison
of Validus and selected peer median quarterly Price / Diluted Book Value Per Share based on share price on day immediately
following release of relevant quarter's earnings. Selected peer group consists of Allied World, Transatlantic, XL Group plc, Everest Re Group, Ltd., Arch Capital Group Ltd., Axis
Capital Holdings Limited, Alterra Capital Holdings Ltd., Aspen Insurance Holdings Limited, Endurance Specialty Holdings Ltd., Argo Group International Holdings, Ltd.,
PartnerRe Ltd., RenaissanceRe Holdings Ltd., Platinum Underwriters Holdings, Ltd., Montpelier Re Holdings Ltd., Greenlight Capital Re, Ltd. and Flagstone Reinsurance
Holdings SA. Source: FactSet, company filings, SNL.
The
combination of Validus and Transatlantic would create a company with an estimated 1.1 billion of pre-synergy, pre-catastrophe
earnings,(19) which could be available for expanded share repurchase activity.(20) Validus intends to manage its capital following the acquisition of Transatlantic in a
manner consistent with its past practices in order to benefit the combined company's shareholders.
- (19)
- Based
upon combined last twelve months pre-catastrophe accident year earnings as of June 30, 2011.
- (20)
- The
timing, form and amount of the share repurchases under any program would depend on a variety of factors, including market conditions,
Validus' capital position relative to internal and rating agency targets, legal and regulatory requirements, contractual compliance and other factors. The repurchase program may be modified, extended
or terminated by Validus' board of directors at any time.
We believe that the combination of Validus and Transatlantic would yield significant synergies.
In addition to the aggregate earnings power of the combined company, following the acquisition of Transatlantic,
Validus believes there will be significant opportunities to expand the combined company's earnings and return on equity through combination synergies. Once Validus and Transatlantic have combined,
Validus believes potential synergies will arise from (1) the elimination of Transatlantic's public company costs, (2) the restructuring of the combined company's legal organization,
including restructuring Transatlantic's non-U.S. subsidiaries, (3) the optimization of the combined company's catastrophe portfolio and harmonization of Validus' and Transatlantic's
respective risk appetites, and (4) the maximization of after-tax returns on the combined company's investment portfolio. Please see the section of this prospectus/offer to exchange
titled "Risk Factors—Risk Factors Relating to the Exchange Offer and the Second-Step Merger."
Validus offers Transatlantic a highly experienced, first class management team.
As reflected in Schedule I to this prospectus/offer to exchange, Validus offers Transatlantic a highly
experienced, first-class management team. Validus' management team has demonstrated the ability to execute growth strategies successfully, carefully manage risk and deliver enhanced shareholder value.
Under the stewardship of its current management, Validus has completed the acquisitions of Talbot and IPC and established a meaningful presence in the property casualty, specialty, energy and aviation
markets. The excellent performance of the leadership of the Validus management team is evidenced by the fact that Validus common shares traded at 0.98x and 1.02x, respectively, to Validus'
as-reported diluted book value and diluted tangible book value based on the closing price of Validus common shares on July 12, 2011, the last trading day prior to the announcement
of the Validus merger offer. Validus will seek to retain the Transatlantic management team for the benefit of the combined company.
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THE EXCHANGE OFFER
Overview
Validus is offering to exchange for each outstanding share of Transatlantic common stock that is validly tendered and not properly
withdrawn prior to the expiration time of the exchange offer, 1.5564 Validus common shares and $8.00 in cash (less applicable withholding taxes and without interest), upon the terms and subject to the
conditions contained in this prospectus/offer to exchange and the accompanying letter of transmittal. In addition, you will receive cash in lieu of any fractional Validus common share to which you may
be entitled.
The
term "expiration time of the exchange offer" means 5:00 p.m., Eastern time, on Friday, September 30, 2011, unless Validus extends the period of time for which the
exchange offer is open, in
which case the term "expiration time of the exchange offer" means the latest time and date on which the exchange offer, as so extended, expires.
The
exchange offer is subject to conditions which are described in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange
Offer." Validus expressly reserves the right, subject to the applicable rules and regulations of the SEC, to waive any condition of the exchange offer described herein in its discretion, except for
the conditions described under the subheadings "Shareholder Approval Condition," "Registration Statement Condition," "NYSE Listing Condition," "Competition Condition," "New York Department of
Insurance Condition," and "Regulatory Condition" in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer" below, each of which
cannot be waived. Validus expressly reserves the right to make any changes to the terms and conditions of the exchange offer (subject to any obligation to extend the exchange offer pursuant to the
applicable rules and regulations of the SEC).
If
you are the record owner of your shares of Transatlantic common stock and you tender your shares of Transatlantic common stock in the exchange offer, you will not have to pay any
brokerage fees or similar expenses. If you own your shares of Transatlantic common stock through a broker, dealer, commercial bank, trust company or other nominee and your broker, dealer, commercial
bank, trust company or other nominee tenders your shares of Transatlantic common stock on your behalf, your broker or such other nominee may charge a fee for doing so. You should consult your broker,
dealer, commercial bank, trust company or other nominee to determine whether any charges will apply.
The
purpose of the exchange offer is for Validus to acquire control of, and ultimately the entire equity interest in, Transatlantic. Validus has publicly expressed a desire to enter into
a consensual business combination with Transatlantic and delivered the Validus merger offer to Transatlantic on July 12, 2011. Transatlantic announced on July 19, 2011 that the
Transatlantic board of directors had determined that the Validus merger offer did not constitute a "superior proposal" under the terms of the Allied World acquisition agreement and reaffirmed its
support of the proposed Allied World acquisition. Validus commenced the exchange offer on July 25, 2011. In light of the uncertainty of entering into a consensual transaction with
Transatlantic, Validus is making the exchange offer directly to Transatlantic stockholders on the terms and conditions set forth in this prospectus/offer to exchange as an alternative to the Validus
merger offer.
Validus
intends, promptly following acceptance for exchange and exchange of shares of Transatlantic common stock in the exchange offer, to effect the second-step merger
pursuant to which Validus will acquire all shares of Transatlantic common stock of those Transatlantic stockholders who choose not to tender their shares of Transatlantic common stock pursuant to the
exchange offer in accordance with Delaware law. After the second-step merger, former remaining Transatlantic stockholders will no longer have any ownership interest in Transatlantic and
will be shareholders of Validus and Validus will own all of the issued and outstanding shares of Transatlantic common stock.
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Please
see the sections of this prospectus/offer to exchange titled "The Exchange Offer—Purpose and Structure of the Exchange Offer"; "The Exchange
Offer—Second-Step Merger"; and "The Exchange Offer—Plans for Transatlantic."
Subject
to applicable law, Validus reserves the right to amend the exchange offer (including by amending the consideration to be offered in the exchange offer or second-step
merger or the structure of the second-step merger), including upon entering into a merger agreement with Transatlantic (including a merger agreement that does not contemplate an exchange
offer), in which event we would terminate the exchange offer and the shares of Transatlantic common stock would, upon consummation of such acquisition, be converted into the right to receive the
merger consideration pursuant to the merger agreement. Please see the sections of this prospectus/offer to exchange titled "The Exchange Offer—Plans for Transatlantic" and "The Exchange
Offer—Extension, Termination and Amendment."
Based
on Validus' and Transatlantic's respective capitalizations as of June 30, 2011, the exchange ratio of 1.5564, and assuming dissenters' rights are not properly exercised
under Delaware law in connection with the second-step merger, Validus estimates that if all shares of Transatlantic common stock are exchanged pursuant to the exchange offer and the
second-step merger, former Transatlantic stockholders would own, in the aggregate, approximately 48% of the aggregate Validus common shares and Validus non-voting common shares
on a fully-diluted basis. For a detailed discussion of the assumptions on which this estimate is based, please see the section of this prospectus/offer to exchange titled "The Exchange
Offer—Ownership of Validus After the Exchange Offer."
Expiration Time of the Exchange Offer
The exchange offer is scheduled to expire at 5:00 p.m., Eastern time, on Friday, September 30, 2011, which is the
expiration time of the exchange offer, unless further extended by Validus. For more information, you should read the discussion below in the section of this
prospectus/offer to exchange titled "The Exchange Offer—Extension, Termination and Amendment."
Extension, Termination and Amendment
Subject to the applicable rules of the SEC and the terms and conditions of the exchange offer, Validus also expressly reserves the
right (but will not be obligated) (1) to extend, for any reason, the period of time during which the exchange offer is open, (2) to delay acceptance for exchange of, or exchange of,
shares of Transatlantic common stock in order to comply in whole or in part with applicable law (any such delay shall be effected in compliance with Rule 14e-1(c) under the Exchange
Act, which requires Validus to pay the consideration offered or to return shares of Transatlantic common stock deposited by or on behalf of Transatlantic stockholders promptly after the termination or
withdrawal of the exchange offer), (3) to terminate the exchange offer without accepting for exchange, or exchanging, any shares of Transatlantic common stock if any of the individually
subheaded conditions referred to in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer" have not been satisfied immediately prior
to the expiration time of the exchange offer or if any event specified in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer"
under the subheading "Other Conditions" has occurred; (4) to amend or terminate the exchange offer without accepting for exchange or exchanging any shares of Transatlantic common stock if
Validus or any of its affiliates enters into a definitive agreement or announces an agreement in principle with Transatlantic providing for a merger or other business combination or transaction with
or involving Transatlantic or any of its subsidiaries, or the purchase or exchange of securities or assets of Transatlantic or any of its subsidiaries, or Validus and Transatlantic reach any other
agreement or understanding, in either case, pursuant to which it is agreed or provided that the exchange offer will be terminated; and (5) to amend the exchange offer or to waive any conditions
to the exchange offer at any time, in each case by giving oral or written notice
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of
such delay, termination, waiver or amendment to the exchange agent and by making public announcement thereof.
The
expiration time of the exchange offer may also be subject to multiple extensions and any decision to extend the exchange offer, and if so, for how long, will be made prior to the
expiration time of the exchange offer.
Any
such extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, which, in the case of an extension, will be made
no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled expiration time of the exchange offer. Subject to applicable law (including
Rules 14d-4(d)(i),
14d-6(c) and 14e-1 under the Exchange Act, which require that material changes be promptly disseminated to Transatlantic stockholders in a manner reasonably designed to inform
them of such changes), and without limiting the manner in which Validus may choose to make any public announcement, Validus will have no obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a press release or other announcement.
Rule 14e-1(c)
under the Exchange Act requires Validus to pay the consideration offered or return the shares of Transatlantic common stock tendered promptly after the
termination or withdrawal of the exchange offer.
If
Validus increases or decreases the percentage of shares of Transatlantic common stock being sought or the consideration offered in the exchange offer and the exchange offer is
scheduled to expire at any time before the expiration of 10 business days from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner
specified below, the exchange offer will be extended until at least the expiration of 10 business days from, and including, the date of such notice. If Validus makes a material change in the terms of
the exchange offer (other than a change in the consideration offered in the exchange offer or the percentage of securities sought) or in the information concerning the exchange offer, or waives a
material condition of the exchange offer, Validus will extend the exchange offer, if required by applicable law, for a period sufficient to allow Transatlantic stockholders to consider the amended
terms of the exchange offer. In a published release, the SEC has stated its view that an offer must remain open for a minimum period of time following a material change in the terms of such offer, and
that the waiver of a condition such as the condition described in the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer" under the
subheading "Minimum Tender Condition" is a material change in the terms of an offer. The release states that an offer should remain open for a minimum of five business days from the date that the
material change is first published, sent or given to Transatlantic stockholders, and that if material changes are made with respect to information that approaches the significance of the price to be
paid in the exchange offer or the percentage of shares sought in the exchange offer, a minimum of 10 business days may be required to allow adequate dissemination and investor response.
As
used in this prospectus/offer to exchange, a "business day" means any day, other than a Saturday, Sunday or a federal holiday, and shall consist of the time period from
12:01 a.m. through 12:00 midnight, Eastern time. If, prior to the expiration time of the exchange offer, Validus increases the consideration being paid for shares of Transatlantic common stock
accepted for exchange pursuant to the exchange offer, such increased consideration will be received by all Transatlantic stockholders whose shares of Transatlantic common stock are exchanged pursuant
to the exchange offer, whether or not such shares of Transatlantic common stock were tendered prior to the announcement of the increase of such consideration.
Pursuant
to Rule 14d-11 under the Exchange Act, Validus may, subject to certain conditions, elect to provide a subsequent offering period of at least three business
days following the expiration time of the exchange offer on the date of the expiration time of the exchange offer and acceptance for
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exchange
of the shares of Transatlantic common stock tendered in the exchange offer. A subsequent offering period would be an additional period of time, following the first exchange of shares of
Transatlantic common stock in the exchange offer, during which shareholders could tender shares of Transatlantic common stock not tendered in the exchange offer.
During
a subsequent offering period, tendering Transatlantic stockholders would not have withdrawal rights and Validus would promptly exchange and pay for any shares of Transatlantic
common stock tendered at the same price paid in the exchange offer. Rule 14d-11 under the Exchange Act provides that Validus may provide a subsequent offering period so long as,
among other things, (1) the initial period of at least 20 business days of the exchange offer has expired, (2) Validus offers the same form and amount of consideration for shares of
Transatlantic common stock in the subsequent offering period as in the initial offer, (3) Validus immediately accepts and promptly pays for all shares of Transatlantic common stock tendered
prior to the expiration time of the exchange offer, (4) Validus announces the results of the exchange offer, including the approximate number and percentage of shares of Transatlantic common
stock deposited in the exchange offer, no later than 9:00 a.m., Eastern time, on the next business day after the expiration time of the exchange offer and immediately begins the subsequent
offering period and (5) Validus immediately accepts and promptly pays for shares of Transatlantic common stock as they are tendered during the subsequent offering period. If Validus elects to
include a subsequent offering period, it will notify Transatlantic stockholders by making a public announcement on the next business day after the expiration time of the exchange offer consistent with
the requirements of Rule 14d-11 under the Exchange Act.
Pursuant to Rule 14d-7(a)(2) under the Exchange Act, no withdrawal rights apply to shares of Transatlantic common stock tendered during a
subsequent offering period and no withdrawal rights apply during a subsequent offering period with respect to shares of Transatlantic common stock tendered in the exchange offer and accepted for
exchange. The same consideration will be received by Transatlantic stockholders tendering shares of Transatlantic common stock in the exchange offer or in a subsequent offering period, if one is
included. Please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Withdrawal Rights."
On
July 25, 2011 Validus delivered a request to Transatlantic pursuant to Rule 14d-5 under the Exchange Act for the use of Transatlantic's stockholder lists and
security position listings for the purpose of disseminating the exchange offer materials to Transatlantic stockholders. Upon compliance by Transatlantic with this request, this prospectus/offer to
exchange, the letter of transmittal and all other relevant materials will be mailed to record holders of shares of Transatlantic common stock and will be furnished to brokers, dealers, banks, trust
companies and similar persons whose names, or the names of whose nominees, appear on Transatlantic's stockholders lists, or, if applicable, who are listed as participants in a clearing agency's
security position listing for subsequent transmittal to beneficial owners of shares of Transatlantic common stock by Validus or, if Transatlantic so elects,
the materials will be mailed by Transatlantic. On July 20, 2011, Validus delivered a request to Transatlantic pursuant to Section 220(b) of the DGCL for Transatlantic to provide to
Validus, among other things, a list of Transatlantic stockholders and other books and records.
Acceptance for Exchange, and Exchange, of Shares of Transatlantic Common Stock; Delivery of Exchange Offer
Consideration
Upon the terms and subject to the conditions of the exchange offer (including, if the exchange offer is extended or amended, the terms
and conditions of any such extension or amendment), Validus will accept for exchange promptly after the expiration time of the exchange offer all shares of Transatlantic common stock validly tendered
(and not withdrawn in accordance with the procedure set out in the section of this prospectus/offer to exchange titled "The Exchange Offer—Withdrawal Rights") prior to the expiration time
of the exchange offer. Validus shall exchange all shares of Transatlantic common stock validly tendered and not withdrawn promptly following the acceptance of
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shares
of Transatlantic common stock for exchange pursuant to the exchange offer. Validus expressly reserves the right, in its discretion, but subject to the applicable rules of the SEC, to delay
acceptance for and thereby delay exchange of shares of Transatlantic common stock in order to comply in whole or in part with applicable laws or if any of the conditions referred to in the section of
this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer" have not been satisfied or if any event specified in the section of the prospectus/offer to
exchange titled "The Exchange Offer—Conditions of the Exchange Offer" under the subheading "Other Conditions" has occurred. If Validus decides to include a subsequent offering period,
Validus will accept for exchange, and promptly exchange, all validly tendered shares of Transatlantic common stock as they are received during the subsequent offering period. Please see the section of
this prospectus/offer to exchange titled "The Exchange Offer—Withdrawal Rights."
In
all cases (including during any subsequent offering period), Validus will exchange all shares of Transatlantic common stock tendered and accepted for exchange pursuant to the exchange
offer only after timely receipt by the exchange agent of (1) the certificates evidencing such shares of Transatlantic common stock or timely confirmation, which we refer to as a
"book-entry confirmation," of a book-entry transfer of such shares of Transatlantic common stock into the exchange agent's account at The Depository Trust Company pursuant to
the procedures set forth in the section of this prospectus/offer to exchange titled "The Exchange Offer—Procedure for Tendering," (2) the letter of transmittal (or a manually signed
facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined below) and
(3) any other documents required under the letter of transmittal. This prospectus/offer to exchange refers to The Depository Trust Company as the "Book-Entry Transfer Facility." As
used in this prospectus/offer to exchange, the term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the exchange agent and forming a part of the book-entry confirmation which states that the Book-Entry Transfer Facility has received an
express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the shares of Transatlantic common stock that are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the letter of transmittal and that Validus may enforce such agreement against such participant.
For
purposes of the exchange offer (including during any subsequent offering period), Validus will be deemed to have accepted for exchange, and thereby exchanged, shares of Transatlantic
common stock validly tendered and not properly withdrawn as, if and when Validus gives oral or written notice to the exchange agent of Validus' acceptance for exchange of such shares of Transatlantic
common stock pursuant to the exchange offer. Upon the terms and subject to the conditions of the exchange offer, exchange of shares of Transatlantic common stock accepted for exchange pursuant to the
exchange offer will be made by deposit of the exchange offer consideration being exchanged therefor with the exchange agent, which will act as agent for tendering Transatlantic stockholders for the
purpose of receiving the exchange offer consideration from Validus and transmitting such consideration to tendering Transatlantic stockholders whose shares of Transatlantic common stock have been
accepted for exchange. Under no circumstances will Validus pay interest on the exchange offer consideration for shares of Transatlantic common stock, regardless of any
extension of the exchange offer or other delay in making such exchange or distributing the exchange offer consideration.
If
any tendered shares of Transatlantic common stock are not accepted for exchange for any reason pursuant to the terms and conditions of the exchange offer, or if certificates
representing such shares of Transatlantic common stock are submitted evidencing more shares of Transatlantic common stock than are tendered, certificates evidencing unexchanged or untendered shares of
Transatlantic common stock will be returned, without expense to the tendering Transatlantic stockholder (or, in the case of shares of Transatlantic common stock tendered by book-entry
transfer into the exchange agent's account at a Book-Entry Transfer Facility pursuant to the procedure set forth in the section of this
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prospectus/offer
to exchange titled "The Exchange Offer—Procedure for Tendering," such shares of Transatlantic common stock will be credited to an account maintained at such
Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the exchange offer. Validus reserves the right to transfer or assign, in whole or from
time to time in part, to one or more of its affiliates, the right to exchange all or any portion of the shares of Transatlantic common stock tendered pursuant to the exchange offer, but any such
transfer or assignment will not relieve Validus of its obligations under the exchange offer or prejudice the rights of tendering shareholders to exchange shares of Transatlantic common stock validly
tendered and accepted for exchange pursuant to the exchange offer.
Cash In Lieu of Fractional Validus Common Shares
Validus will not issue certificates representing fractional Validus common shares pursuant to the exchange offer. Instead, each
tendering Transatlantic stockholder who would otherwise be entitled to a fractional Validus common share will receive cash (rounded to the nearest whole cent) in an amount (without interest) equal to
the product obtained by multiplying (1) the fractional share interest to which such stockholder would otherwise be entitled (after rounding such amount to the nearest 0.0001 share), by
(2) the closing price of Validus common shares as reported on the NYSE on the last trading day prior to the expiration time of the exchange offer.
Procedure for Tendering
In order for a holder of shares of Transatlantic common stock to tender shares of Transatlantic common stock pursuant to the exchange
offer, the exchange agent must receive, prior to the expiration time of the exchange offer, the letter of transmittal (or a manually signed facsimile thereof), properly completed and duly executed,
together with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message, and any other documents required by such letter of transmittal, at one of its
addresses set forth on the back cover of this prospectus/offer to exchange and either (1) the certificates evidencing tendered shares of Transatlantic common stock must be received by the
exchange agent at such address or such shares of Transatlantic common stock must be tendered pursuant to the procedure for book-entry transfer described below and a book-entry
confirmation must be received by the exchange agent (including an Agent's Message), in each case prior to the expiration time of the exchange offer or the expiration of the subsequent offering period,
if one is provided, or (2) the tendering Transatlantic stockholder must comply with the guaranteed delivery procedures described below.
The method of delivery of share certificates and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the
option and risk of the tendering Transatlantic stockholder, and the delivery will be deemed made only when actually received by the exchange agent. If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery.
Book-Entry Transfer. The exchange agent will establish accounts with respect to the shares of Transatlantic common stock at the
Book-Entry Transfer Facility for purposes of the exchange offer within two business days after the date of this prospectus/offer to exchange. Any financial institution that is a
participant in the system of the Book-Entry Transfer Facility may make a book-entry delivery of shares of Transatlantic common stock by causing the Book-Entry
Transfer Facility to transfer such shares of Transatlantic common stock into the exchange agent's account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. However, although delivery of shares of Transatlantic common stock may be effected through book-entry transfer at the
Book-Entry Transfer Facility, an Agent's Message and any other required documents must, in any case, be received by the exchange agent at one of its addresses set forth on the back cover
of this prospectus/offer to exchange prior to the expiration time of the exchange offer or the expiration of the
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subsequent
offering period, if one is provided, or the tendering Transatlantic stockholder must comply with the guaranteed delivery procedures described below. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to the exchange agent.
Signature Guarantees. No signature guarantee is required on a letter of transmittal (1) if a letter of transmittal is signed by a
registered
holder of shares of Transatlantic common stock who has not completed either the box titled "Special Issuance Instructions" or the box titled "Special Delivery Instructions" the letter of transmittal
or (2) if shares of Transatlantic common stock are tendered for the account of a financial institution that is a member of the Securities Transfer Agents Medallion Signature Program, or by any
other "Eligible Guarantor Institution," as such term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing being referred to as an "Eligible Institution"). In all
other cases, all signatures on letters of transmittal must be guaranteed by an Eligible Institution. If a certificate evidencing shares of Transatlantic common stock is registered in the name of a
person other than the signer of a letter of transmittal, or if the exchange offer consideration is to be delivered, or a share certificate not accepted for exchange or not tendered is to be returned,
to a person other than the registered holder(s), then such certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered
holder(s) appear on the share certificate, with the signature(s) on such certificate or stock powers guaranteed by an Eligible Institution. See Instructions 1 and 5 of the letter of
transmittal.
Guaranteed Delivery. If a Transatlantic stockholder desires to tender shares of Transatlantic common stock pursuant to the exchange
offer and such
Transatlantic stockholder's certificate(s) evidencing such shares of Transatlantic common stock are not immediately available, such Transatlantic stockholder cannot deliver such certificates and all
other required documents to the exchange agent prior to the expiration time of the exchange offer, or such Transatlantic stockholder cannot complete the procedure
for delivery by book-entry transfer on a timely basis, such shares of Transatlantic common stock may nevertheless be tendered, provided that all the following conditions are satisfied:
(1) such
tender is made by or through an Eligible Institution;
(2) a
properly completed and duly executed notice of guaranteed delivery, substantially in the form made available by Validus, is received prior to the expiration time of
the exchange offer by the exchange agent as provided below; and
(3) the
share certificates (or a book-entry confirmation) evidencing all tendered shares of Transatlantic common stock, in proper form for transfer, in each case
together with the letter of transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a
book-entry transfer, an Agent's Message, and any other documents required by the letter of transmittal are received by the exchange agent within three NYSE trading days after the date of
execution of such notice of guaranteed delivery.
The
notice of guaranteed delivery may be delivered by hand or mail or by facsimile transmission to the exchange agent and must include a guarantee by an Eligible Institution in the form
set forth in such notice of guaranteed delivery. The procedures for guaranteed delivery above may not be used during any subsequent offering period.
In
all cases (including during any subsequent offering period), exchanges of shares of Transatlantic common stock tendered and accepted for exchange pursuant to the exchange offer will
be made only after timely receipt by the exchange agent of the certificates evidencing such shares of Transatlantic common stock, or a book-entry confirmation of the delivery of such
shares of Transatlantic common stock (except during any subsequent offering period), and the letter of transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with
any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message, and any other documents required by the letter of transmittal.
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Determination of Validity. Validus' interpretation of the terms and conditions of the exchange offer (including
the letter of
transmittal and the instructions thereto) will be final and binding to the fullest extent permitted by law. All questions as to the form of documents and the validity, form, eligibility
(including time of receipt) and acceptance for exchange of any tender of shares of Transatlantic common stock will be determined by Validus, in its discretion, which determination shall be final and
binding to the fullest extent permitted by law. Validus reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance of
or exchange for which may, in the opinion of its counsel, be unlawful. Validus also reserves the absolute right to waive any condition of the exchange offer to the extent permitted by applicable law
or any defect or irregularity in the tender of any shares of Transatlantic common stock of any particular Transatlantic stockholder, whether or not similar defects or irregularities are waived in the
case of other Transatlantic stockholders. No tender of shares of Transatlantic common stock will be deemed to have been validly made until all defects and irregularities have been cured or waived.
None of Validus or any of its affiliates or assigns, the dealer manager, the exchange agent, the information agent or any other person will be under any duty to give any notification of any defect or
irregularity in tenders or to waive any such defect or irregularity or incur any liability for failure to give any such notification or waiver.
A tender of shares of Transatlantic common stock pursuant to any of the procedures described above will constitute the tendering Transatlantic stockholder's
acceptance of the terms and conditions of the exchange offer, as well as the tendering Transatlantic stockholder's representation and warranty to Validus that (1) such Transatlantic stockholder
owns the tendered shares of Transatlantic common stock (and any and all other shares of Transatlantic common stock or other securities issued or issuable in respect of such shares of Transatlantic
common stock), (2) such Transatlantic stockholder has the full power and authority to tender, sell, assign and transfer the tendered shares of Transatlantic common stock (and any and all other
shares of Transatlantic common stock or other securities issued or issuable in respect of such shares of Transatlantic common stock) and (3) when the same are accepted for exchange, Validus
will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims.
The acceptance for exchange by Validus of shares of Transatlantic common stock pursuant to any of the procedures described above will
constitute a binding agreement between the tendering Transatlantic stockholder and Validus upon the terms and subject to the conditions of the exchange offer, including with respect to the release and
discharge from certain claims as described in the letter of transmittal.
Appointment as Proxy; Other Agreements. By executing the letter of transmittal, or through delivery of an Agent's Message, as set forth
above, a
tendering Transatlantic stockholder irrevocably appoints designees of Validus as such Transatlantic stockholder 's agents, attorneys-in-fact and proxies, each with full power
of substitution, in the manner set forth in such letter of transmittal, to the full extent of such Transatlantic stockholder's rights with respect to the shares of Transatlantic common stock tendered
by such Transatlantic stockholder and accepted for exchange by Validus (and with respect to any and all other shares of Transatlantic common stock or other securities issued or issuable in respect of
such shares of Transatlantic common stock on or after the date of this prospectus/offer to exchange). All such powers of attorney and proxies shall be considered irrevocable and coupled with an
interest in the tendered shares of Transatlantic common stock (and such other shares of Transatlantic common stock and securities). Such appointment will be effective when, and only to the extent
that, Validus accepts such shares of Transatlantic common stock for exchange. Upon appointment, all prior powers of attorney and proxies given by such Transatlantic stockholder with respect to such
shares of Transatlantic common stock (and such other shares of Transatlantic common stock and securities) will be revoked, without further action, and no subsequent powers of attorney or proxies may
be given nor any subsequent written consent executed by such Transatlantic stockholder (and, if given or executed,
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will
not be deemed to be effective) with respect thereto. The designees of Validus will, with respect to the shares of Transatlantic common stock (and such other shares of Transatlantic common stock
and securities) for which the appointment is effective, be empowered to exercise all voting, consent and other rights of such Transatlantic stockholder as they in their discretion may deem proper at
any annual or special meeting of Transatlantic stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. Validus reserves the right to
require that, in order for shares of Transatlantic common stock to be deemed validly tendered, immediately upon Validus' acceptance of shares of Transatlantic common stock for exchange, Validus must
be able to exercise full voting, consent and other rights with respect to such shares of Transatlantic common stock (and such other shares of Transatlantic common stock and securities).
The
foregoing proxies will become effective only upon acceptance for exchange of shares of Transatlantic common stock tendered pursuant to the exchange offer. Tendering your shares of
Transatlantic common stock in connection with the exchange offer will not result in the grant of a proxy pursuant to the proxy solicitations being concurrently undertaken by Validus that are described
in this prospectus/offer to exchange.
Backup Withholding. Under the "backup withholding" provisions of U.S. federal income tax law, the exchange agent may be required to
withhold
(currently at a rate of 28%) on any cash payments pursuant to the exchange offer or the second-step merger. In order to prevent backup withholding with respect to payments to certain
Transatlantic stockholders for shares of Transatlantic common stock sold pursuant to the exchange offer or exchanged pursuant to the second-step merger, each such Transatlantic stockholder
must timely provide the exchange agent with such Transatlantic stockholder's correct taxpayer identification number, which we
refer to as "TIN," and certify that such shareholder is not subject to backup withholding by completing the Form W-9 in the letter of transmittal, or otherwise establish an
exemption. Certain Transatlantic stockholders (including, among others, all corporations and certain non-U.S. individuals and entities) are not subject to backup withholding. If a
Transatlantic stockholder does not provide timely its correct TIN or fails to provide the certifications described above, the Internal Revenue Service may impose a penalty on the shareholder and
payment of cash to the Transatlantic stockholder pursuant to the exchange offer or the second-step merger may be subject to backup withholding. All Transatlantic stockholders surrendering
shares of Transatlantic common stock pursuant to the exchange offer or the second-step merger that are U.S. persons for U.S. federal income tax purposes should complete and sign the
Form W-9 included in the letter of transmittal to provide the information necessary to avoid backup withholding. Non-U.S. Transatlantic stockholders should complete and
sign an applicable Form W-8 (a copy of which may be obtained from the exchange agent) in order to avoid backup withholding.
Withdrawal Rights
Tenders of shares of Transatlantic common stock made pursuant to the exchange offer are irrevocable except that such shares of
Transatlantic common stock may be withdrawn at any time prior to the expiration time of the exchange offer and, if Validus has not accepted your shares of Transatlantic common stock for exchange by
the expiration time of the exchange offer, at any time following 60 days from commencement of the exchange offer. If Validus elects to extend the exchange offer, is delayed in its acceptance
for exchange of shares of Transatlantic common stock or is unable to accept shares of Transatlantic common stock for exchange pursuant to the exchange offer for any reason, then, without prejudice to
Validus' rights under the exchange offer, the exchange agent may, on behalf of Validus, retain tendered shares of Transatlantic common stock, and such shares of Transatlantic common stock may not be
withdrawn except to the extent that tendering Transatlantic stockholders are entitled to withdrawal rights as described in this section. Any such delay will be by an extension of the exchange offer to
the extent required by law. If Validus decides to include a subsequent offering period, shares of Transatlantic common stock tendered during the subsequent
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offering
period may not be withdrawn. Please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Extension, Termination and Amendment."
For
a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at one of its addresses set forth on the back cover page
of this prospectus/offer to exchange. Any such notice of withdrawal must specify the name of the person who tendered the shares of Transatlantic common stock to be withdrawn, the number of shares of
Transatlantic common stock to be withdrawn and the name of the registered holder of such shares of Transatlantic common stock, if different from that of the person who tendered such shares of
Transatlantic common stock. If certificates evidencing shares of Transatlantic common stock to be withdrawn have been delivered or otherwise identified to the exchange agent, then, prior to the
physical release of such certificates, the serial numbers shown on such certificates must be submitted to the exchange agent and, unless such shares of Transatlantic common stock have been tendered by
or for the account of an Eligible Institution, the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution. If shares of Transatlantic common stock have been tendered
pursuant to the procedure for book-entry transfer as set forth in the section of this prospectus/offer to exchange titled "The Exchange Offer—Procedure for Tendering," any
notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn shares of Transatlantic common stock.
Withdrawals
of shares of Transatlantic common stock may not be rescinded. Any shares of Transatlantic common stock properly withdrawn will thereafter be deemed not to have been validly
tendered for purposes of the exchange offer. However, withdrawn shares of Transatlantic common stock may be re-tendered at any time prior to the expiration time of the exchange offer (or
during the subsequent offering period, if one is provided) by following one of the procedures described in the section of this prospectus/offer to exchange titled "The Exchange
Offer—Procedure for Tendering" (except shares of Transatlantic common stock may not be re-tendered using the procedures for guaranteed delivery during any subsequent offering
period).
All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Validus, in its discretion, whose
determination will be final and binding to the fullest extent permitted by law. None of Validus or any of their respective affiliates or assigns, the dealer manager, the exchange agent, the
information agent or any other person will be under any duty to give any notification of any defect or irregularity in any notice of withdrawal or incur any liability for failure to give any such
notification.
Announcement of Results of the Exchange Offer
Validus will announce the final results of the exchange offer, including whether all of the conditions to the exchange offer have been
fulfilled or waived and whether Validus will accept the tendered shares of Transatlantic common stock for exchange after the expiration time of the exchange offer. The announcement will be made by a
press release.
Ownership of Validus After the Exchange Offer
Based on Validus' and Transatlantic's respective capitalizations as of June 30, 2011, the exchange ratio of 1.5564, and assuming
dissenters' rights are not properly exercised under Delaware law in connection with the second-step merger, Validus estimates that if all shares of Transatlantic common stock are exchanged
pursuant to the exchange offer and the second-step merger, former Transatlantic stockholders would own, in the aggregate, approximately 48% of the aggregate Validus common shares and
Validus non-voting common shares on a fully-diluted basis using the treasury stock method for Transatlantic and the as-if-converted method for Validus, assuming
that:
- •
- Validus exchanges, pursuant to the exchange offer and/or the second-step merger, all of the outstanding shares
of Transatlantic common stock, the number of which is assumed to be 62,483,787, the total number of shares of Transatlantic common stock reported as of June 30, 2011;
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- •
- Validus exchanges, pursuant to the exchange offer or the second-step merger, the shares of Transatlantic
common stock issuable upon the exercise or vesting of outstanding options and restricted share units, of which there were reported to be 3,700,000 as of August 5, 2011; and
- •
- 112,563,933 Validus common shares were outstanding on a fully-diluted basis, including 98,763,928 Validus common shares,
7,862,262 Validus common shares underlying outstanding warrants, 2,266,801 Validus common shares underlying unexercised options, 3,670,942 restricted Validus common shares respectively, as of
June 30, 2011.
Certain Material U.S. Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax consequences to U.S. holders (as defined below) of shares of
Transatlantic common stock of (1) the exchange offer and second-step merger and (2) the ownership and disposition of the Validus common shares received pursuant to the
exchange offer and second-step merger. This summary is based on provisions of the Internal Revenue Code of 1986, as amended, which we refer to as the "Code," Treasury regulations
promulgated thereunder, administrative rulings and judicial decisions, each as in effect as of the date of this prospectus/offer to exchange, all of which are subject to change at any time, possibly
with retroactive effect, and to differing interpretations. Any such change could alter the tax consequences described herein. No legal opinion from U.S. legal counsel or ruling from the Internal
Revenue Service, which we refer to as the "IRS," has been requested, or is expected to be obtained, regarding the U.S. federal income tax consequences described herein. This summary is not binding on
the IRS or any court, and there can be no assurance that the IRS will not take a contrary position or that any contrary position taken by the IRS will not be sustained by a court. This summary assumes
that a U.S. holder holds shares of Transatlantic common stock and Validus common shares received pursuant to the exchange offer and second-step merger as capital assets within the meaning
of Section 1221 of the Code (generally, property held for investment).
For
purposes of this summary, the term "U.S. holder" means a beneficial owner of Validus common shares or shares of Transatlantic common stock that is, for U.S. federal income tax
purposes:
- •
- a citizen or individual resident of the United States;
- •
- a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created in, or organized
under the laws of, the United States or any State or political subdivision thereof;
- •
- a trust, (A) the administration of which is subject to the primary supervision of a United States court and which
has one or more U.S. persons, within the meaning of Section 7701(a)(30) of the Code, who have the authority to control all substantial decisions of the trust, or (B) that otherwise has a
valid election in effect under applicable Treasury regulations to be treated as a U.S. person; or
- •
- an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.
If
an entity treated as a partnership for U.S. federal income tax purposes holds Transatlantic common stock or Validus common shares received pursuant to the exchange offer and second
step-merger, the U.S. federal income tax treatment of such partnership and each partner generally will depend on the status and the activities of the partnership and the partner.
Partnerships that hold shares of Transatlantic common stock or Validus common shares, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal, state, local
and non-U.S. tax consequences applicable to them with respect to the exchange offer and second-step merger and the ownership and disposition of Validus common shares received
pursuant to the exchange offer and second-step merger.
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This
summary does not address all of the U.S. federal income tax consequences that may be applicable to a particular holder of shares of Transatlantic common stock. In addition, this
summary does not address the U.S. federal income tax consequences to holders that do not hold shares of Transatlantic common stock or Validus common shares received pursuant to the exchange offer or
the second-step merger as capital assets within the meaning of Section 1221 of the Code, nor does it address the U.S. federal income tax consequences that may be relevant to
particular holders in light of their individual circumstances or to holders that are subject to special rules, including:
- •
- brokers or dealers in securities or currencies;
- •
- banks and other financial institutions;
- •
- individual retirement accounts and other tax-deferred accounts;
- •
- regulated investment companies, real estate investment trusts, partnerships (or any entity treated as a partnership for
U.S. federal income tax purposes) and other pass-through entities;
- •
- mutual funds;
- •
- insurance companies;
- •
- cooperatives;
- •
- tax-exempt entities;
- •
- corporations that accumulate earnings to avoid U.S. federal income tax;
- •
- traders in securities that elect to use a mark to market method of accounting;
- •
- holders whose functional currency is not the U.S. dollar;
- •
- holders who hold or will hold Validus common shares or shares of Transatlantic common stock as part of a hedge,
appreciated financial position, straddle, conversion transaction, constructive sale or other risk reduction strategy;
- •
- holders who acquired shares of Transatlantic common stock pursuant to the exercise of an employee stock option or right or
otherwise as compensation;
- •
- holders who are subject to the alternative minimum tax provisions of the Code;
- •
- U.S. expatriates;
- •
- except as provided herein, holders who own or have owned, directly, indirectly, or constructively, 5% or more of the
shares of Transatlantic common stock or will own 5% or more of the Validus common shares after the exchange offer and second-step merger; and
- •
- holders of shares of Transatlantic common stock who exercise dissenters' rights or demand appraisal to receive a cash
payment equal to the "fair value" of their shares of Transatlantic common stock.
This
summary does not address the tax consequences of the exchange offer and second-step merger under state, local or non-U.S. tax laws, or federal tax laws other
than those pertaining to income tax.
This summary is provided for general information purposes only and is not intended to be, and should not be construed as, legal or tax advice to any holder of
Transatlantic common stock. Holders of Transatlantic common stock should consult their own tax advisors to determine the particular tax consequences to them of the exchange offer and
second-step merger, and of the ownership and disposition of Validus common shares (including the application and effect of any state, local or non-U.S. and other tax laws).
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Certain Material U.S. Federal Income Tax Consequences of the Exchange Offer and Second-Step Merger. The exchange offer and
second-step merger will be a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. holder of shares of Transatlantic common stock generally will recognize gain or
loss equal to the difference, if any, between (i) the sum of the cash and fair market value of the Validus common shares received by such U.S. holder in the exchange offer and
second-step merger (including cash received in lieu of fractional shares) and (ii) such U.S. holder's adjusted tax basis in the shares of Transatlantic common stock surrendered in
exchange therefor. For this purpose, U.S. holders of shares of Transatlantic common stock must calculate gain or loss separately for each identified block of shares of Transatlantic common stock
exchanged (that is, shares of Transatlantic common stock acquired at the same cost in a single transaction).
Any
gain or loss recognized in the exchange offer and second-step merger generally will be treated as capital gain or loss. Any such capital gain or loss will be
long-term capital gain or loss if the U.S. holder has held the shares of Transatlantic common stock for more than one year as of the date of the exchange offer or second-step
merger (as the case may be). Long-term capital gains recognized by U.S. holders that are not corporations generally are eligible for reduced rates of U.S. federal income taxation. The
deductibility of capital losses by individuals and corporations is subject to limitations under the Code.
For
U.S. federal income tax purposes, a U.S. holder's aggregate tax basis in the Validus common shares received pursuant to the exchange offer and second-step merger will be
equal to the fair market value of the Validus common shares received by such U.S. holder on the date shares of Transatlantic common stock are exchanged pursuant to the exchange offer or
second-step merger (as the case may be), and a U.S. holder's holding period with respect to such Validus common shares will begin on the day following the date its shares of Transatlantic
common stock are exchanged pursuant to the exchange offer or second-step merger (as the case may be).
Backup Withholding and Information Reporting. Cash payments received by a non-corporate U.S. holder of shares of Transatlantic common
stock may, under certain circumstances, be subject to backup withholding (currently imposed at a rate of 28%), unless the U.S. holder timely provides proof of an applicable exemption or furnishes its
TIN and otherwise complies with all applicable requirements of the backup withholding rules. Each U.S. holder of shares of
Transatlantic common stock should complete and sign the IRS Form W-9 that will be included as part of the letter of transmittal and return it to the exchange agent, in order to
provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the exchange agent. Cash and Validus common
shares received also generally will be subject to information reporting.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowable as a refund or a credit against the U.S. federal income tax
liability of a U.S. holder of shares of Transatlantic common stock, provided the required information is timely furnished to the IRS.
Holders of shares of Transatlantic common stock are urged to consult their tax advisors concerning the United States federal, state, local and
non-U.S. tax consequences of the exchange offer and second-step merger to them.
Distributions. Unless Validus is treated as a passive foreign investment company, which we refer to as a "PFIC," (as discussed below)
or as a
controlled foreign corporation, which we refer to as a "CFC," (as discussed below), the gross amount of any distributions paid to a U.S. holder with respect
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to
Validus common shares received in the exchange offer and second-step merger will be included in the gross income of such U.S. holder, as a dividend, to the extent attributable to
current or accumulated earnings and profits, as determined under U.S. federal income tax principles. A distribution in excess of Validus' current and accumulated earnings and profits will be treated
as a non-taxable return of capital to the extent of the U.S. holder's adjusted basis in the Validus common shares received in the exchange offer and second-step merger and as
capital gain to the extent it exceeds the U.S. holder's basis. Subject to applicable limitations, dividends paid to a non-corporate U.S. holder with respect to Validus common shares
received in the exchange offer and second-step merger in taxable years beginning before January 1, 2013 that constitute "qualified dividend income" may be eligible for preferential
tax rates if the U.S. holder held such Validus common shares for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date and
meets certain other requirements. Dividends distributed by Validus with respect to Validus common shares generally will be "qualified dividend income" if, in the year such dividends are received, the
Validus common shares are
readily tradable on an established securities market in the United States. The Validus common shares issued pursuant to the exchange offer and second-step merger are expected to be listed
on the NYSE and should therefore be treated as readily tradable on an established securities market in the United States. However, if Validus is a PFIC under the rules discussed below, distributions
treated as dividends will be taxable at the higher ordinary income tax rates. Except as discussed below with respect to backup withholding, distributions paid with respect to Validus common shares
received in the exchange offer and second-step merger will not be subject to U.S. withholding tax. Dividends paid to a corporate U.S. holder will not be eligible for the
dividends-received-deduction generally allowed to U.S. corporations in respect of dividends received from U.S. corporations. U.S. holders should consult their own tax advisors regarding the amount of
distributions from Validus after the exchange offer and second-step merger that are treated as dividends for U.S. federal income tax purposes.
Controlled Foreign Corporation Rules. If a non-U.S. corporation is a CFC for an uninterrupted period of 30 days or more during a
taxable year, each "10% U.S. Shareholder" (defined below) of such corporation who owns shares in the CFC directly, or indirectly through non-U.S. entities, on the last day in such year on
which such corporation is a CFC must include in its gross income for U.S. federal income tax purposes its pro rata share of the CFC's "subpart F income," even if the subpart F income is
not distributed. "Subpart F income" generally includes passive investment income and insurance income. Validus anticipates that substantially all of its (and its subsidiaries') income is
subpart F income. A non-U.S. corporation is considered a CFC if "10% U.S. Shareholders" own (directly, indirectly through non-U.S. entities or constructively pursuant to
the application of certain constructive ownership rules) more than 50% of (i) the total combined voting power of all classes of voting stock of such non-U.S. corporation, or
(ii) the total value of all stock of such corporation. A 10% U.S. Shareholder is a U.S. person who owns, directly, indirectly through non-U.S. entities, or constructively at least
10% of the total combined voting power of all classes of stock entitled to vote of the non-U.S. corporation. For purposes of taking into account insurance income, a CFC also includes a
non-U.S. corporation in which more than 25% of the total combined voting power of all classes of stock (or more than 25% of the total value of the stock) is owned (directly, indirectly
through non-U.S. entities or constructively pursuant to the application of certain constructive ownership rules) by 10% U.S. Shareholders, on any day during the taxable year of such
corporation, if the gross amount of premiums or other consideration for the reinsurance or the issuing of insurance or annuity contracts that insure, or are deemed to insure, U.S. risks exceeds 75% of
the gross amount of all premiums or other consideration in respect of all risks.
Under
the bye-laws of Validus that limit voting power, no U.S. person who owns Validus common shares directly or indirectly through one or more non-U.S. entities
should be treated as owning (directly, indirectly through non-U.S. entities, or constructively) 10% or more of the total voting power of all classes of shares of Validus or any of its
non-U.S. subsidiaries. As a result of this restriction,
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Validus
believes that none of its shareholders should be treated as a 10% U.S. Shareholder of a CFC for purposes of these rules. There can be no assurance, however, that the CFC rules will not apply
to
U.S. holders of Validus, including as a result of their indirect ownership of the stock of Validus' subsidiaries. Accordingly, U.S. holders who might, directly, indirectly, or constructively acquire
10% or more of the Validus common shares or shares of any of its subsidiaries should consult their own tax advisors regarding the possible application of the CFC rules.
Related Person Insurance Income Rules. The CFC rules also apply to certain insurance companies that earn related person insurance
income, which we
refer to as "RPII." Under the RPII rules, any U.S. person who owns any Validus common shares (and hence indirectly owns shares of any non-U.S. insurance company subsidiaries of the
combined company) on the last day of any such insurance subsidiary's taxable year may be required to include in its income for U.S. federal income tax purposes its pro rata share of such insurance
subsidiary's RPII for the taxable year if the insurance subsidiary is a CFC for purposes of the RPII rules. A non-U.S. insurance company will be treated as a CFC for RPII purposes if U.S.
persons own, directly, indirectly or constructively, 25% or more of the shares of such non-U.S. insurance company for an uninterrupted period of at least 30 days during the taxable
year. In general, RPII means premium and related investment income of a non-U.S. insurance company from the direct or indirect insurance or reinsurance of any direct or indirect U.S.
shareholder of such non-U.S. insurance company or of any person related to such shareholder. For this purpose, an insured is "related" to a U.S. shareholder of the non-U.S.
insurance company if the U.S. shareholder controls the insured, the insured controls the U.S. shareholder, or they are under common control. U.S. persons who, directly or indirectly, own shares of a
non-U.S. insurance company must include RPII in income only if such company's RPII equals or exceeds 20% of its gross insurance income in any taxable year and at least 20% of the stock of
such non-U.S. insurance company (measured by either voting power or value) is owned, directly or indirectly (under complex attribution rules), by (1) persons (including
non-U.S. persons) who are insured, directly or indirectly, under policies of insurance or reinsurance written by such non-U.S. insurance company or (2) persons related
to any such insured person. The amount of income included is determined as if the RPII were distributed proportionately to such U.S. persons on the last day of the taxable year of the
non-U.S. insurance company, regardless of whether such income is actually distributed. A U.S. person's pro rata share of a non-U.S. insurance company's RPII for any taxable
year, however, will not exceed its proportionate share of that company's earnings and profits for the year (as determined for U.S. federal income tax purposes).
Validus
does not anticipate that any of its subsidiaries will have RPII that equals or exceeds 20% of such subsidiary's gross insurance income. Because some of the factors that determine
the extent of RPII in any period may be beyond Validus' control, there can be no assurance that RPII of any of its insurance subsidiaries will not equal or exceed 20% of its gross insurance income in
any taxable year. In addition, it may be difficult for Validus to determine whether it is 20% or more owned (by either voting power or value), directly or indirectly (under complex attribution rules),
by insured or reinsured persons or persons related to insured or reinsured persons.
If
the RPII rules were to apply to any of Validus' insurance subsidiaries:
- •
- a U.S. person's tax basis in its common shares of the combined company would be increased by the amount of any RPII that
the shareholder includes in income;
- •
- the shareholder could exclude from income the amount of any distribution by the combined company to the extent of the RPII
included in income for the year in which the distribution was paid or for any prior year (which excluded amount would be applied to reduce the U.S. person's tax basis in the common shares of the
combined company); and
- •
- each U.S. person who is a direct or indirect shareholder of the combined company on the last day of its taxable year would
be required to attach a Form 5471 to such person's income tax or information return.
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The
amounts of the RPII inclusions may be subject to adjustment based upon subsequent IRS examination. Failure to file Form 5471 may result in penalties. In addition, U.S. holders
who at any time own 10% or more of the Validus common shares may have an independent obligation to file certain information returns.
There
is a lack of guidance interpreting the RPII provisions. Treasury regulations interpreting the RPII provisions of the Code exist only in proposed form. It is not certain whether
these regulations will be adopted in their proposed form or what changes or clarifications might ultimately be made to the proposed regulations. Additionally, we cannot predict whether any changes to
the proposed regulations, or any interpretation or application of the RPII rules by the IRS, the courts or otherwise might have retroactive effect. Accordingly, the application of the RPII provisions
to the combined company and its subsidiaries is uncertain. In addition, there can be no assurance that the IRS will not challenge any determinations by the combined company or any of its subsidiaries
as to the amount, if any, of RPII that should be includible in income or that the amounts of the RPII inclusions will not be subject to adjustment based upon subsequent IRS examination.
Foreign Tax Credit. It is anticipated that at least 50% (determined by voting power or value) of the total outstanding Validus common
shares may be
owned by U.S. persons. Provided that Validus is so owned, dividends paid by Validus will be treated, for purposes of determining the foreign tax credit limitation,
as partly U.S.-source and partly non-U.S.-source, in proportion to the source of Validus' earnings and profits for the year in which the dividend is paid. Any amounts required to be
included in income of U.S. holders under the CFC rules or the RPII rules, and any amounts treated as dividends under Section 1248 of the Code (as discussed below), would also be partly
non-U.S.-source and partly U.S.-source. Because the calculation of a taxpayer's foreign tax credit limitation is complex and is dependent on the particular taxpayer's circumstances, U.S.
holders should consult their own tax advisors with respect to these matters.
Sale or Other Taxable Disposition of Validus Common Shares. Subject to the discussion below relating to the potential application of
Section 1248 of the Code or the PFIC rules, any gain or loss realized by a U.S. holder on the sale or other taxable disposition of Validus common shares received in the exchange offer and
second-step merger generally will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference, if any, between the amount realized upon such
sale or other taxable disposition and such U.S. holder's tax basis in its Validus common shares. Such gain or loss will be long-term capital gain or loss if the holding period for such
Validus common shares exceeds one year on the date of such sale or other taxable disposition. Certain non-corporate U.S. holders, including individuals, currently are eligible for
preferential rates of U.S. federal income tax in respect of long-term capital gains. The deductibility of capital losses by individuals and corporations is subject to limitations under the
Code. Any gain or loss generally will be treated as U.S. source gain or loss for foreign tax credit limitation purposes, and any gain generally will constitute "passive income" for these purposes.
Section 1248
of the Code provides that if a U.S. person sells or exchanges stock in a non-U.S. corporation and such person owned directly, indirectly through certain
non-U.S. entities or constructively, 10% or more of the voting power of the corporation at any time during the five-year period ending on the date of disposition when the
corporation was a CFC, any gain from the sale or exchange of the shares generally will be treated as a dividend to the extent of the CFC's earnings and profits (determined under U.S. federal income
tax principles) during the period that the shareholder held the shares and while the corporation was a CFC (with certain adjustments). A 10% U.S. Shareholder may in certain circumstances be required
to report a disposition of shares of a CFC by attaching IRS Form 5471 to the U.S. federal income tax or information return that it would normally file for the taxable year in which the
disposition occurs.
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Section 953(c)(7) of the Code generally provides that Section 1248 of the Code also will apply to the sale or exchange of shares in a
non-U.S. corporation if the non-U.S. corporation would be taxed as an insurance company if it were a domestic corporation and is 25% or more owned by U.S. persons, regardless
of whether the shareholder is a 10% U.S. Shareholder or whether RPII constitutes 20% or more of the corporation's gross insurance income. Existing Treasury regulations do not address whether
Section 1248 of the Code and the requirement to file Form 5471 apply if the non-U.S. corporation is not a CFC but the non-U.S. corporation has a subsidiary that
is a CFC and that would be taxed as an insurance company if it were a domestic corporation (although, as discussed above, shareholders of 10% or more of the Validus common shares may have an
independent obligation to file Form 5471). Validus believes that Section 1248 of the Code will not apply to dispositions of Validus common shares because (1) Validus should not
have any U.S. shareholders that own directly, indirectly or constructively, 10% or more of the voting power of its shares, and (2) Validus is not directly engaged in the insurance business and,
under proposed Treasury regulations, Sections 953(c)(7) and 1248 of the Code appear to be applicable only in the case of shares of corporations that are directly engaged in the insurance
business. There can be no assurance, however, that the IRS will interpret the proposed Treasury regulations in this manner or that the proposed Treasury regulations will not be amended or promulgated
in final form so as to provide that Section 1248 of the Code and the requirement to file Form 5471 will apply to dispositions of Validus' common shares.
Passive Foreign Investment Company Considerations. Certain adverse U.S. federal income tax rules generally apply to a U.S. person that
owns or
disposes of stock in a non-U.S.
corporation that is treated as a PFIC. In general, a foreign corporation will be a PFIC for U.S. federal income tax purposes if, after applying relevant look through rules (as discussed
below):
- •
- 75% or more of its income constitutes "passive income;" or
- •
- 50% or more of its assets produce, or are held for the production of, passive income.
If
Validus were to be characterized as a PFIC, a U.S. holder of Validus common shares would be subject to a penalty tax resulting from sale at a gain of these shares, or resulting from
receipt of an "excess distribution" with respect to these shares, unless such shareholder elected to be taxed annually on these shares regardless of whether dividends were distributed or shares were
sold (U.S. holders should consult their own tax advisors with respect to their ability to make any such election and the tax consequences of making any such election). In general, a shareholder
receives an "excess distribution" if the amount of the distribution is more than 125% of the average distribution with respect to the stock during the three preceding taxable years (or shorter period
during which the taxpayer held the stock). In general, the penalty tax is equivalent to an interest charge on taxes that are deemed due during the period the shareholder owned the shares, computed by
assuming that the excess distribution or gain (in the case of a sale) with respect to the shares was taxed in equal portions at the highest applicable tax rate throughout the shareholder's period of
ownership. The interest charge is equal to the applicable rate imposed on underpayments of U.S. federal income tax for such period. In addition to the penalty tax, if Validus were determined to be a
PFIC, any gain on the disposition of Validus common shares would be treated as ordinary income (and hence would not be entitled to the preferential rate for long-term capital gains
recognized by individuals and other noncorporate taxpayers). Furthermore, any dividends paid by Validus would not constitute qualified dividends (and hence would not be entitled to the preferential
rate for qualified dividends received by individuals and other noncorporate taxpayers) if Validus were treated as a PFIC in the year in which such dividend is paid or in the prior taxable year.
For
the above purposes, "passive income" is defined to include income of the kind which would be foreign personal holding company income under Section 954(c) of the Code, and
generally includes interest, dividends, annuities and other investment income. The PFIC statutory provisions, however, contain an express exception for income "derived in the active conduct of an
insurance business by a corporation which is predominantly engaged in an insurance business." This exception is intended to
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ensure
that income derived by a bona fide insurance company is not treated as passive income, except to the extent such income is attributable to financial reserves in excess of the reasonable needs
of the
insurance business. Validus believes that each of its insurance company subsidiaries is predominantly engaged in an insurance business and does not have financial reserves in excess of the reasonable
needs of its insurance business. The PFIC statutory provisions contain a look-through rule stating that, for purposes of determining whether a non-U.S. corporation is a PFIC,
such non-U.S. corporation shall be treated as if it "received directly its proportionate share of the income" and as if it "held its proportionate share of the assets" of any other
corporation in which it owns at least 25% by value of the stock. No explicit guidance is provided by the statutory language as to whether assets and income of an insurance subsidiary should be treated
as assets and income of an insurance business for purposes of determining whether Validus qualifies for the insurance exception. Furthermore, there is no explicit guidance as to what constitutes the
active conduct of an insurance business or when a corporation is predominantly engaged in an insurance business. Although certain of Validus' insurance subsidiaries do not have their own employees or
subsidiaries with employees, Validus believes that these insurance subsidiaries nonetheless actively conduct an insurance business and are predominantly engaged in an insurance business.
Based
on the above analysis, Validus does not believe that it will be treated as a PFIC for the current taxable year and does not expect to become a PFIC in the foreseeable future.
However, the determination of whether Validus is a PFIC is made annually, and is based on the activities, income and assets of Validus and its subsidiaries, all of which are subject to change.
Accordingly, no assurance can be given that Validus will not be treated as a PFIC for the current taxable year or become a PFIC in the future. U.S. holders of Validus common shares should consult
their own tax advisors with respect to how the PFIC rules could affect the sale or other taxable disposition of Validus common shares received pursuant to the exchange offer and
second-step merger or the receipt of any distributions with respect to such Validus common shares.
Backup Withholding and Information Reporting. In general, information reporting will apply to distributions made with respect to, and
proceeds
received on the disposition of, Validus common shares that are paid to a U.S. holder within the United States (and, in certain cases, outside of the United States), unless the U.S. holder establishes
that it is an exempt recipient, such as a corporation. Backup withholding (currently imposed at a rate of 28%) may apply to such payment if the U.S. holder fails to timely provide a TIN or
certification of exempt status on IRS Form W-9 (or substitute IRS Form W-9) or otherwise fails to comply with applicable requirements. Amounts withheld under the
backup withholding rules are not an additional tax. A U.S. holder subject to the backup withholding rules may be allowed a credit of the amount withheld against such U.S. holder's U.S. federal income
tax liability and, if backup withholding tax results in an overpayment of U.S. federal income tax, such U.S. holder may be entitled to a refund, provided that the requisite information is correctly
furnished to the IRS in a timely manner. U.S. holders should consult their own tax advisors as to the information reporting and backup withholding tax rules.
In
addition, certain U.S. holders who are individuals are required to report to the IRS information relating to certain interests owned by such U.S. holders in stock or securities issued
by a non-U.S. person (such as an interest in Validus common shares), subject to certain exceptions (including, for example, an exception for stock or securities held in accounts maintained
by certain financial institutions). U.S. holders should consult their own tax advisors regarding the effect, if any, of this information reporting requirement on their acquisition, ownership and
disposition of the Validus common shares received pursuant to the exchange offer and second-step merger.
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THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES APPLICABLE TO U.S. HOLDERS RELATING TO THE EXCHANGE OFFER AND
SECOND-STEP MERGER AND THE OWNERSHIP AND DISPOSITION OF VALIDUS COMMON SHARES RECEIVED PURSUANT TO THE EXCHANGE OFFER AND SECOND-STEP MERGER. U.S. HOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES APPLICABLE TO THEM IN THEIR PARTICULAR CIRCUMSTANCES.
Purpose and Structure of the Exchange Offer
The exchange offer is intended to allow Validus to acquire all of the issued and outstanding shares of Transatlantic common stock. We
intend to, promptly after completion of the exchange offer, to consummate the second-step merger of Transatlantic with a wholly-owned subsidiary of Validus pursuant to the DGCL. The
purpose of the second-step merger is for Validus to acquire all outstanding shares of Transatlantic common stock that are not acquired in the exchange offer. In this
second-step merger, each remaining share of Transatlantic common stock (other than shares held in treasury by Transatlantic and other than shares held by Transatlantic stockholders who
properly exercise applicable dissenters' rights under Delaware law) will be cancelled and converted into the right to receive the same number of Validus common shares and the same amount of cash
(without interest) as are received by Transatlantic stockholders pursuant to the exchange offer. After this second-step merger, Validus will own all of the issued and outstanding shares of
Transatlantic common stock. Please see the sections of this prospectus/offer to exchange titled "The Exchange Offer—Purpose and Structure of the Exchange Offer"; "The Exchange
Offer—Second-Step Merger"; and "The Exchange Offer—Plans for Transatlantic."
Subject
to applicable law, Validus reserves the right to amend the exchange offer (including by amending the number of shares of Transatlantic common stock to be exchanged or the
exchange offer consideration to be offered in the second-step merger or the structure of the second-step merger), including upon entering into merger agreement with
Transatlantic not involving an exchange offer, in which event we would terminate the exchange offer and the shares of Transatlantic common stock would, upon consummation of such acquisition, be
converted into the right to receive the consideration in the related merger agreement.
Second-Step Merger
Under the DGCL, if Validus acquires, pursuant to the exchange offer or otherwise, at least 90% of the shares of Transatlantic common
stock, Validus will be able to effect the second-step merger as a "short form" merger without approval of the Transatlantic board of directors or a vote of the remaining Transatlantic
stockholders. In such event, Validus intends to take all necessary and appropriate action to cause the second-step merger to become effective as promptly as reasonably practicable after
such acquisition, without a meeting of Transatlantic stockholders.
If
Validus does not acquire at least 90% of the outstanding shares of Transatlantic common stock pursuant to the exchange offer or otherwise and a vote of Transatlantic stockholders is
required under the DGCL, a significantly longer period of time would be required to effect the second-step merger and Transatlantic stockholders would be provided proxy solicitation
materials at the appropriate time. In such event, the second-step merger would require the approval of the Transatlantic board of directors and the holders of a majority of the outstanding
shares of Transatlantic common stock. However, Validus would, subject to approval of the Transatlantic board of directors, have sufficient voting power to approve the second-step merger
without the affirmative vote of any other Transatlantic stockholder.
The
exact timing and details of the second-step merger or any other merger or other business combination involving Transatlantic will necessarily depend upon a variety of
factors, including the number of shares of Transatlantic common stock Validus acquires pursuant to the exchange offer.
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Although
Validus currently intends to propose the second-step merger generally on the terms described herein, it is possible that, as a result of substantial delays in its ability to
effect such a transaction, actions Validus may take in response to the exchange offer, information Validus obtains hereafter, changes in general economic or market conditions or in the business of
Transatlantic or other currently unforeseen factors, such a transaction may not be so proposed, may be delayed or abandoned or may be proposed on different terms. Validus reserves the right not to
propose the second-step merger or any other merger or other business combination with Transatlantic or to propose such a transaction on terms other than those described above.
Appraisal/Dissenters' Rights
Transatlantic stockholders do not have appraisal rights in connection with the exchange offer. However, upon consummation of the
second-step merger, Transatlantic stockholders who have not tendered their shares of Transatlantic common stock in the exchange offer and who, if a stockholder vote is required, vote
against approval of the second-step merger will have rights under Delaware law to dissent from the second-step merger and demand appraisal of their shares of Transatlantic
common stock. Stockholders at the time of a "short form" merger under Delaware law would also be entitled to exercise dissenters' rights pursuant to such a "short form" merger. Stockholders who
perfect dissenters' rights by complying with the procedures set forth in Section 262 of the DGCL will be entitled to receive a cash payment equal to the "fair value" of their shares of
Transatlantic common stock, as determined by a Delaware court. Because appraisal rights are not available in connection with the exchange offer, no demand for appraisal under Section 262 of the
DGCL may be made at this time. Any such judicial determination of the fair value of the shares of Transatlantic common stock could be based upon considerations other than or in addition to the
consideration paid in the exchange offer and the market value of the shares of Transatlantic common stock. Holders of shares of Transatlantic common stock should recognize that the value so determined
could be higher or lower than, or the same as, the consideration per share paid pursuant to the exchange offer or the consideration paid in such a merger. Moreover, we may argue in an appraisal
proceeding that, for purposes of such a proceeding, the fair value of the shares of Transatlantic common stock is less than the consideration paid in the exchange offer.
FAILURE
TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. BECAUSE OF THE COMPLEXITY OF DELAWARE LAW
RELATING TO APPRAISAL RIGHTS, WE ENCOURAGE YOU TO SEEK THE ADVICE OF YOUR OWN LEGAL COUNSEL. THE FOREGOING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE DGCL. IN PARTICULAR, THE DESCRIPTION OF SECTION 262 ABOVE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SECTION.
Plans for Transatlantic
The exchange offer is the first step in our plan to acquire all of the outstanding shares of Transatlantic common stock. Validus
intends, promptly following acceptance for exchange and exchange of shares of Transatlantic common stock in the exchange offer, to effect the second-step merger pursuant to which Validus
will acquire all shares of Transatlantic common stock of those Transatlantic stockholders who choose not to tender their shares of Transatlantic common stock pursuant to the exchange offer in
accordance with the DGCL. The purpose of the second-step merger is for Validus to acquire all outstanding shares of Transatlantic common stock that are not acquired in the exchange offer.
After the second-step merger, former remaining Transatlantic stockholders will no longer have any ownership interest in Transatlantic and will be shareholders of Validus and Validus will
own all of the issued and outstanding shares of Transatlantic common stock. Please see the sections of this
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prospectus/offer
to exchange titled "The Exchange Offer—Purpose and Structure of the Exchange Offer"; "The Exchange Offer—Second-Step Merger."
Validus
has also taken other steps to acquire all of the issued and outstanding shares of Transatlantic common stock.
Validus
has filed a preliminary proxy statement in connection with the solicitation against the adoption of the Allied World acquisition agreement and vote against other proposals
brought before any Transatlantic special stockholder meeting as discussed in more detail in such preliminary proxy statement. If the Allied World acquisition agreement is not adopted by Transatlantic
stockholders after a vote thereon, the Transatlantic board of directors will be able to terminate the Allied World acquisition agreement and enter into a merger agreement with Validus. If the
Transatlantic board of directors were to enter into a merger agreement with Validus promptly following the termination of the Allied World acquisition agreement, Validus believes the merger
contemplated by the Validus merger offer could be completed in the fourth quarter of 2011.
Validus
commenced the exchange offer on July 25, 2011. In light of the uncertainty of entering into a consensual transaction with Transatlantic, Validus is making the exchange
offer directly to Transatlantic stockholders on the terms and conditions set forth in this prospectus/offer to exchange as an alternative to the Validus merger offer. In the event that Validus accepts
shares of Transatlantic common stock for exchange in the exchange offer, Validus intends to acquire any additional outstanding shares of Transatlantic common stock pursuant to the
second-step merger. If Validus accepts shares of Transatlantic common stock for exchange and owns 90% or more of the outstanding shares of Transatlantic common stock after the exchange
offer is completed, the second-step merger can be effected as a "short form" merger under Delaware law without the consent of any
stockholder (other than Validus) and without the approval of the Transatlantic board of directors. However, if Validus does not acquire at least 90% of the outstanding shares of Transatlantic common
stock in the exchange offer or otherwise, then both Transatlantic board approval and Transatlantic stockholder approval will be required to effect the second-step merger. In connection
with consummation of the exchange offer or the second-step merger, and subject to applicable law, Validus currently expects to replace Transatlantic's existing board of directors.
While
Validus continues to hope that it is possible to reach a consensual transaction with Transatlantic, Validus does not believe that it is in Transatlantic stockholders' best
interests to give the Transatlantic board of directors a veto right over whether the exchange offer is made available to Transatlantic's stockholders.
The
Validus merger offer and the exchange offer are alternative methods for Validus to acquire all of the issued and outstanding shares of Transatlantic common stock. Ultimately, only
one of these transactions can be pursued to completion. Validus intends to seek to combine with Transatlantic by whichever method Validus determines is most likely to be completed.
If,
and to the extent that Validus (and/or any of Validus' subsidiaries) acquires control of Transatlantic or otherwise obtains access to the books and records of Transatlantic, Validus
intends to conduct a detailed review of Transatlantic's business, operations, capitalization and management and consider and determine what, if any, changes would be desirable in light of the
circumstances which then exist. Validus intends to eliminate Transatlantic's public company infrastructure and restructure the combined company's legal entity organization, including restructuring
Transatlantic's non-U.S. subsidiaries. In addition, it is expected that, initially following the second-step merger, the business and operations of Transatlantic will, except
as set forth in this prospectus/offer to exchange, be continued substantially as they are currently being conducted, but Validus expressly reserves the right to make any changes that it deems
necessary, appropriate or convenient to optimize potential in conjunction with Validus' businesses and Validus' review or in light of future developments. Such changes could include, among other
things, changes in Transatlantic's business, corporate and legal structure, assets, properties,
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strategies, capitalization, management, personnel or dividend policy and changes to Transatlantic's restated certificate of incorporation and its amended and restated by-laws.
Except
as indicated in this prospectus/offer to exchange or as announced in the Validus merger offer, neither Validus nor any of Validus' subsidiaries has any current plans or proposals
that relate to or would result in (1) any extraordinary transaction, such as a merger, reorganization or liquidation of Transatlantic or any of its subsidiaries, (2) any purchase, sale
or transfer of a material amount of assets of Transatlantic or any of its subsidiaries, (3) any material change in the present dividend rate or policy, or indebtedness or capitalization of
Transatlantic or any of its subsidiaries, (4) any change in the current board of directors or management of Transatlantic or any change to any material term of the employment contract of any
executive officer of Transatlantic, (5) any other material change in
Transatlantic's corporate structure or business, (6) any class of equity security of Transatlantic being delisted from a national stock exchange or ceasing to be authorized to be quoted in an
automated quotation system operated by a national securities association or (7) any class of equity securities of Transatlantic becoming eligible for termination of registration under
Section 12(g)(4) of the Exchange Act.
Effect of the Exchange Offer on the Market for Shares of Transatlantic Common Stock; NYSE Listing; Registration Under
the Securities Exchange Act of 1934; Margin Regulations
In the event that not all shares of Transatlantic common stock are tendered in the exchange offer and we accept for exchange those
shares of Transatlantic common stock tendered into the exchange offer, the number of Transatlantic stockholders and the number of shares of Transatlantic common stock held by individual holders will
be greatly reduced. As a result, Validus' acceptance of shares of Transatlantic common stock for exchange in the exchange offer could adversely affect the liquidity and could also adversely affect the
market value of the remaining shares of Transatlantic common stock held by the public. The extent of the public market for shares of Transatlantic common stock and the availability of quotations
reported in the over-the-counter market depends upon the number of Transatlantic stockholders holding shares of Transatlantic common stock, the aggregate market value of the
shares of Transatlantic common stock remaining at such time, the interest of maintaining a market in the shares of Transatlantic common stock on the part of any securities firms and other factors.
According to Transatlantic 10-Q, as of June 30, 2011, there were 62,483,787, shares of Transatlantic common stock outstanding. According to the Transatlantic 10-K, there
were 30,000 holders of shares of Transatlantic common stock as of January 31, 2011 (including those held in nominee name).
Shares of Transatlantic common stock are listed on the NYSE. Depending upon the number of shares of Transatlantic common stock
exchanged pursuant to the exchange offer and the number of Transatlantic stockholders remaining thereafter, shares of Transatlantic common
stock may no longer meet the requirements of the NYSE for continued listing and may be delisted from the NYSE. According to the NYSE's published guidelines, the NYSE would consider delisting shares of
Transatlantic common stock if, among other things, (1) the number of total Transatlantic stockholders should fall below 400, (2) the number of total Transatlantic stockholders should
fall below 1,200 and the average monthly trading volume for shares of Transatlantic common stock is less than 100,000 for the most recent 12 months or (3) the number of publicly held
shares of Transatlantic common stock (exclusive of holdings of officers and directors of Transatlantic and their immediate families and other concentrated holdings of 10% or more) should fall below
600,000.
If,
as a result of the exchange of shares of Transatlantic common stock pursuant to the exchange offer or otherwise, shares of Transatlantic common stock no longer meet the requirements
of the NYSE for continued listing and the listing of shares of Transatlantic common stock is discontinued, the
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market
for shares of Transatlantic common stock could be adversely affected. If the NYSE were to delist shares of Transatlantic common stock, it is possible that shares of Transatlantic common stock
would continue to trade on another securities exchange or in the over-the-counter market and that price or other quotations would be reported by such exchange or other sources.
The extent of the public market therefor and the availability of such quotations would depend, however, upon such factors as the number of Transatlantic stockholders and/or the aggregate market value
of such securities remaining at such time, the interest in maintaining a market in shares of Transatlantic common stock on the part of securities firms, the possible termination of registration under
the Exchange Act as described below, and other factors. Validus cannot predict whether the reduction in the number of shares of Transatlantic common stock that might otherwise trade publicly would
have an adverse or beneficial effect on the market price for or marketability of shares of Transatlantic common stock or whether it would cause future market prices to be greater or less than the
consideration being offered in the exchange offer. If shares of Transatlantic common stock are not delisted prior to the second-step merger, then shares of Transatlantic common stock will
cease to be listed on the NYSE upon consummation of the second-step merger.
Shares of Transatlantic common stock are currently registered under the Exchange Act. This registration may be terminated upon
application by Transatlantic to the SEC if shares of Transatlantic common stock are not listed on a "national securities exchange" and there are fewer than 300 record holders. Termination of
registration would substantially reduce the information required to be furnished by Transatlantic to holders of shares of Transatlantic common stock and to the SEC and would make certain provisions of
the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings and the
requirements of Exchange Act Rule 13e-3 with respect to "going private" transactions, no longer applicable to Transatlantic. In addition, "affiliates" of Transatlantic and persons
holding "restricted securities" of Transatlantic may be deprived of the ability
to dispose of these securities pursuant to Rule 144 under the Securities Act. If registration of shares of Transatlantic common stock is not terminated prior to the second-step
merger, then the registration of shares of Transatlantic common stock under the Exchange Act will be terminated upon consummation of the second-step merger.
Shares of Transatlantic common stock are currently "margin securities," as such term is defined under the rules of the Board of
Governors of the Federal Reserve System, which we refer to as the "Federal Reserve Board," which has the effect, among other things, of allowing brokers to extend credit on the collateral of such
securities. Depending upon factors similar to those described above regarding listing and market quotations, following the exchange offer it is possible that shares of Transatlantic common stock would
no longer constitute "margin securities" for purposes of the margin regulations of the Federal Reserve Board, in which event shares of Transatlantic common stock would no longer be used as collateral
for loans made by brokers. In addition, if registration of shares of Transatlantic common stock under the Exchange Act were terminated, shares of Transatlantic common stock would no longer constitute
"margin securities."
Conditions of the Exchange Offer
Notwithstanding any other provision of the exchange offer, and in addition to (and not in limitation of) Validus' right to extend and
amend and supplement the exchange offer at any time, in its discretion, Validus shall not be required to accept for exchange any shares of Transatlantic common stock tendered pursuant to the exchange
offer, shall not be required to make any exchange for shares of Transatlantic common stock accepted for exchange, and may extend, terminate or amend or
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the exchange offer, if immediately prior to the expiration time of the exchange offer, in the judgment of Validus, any one or more of the following conditions shall not have been satisfied:
Transatlantic stockholders shall have validly tendered and not withdrawn prior to the expiration time of the exchange offer at least
that number of shares of Transatlantic common stock that, when added to the shares of Transatlantic common stock then owned by Validus or any of its subsidiaries, shall constitute a majority of the
then-outstanding number of shares of Transatlantic common stock on a fully-diluted basis.
The Allied World acquisition agreement shall have been validly terminated, and Validus shall reasonably believe that Transatlantic has
no liability, and Allied World shall not have asserted any claim of liability or breach against Transatlantic in connection with the Allied World acquisition agreement, other than with respect to the
possible payment of the Allied World termination fee.
The registration statement of which this prospectus/offer to exchange and the accompanying letter of transmittal is a part shall have
become effective under the Securities Act, no stop order suspending the effectiveness of the registration statement shall have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC and Validus shall have received all necessary state securities law or "blue sky" authorizations.
The Transatlantic board of directors shall have approved the acquisition of shares of Transatlantic common stock pursuant to the
exchange offer and second-step merger under Section 203 of the DGCL, or Validus shall be satisfied that Section 203 of the DGCL does not apply to or otherwise restrict such
acquisition.
The Transatlantic board of directors shall have redeemed the rights issued pursuant to the Transatlantic rights plan, or the rights
shall have been redeemed or otherwise rendered inapplicable to the exchange offer and the second-step merger.
The shareholders of Validus shall have approved the issuance of the Validus common shares pursuant to the exchange offer and the
second-step merger as required under the rules of the NYSE.
The Validus common shares to be issued to Transatlantic stockholders as a portion of the exchange offer consideration in exchange for
shares of Transatlantic common stock in the exchange offer and the second-step merger shall have been authorized for listing on the NYSE, subject to official notice of issuance.
There shall be no pending litigation, suit, claim, action, proceeding, hearing or investigation by or before any foreign,
supranational, national, state, provincial, municipal or local government, governmental, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal or
judicial or arbitral body (each of which we refer to as a "governmental authority"),
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and
Validus shall not have disclosed the receipt of written notice from any person stating that such person intends to commence any litigation, suit, claim, action, proceeding or investigation against
Validus: (1) challenging or seeking to, or which, in the judgment of Validus is reasonably expected to, make illegal, delay or otherwise, directly or indirectly, restrain or prohibit or in
which there are allegations of any violation of law, rule or regulation relating to, the making of or terms of the exchange offer or the provisions of this prospectus/offer to exchange and the
accompanying letter of transmittal or, the acceptance for exchange and exchange of any or all of the shares of Transatlantic common stock by Validus or any other affiliate of Validus or the
second-step merger; or (2) seeking to, or which in the judgment of Validus is reasonably expected to, prohibit or limit the full rights of ownership of shares of Transatlantic
common stock by Validus or any of its affiliates, including, without limitation, the right to vote any shares of Transatlantic common stock acquired by Validus pursuant to the exchange offer or
otherwise on all matters properly presented to Transatlantic stockholders.
Since December 31, 2010, there shall not have been any change, state of facts, circumstance or event that has had, or would
reasonably be expected to have, a material adverse effect on the financial condition, properties, assets, liabilities, obligations (whether accrued, absolute, contingent or otherwise), businesses or
results of operations of Transatlantic and its subsidiaries, taken as a whole, excluding any such change, state of facts, circumstance or event to the extent caused by or resulting from:
(1) changes in economic, market, business, regulatory or political conditions generally in the United States or any other jurisdiction in which Transatlantic and its subsidiaries operates or
United States or global financial markets; (2) changes, circumstances or events generally affecting the property and casualty insurance and reinsurance industry in the geographic areas in which
Transatlantic and its subsidiaries operate; (3) changes, circumstances or events resulting in liabilities under property and casualty insurance and reinsurance agreements to which Transatlantic
or any of its subsidiaries is a party, including any effects resulting from any earthquake, hurricane, tornado, windstorm, terrorist act, act of war or other natural or man-made disaster;
(4) the commencement, occurrence or continuation of any war or armed hostilities; (5) changes in any applicable law, statute, ordinance, common law, arbitration award, or any rule,
regulation, judgment, order, writ, injunction, decree, agency requirement or published interpretation of any governmental authority; (6) changes in generally
accepted accounting principles or in statutory accounting principles (or local equivalents in the applicable jurisdiction) prescribed by the applicable insurance regulatory authority, including
accounting and financial reporting pronouncements by the SEC, the National Association of Insurance Commissioners and the Financial Accounting Standards Board; (7) any change or announcement of
a potential change in Transatlantic's or any of its subsidiaries' credit or claims paying rating or A.M. Best rating or the ratings of any of Transatlantic's or its subsidiaries' businesses or
securities; (8) suspension in trading or a change in the trading prices or volume of shares of Transatlantic common stock; or (9) the failure to meet any revenue, earnings or other
projections, forecasts or predictions for any period ending after the date of this prospectus/offer to exchange, except that (A) in the case of the foregoing clauses (7), (8) and
(9), such exceptions shall not prevent or otherwise affect a determination that any changes, state of facts, circumstances or events underlying a failure described in any such clause has resulted in,
or contributed to, a material adverse effect on Transatlantic and its subsidiaries taken as a whole and (B) in the case of the foregoing clauses (1), (2), (3) and (4), to the
extent those changes, state of facts, circumstances or events have a materially disproportionate effect on Transatlantic and its subsidiaries taken as a whole relative to other similarly situated
persons in the property and casualty insurance and reinsurance industry in similar geographic areas to those in which Transatlantic and its subsidiaries operate. We refer to any such material adverse
change, state of facts, circumstance or event described above as a "material adverse effect."
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Each of Transatlantic and its subsidiaries shall have carried on their respective businesses in the ordinary course consistent with
past practice at all times on or after the date of this prospectus/offer to exchange and prior to the expiration time of the exchange offer.
All amendments or waivers under Validus' and its subsidiaries' credit facilities necessary to consummate the exchange offer, the
second-step merger and the other transactions contemplated by this prospectus/offer to exchange shall have been obtained and be in full force and effect. Validus has obtained amendments to
its applicable credit facilities, satisfying this condition. Please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Source and Amount of Funds."
The New York State Insurance Department shall have approved Validus' application for acquisition of control of Transatlantic
Reinsurance Company and Putnam Reinsurance Company, New York domiciled insurance companies and wholly-owned subsidiaries of Transatlantic, pursuant to Section 1506 of the New York Insurance
Code and such approval shall be in full force and effect.
Any applicable waiting period under the HSR Act, and, if applicable, any agreement with the FTC or the Antitrust Division not to accept
shares of Transatlantic common stock for exchange in the exchange offer, shall have expired or shall have been terminated prior to the expiration time of the exchange offer. On August 17, 2011
at 11:59 p.m. Eastern time, the applicable waiting period under the HSR Act for the acquisition by Validus of shares of Transatlantic common stock pursuant to the exchange offer expired,
satisfying this condition.
Any clearance, approval, permit, authorization, waiver, determination, favorable review or consent of any governmental authority, other
than in connection with the New York State Department of Insurance Condition and the Competition Condition, shall have been obtained and such approvals shall be in full force and effect, or any
applicable waiting periods for such clearances or approvals shall have expired.
Additionally, Validus shall not be required to accept for exchange any shares of Transatlantic common stock tendered pursuant to the
exchange offer, shall not be required to make any exchange for shares of Transatlantic common stock accepted for exchange, and may extend, terminate or amend the exchange offer, if at any time on or
after the date of this prospectus/offer to
exchange and prior to the expiration time of the exchange offer any of the following events or facts shall have occurred:
(a) there
shall be in effect any order or injunction or any action taken, or any law or statute enacted, entered, enforced or deemed applicable to the exchange offer, the
second-step merger or the other transactions contemplated by this prospectus/offer to exchange by any governmental authority which imposes any term, condition, obligation or restriction
upon Validus, Transatlantic or any of their respective subsidiaries that would, individually or the aggregate, reasonably be expected to (1) have a material adverse effect (assuming all
references to Transatlantic in the definition of "material adverse effect" were instead references to Validus) on Validus and its subsidiaries (assuming the consummation of the acquisition of shares
of Transatlantic common stock in the exchange offer and the second-step
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merger)
on a consolidated basis after the consummation of the exchange offer and the second-step merger or (2) directly or indirectly (i) delay or otherwise restrain, impede
or prohibit the exchange offer or the second-step merger or (ii) prohibit or limit the full rights of ownership of shares of Transatlantic common stock by Validus or any of its
affiliates, including, without limitation, the right to vote any shares of Transatlantic common stock acquired by Validus pursuant to the exchange offer or otherwise on all matters properly presented
to Transatlantic stockholders;
(b) Transatlantic
or any of its subsidiaries has (1) permitted the issuance or sale of any shares of any class of share capital or other securities of any subsidiary
of Transatlantic (other than shares of Transatlantic common stock issued pursuant to, and in accordance with, the terms in effect on the date of this prospectus/offer to exchange of employee stock
options, stock units or other similar awards outstanding prior to the date of this prospectus/offer to exchange), (2) declared, paid or proposed to declare or pay any dividend or other
distribution (other than any quarterly cash dividends paid in the ordinary course of business consistent with past practice to holders of shares of Transatlantic common stock), or (3) amended,
or authorized or proposed any amendment to, its restated certificate of incorporation or amended and restated by-laws (or other similar constituent documents) or Validus becomes aware that
Transatlantic or any of its subsidiaries shall have amended, or authorized or proposed any amendment to, its restated certificate of incorporation or amended and restated by-laws (or other
similar constituent documents) in a manner that, in the reasonable judgment of Validus, is reasonably likely to, directly or indirectly, (i) delay or otherwise restrain, impede or prohibit the
exchange offer or the second-step merger or (ii) prohibit or limit the full rights of ownership of shares of Transatlantic common stock by Validus or any of its affiliates,
including, without limitation, the right to vote any shares of Transatlantic common stock acquired by Validus pursuant to the exchange offer or otherwise on all matters properly presented to
Transatlantic stockholders;
(c) Validus
or any of its affiliates enters into a definitive agreement or announces an agreement in principle with Transatlantic providing for a merger or other business
combination or transaction with or involving Transatlantic or any of its subsidiaries, or the purchase or exchange of securities or assets of Transatlantic or any of its subsidiaries, or Validus and
Transatlantic reach any other agreement or understanding, in either case, pursuant to which it is agreed or provided that the exchange offer will be terminated;
(d) Transatlantic
or any of its subsidiaries shall have (1) granted to any person proposing a merger or other business combination with or involving Transatlantic or
any of its subsidiaries or the purchase or exchange of securities or assets of Transatlantic or any of its subsidiaries any type of option, warrant or right which, in Validus' judgment, constitutes a
"lock-up" device (including, without limitation, a right to acquire or receive any shares of Transatlantic common stock or other securities, assets or businesses of Transatlantic or any of
its subsidiaries), (2) paid or agreed to pay any cash or other consideration to any party in connection with or in any way related to any such business combination, purchase or exchange (other
than to Allied World, an amount not to exceed the Allied World termination fee), or (3) amended the Allied World acquisition agreement in any respect that alters Transatlantic's rights or
obligations upon termination of the Allied World acquisition agreement (other than a reduction of the Allied World termination fee); or
(e) Transatlantic
stockholders shall have adopted the proposed Allied World acquisition agreement or there shall have been a business combination consummated between
Transatlantic and Allied World;
which
in the reasonable judgment of Validus in any such case, and regardless of the circumstances giving rise to any such condition (other than any event or circumstance giving rise to the triggering
of a condition within the control of Validus), makes it inadvisable to proceed with the exchange offer and/or with acceptance for exchange, or exchange, of shares of Transatlantic common stock.
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The
foregoing conditions are for the sole benefit of Validus and may be asserted by Validus regardless of the circumstances giving rise to any such condition (other than any event or
circumstance giving rise to the triggering of a condition within the control of Validus) or, other than the conditions described under the subheadings "Registration Statement Condition," "Shareholder
Approval Condition," "NYSE Listing Condition," "Competition Condition," and "New York State Insurance Department Condition" above, which we refer to collectively as the "unwaivable conditions," may be
waived by Validus in whole or in part at any time and from time to time prior to the expiration time of the exchange offer in its discretion. To the extent Validus waives a condition set forth in this
section with respect to one tender, Validus will waive that condition with respect to all other tenders. We expressly reserve the right to waive any of the conditions to the exchange offer, other than
the unwaivable conditions, and to make any change in the terms of or conditions to the exchange offer. The waiver of any right with respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any
other facts and circumstances. Any determination by Validus concerning any condition or event described in this prospectus/offer to exchange and the accompanying letter of transmittal shall be final
and binding on all parties to the fullest extent permitted by applicable law.
Dividends and Distributions
If, on or after the date of this prospectus/offer to exchange, Transatlantic:
- •
- splits, combines or otherwise changes the shares of Transatlantic common stock or its capitalization;
- •
- acquires or otherwise causes a reduction in the number of outstanding shares of Transatlantic common stock; or
- •
- issues or sells any additional shares of Transatlantic common stock (other than shares of Transatlantic common stock
issued pursuant to, and in accordance with, the terms in effect on the date of this prospectus/offer to exchange of employee stock options, stock units or other similar awards outstanding prior to the
date of this prospectus/offer to exchange), shares of any other class or series of capital stock of Transatlantic (including preferred stock) or any options, warrants, convertible securities or other
rights of any kind to acquire any of the foregoing, or any other ownership interest (including, without limitation, any phantom interest), of Transatlantic:
then,
without prejudice to Validus' rights under the section of this prospectus/offer to exchange titled "Conditions of the Exchange Offer," Validus may make such adjustments to the exchange offer
consideration and other terms of the exchange offer and the second-step merger (including the number and type of securities to be exchanged) as it deems appropriate to reflect such split,
combination or other change.
If,
on or after the date of this prospectus/offer to exchange, Transatlantic declares, sets aside, makes or pays any dividend on the shares of Transatlantic common stock (other than any
quarterly cash dividend paid in the ordinary course of business consistent with past practice) or makes any other distribution (including the issuance of additional share capital pursuant to a share
dividend or share split, the issuance of other securities or the issuance of rights for the purchase of any securities) with respect to shares of Transatlantic common stock that is payable or
distributable to stockholders of record on a date prior to the transfer to the name of Validus or its nominee or transferee on Transatlantic's stock transfer records of the shares of Transatlantic
common stock exchanged pursuant to the exchange offer, then, without prejudice to Validus' rights under "The Exchange
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Offer—Extension,
Termination and Amendment" and "The Exchange Offer—Conditions of the Exchange Offer":
- •
- the aggregate consideration per share of Transatlantic common stock payable by Validus pursuant to the exchange offer will
be reduced to the extent any such dividend or distribution is payable in cash; and
- •
- the whole of any such non-cash dividend, distribution or issuance to be received by the tendering stockholders
will (1) be received and held by the tendering Transatlantic stockholders for the account of Validus and will be required to be promptly remitted and transferred by each tendering Transatlantic
stockholder to the exchange agent for the account of Validus, accompanied by appropriate documentation of transfer or (2) at the direction of Validus, be exercised for the benefit of Validus,
in which case the proceeds of such exercise will promptly be remitted to Validus.
Pending
such remittance and subject to applicable law, Validus will be entitled to all the rights and privileges as owner of any such non-cash dividend, distribution or right
and may withhold the entire exchange offer consideration or deduct from the exchange offer consideration the amount or value thereof, as determined by Validus in its discretion.
Source and Amount of Funds
Validus estimates that the aggregate consideration to be paid to Transatlantic stockholders in connection with the exchange offer and
second-step merger
will consist of approximately $500 million in cash (less applicable withholding taxes and without interest) and that number of Validus common shares determined in accordance with the exchange
ratio. In addition, Transatlantic stockholders will receive cash in lieu of any fractional Validus common shares to which they may be entitled.
Validus estimates that the total amount of cash required to complete the transactions contemplated by the exchange offer and the
second-step merger will be approximately $647,375,000, which estimated total amount includes:
- •
- payment of the cash portion of the exchange offer consideration required to acquire all of the shares of Transatlantic
common stock pursuant to the exchange offer and the second-step merger (including the cash payments due in lieu of the issuance of fractional Validus common shares);
- •
- any cash that may be required to be paid in respect of dissenters' or appraisal rights; and
- •
- payment of any fees, expenses and other related amounts incurred in connection with the exchange offer and
second-step merger.
We
expect to have sufficient funds to complete the transactions contemplated by the exchange offer and the second-step merger and to pay fees, expenses and other related
amounts through a combination of (1) Validus' and Transatlantic's cash on hand and (2) borrowings under the proposed commitment described below.
The
estimated amount of cash required is based on Validus' due diligence review of Transatlantic's publicly available information to date and is subject to change. For a further
discussion of the risks relating to Validus' limited due diligence review, see the section of this prospectus/offer to exchange titled "Risk Factors—Risk Factors Relating to the Exchange
Offer and the Second-Step Merger."
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We have obtained commitments from J.P. Morgan Securities LLC, as lead arranger, and JPMorgan Chase Bank, N.A. to provide,
subject to certain conditions, senior bank financing consisting of up to $200 million under a proposed new unsecured credit facility, which we refer to as the "Bridge Facility," for financing a
portion of the cash component of the consideration to be paid to Transatlantic stockholders in connection with the exchange offer. The documentation governing the credit facility contemplated by these
commitments has not been finalized, and accordingly, the actual terms may differ from the summary below. Validus plans to fund the remaining cash component of the consideration to be paid to
Transatlantic stockholders in connection with the exchange offer through the borrowing of up to $300 million under its existing $340 million Three-Year Unsecured Letter of
Credit Facility Agreement, dated as of March 12, 2010, which we refer to as the "Existing Three-Year L/C Facility," among Validus, Validus Re, the subsidiary account parties from
time to time party thereto, the lenders from time to time party thereto, Deutsche Bank Securities Inc., as syndication agent, and JPMorgan Chase Bank, N.A., as administrative agent.
On
August 2, 2011, we entered into the First Amendment to the Existing Three-Year L/C Facility, which we refer to as the "Three-Year Amendment," among
Validus, Validus Re, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, which contains certain amendments to the Existing Three-Year L/C Facility that we
determined were necessary to reflect and permit the exchange offer, the second-step merger and the other transactions contemplated by this prospectus/offer to exchange, and such
Three-Year Amendment is in full force and effect. Validus does not currently have any alternative arrangements or alternative plans with respect to financing the cash consideration in the
offer and the second-step merger, nor does Validus have any plans or arrangements to refinance or repay the Existing Three-Year L/C Facility or the Bridge Facility.
Also
on August 2, 2011, we entered into the Fourth Amendment to the $500 million Five-Year Secured Letter of Credit Facility Agreement, dated as of
March 12, 2007, which we refer to as the "Five-Year Facility," among Validus, Validus Re, the other designated subsidiary account parties from time to time party thereto, the
lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and issuing agent, and Deutsche Bank AG New York Branch, as syndication agent, which amends the
Five-Year Facility to reflect and permit the exchange offer, the second-step merger and the other transactions contemplated by this prospectus/offer to exchange, and which
includes specific amendments to certain of the affirmative covenants, negative covenants and events of defaults contained therein.
Interest; Letter of Credit Fees; Unused Commitment Fees
Existing Three-Year L/C Facility
Each loan made under the Existing Three-Year L/C Facility bears interest at an Adjusted LIBOR Rate or Alternate Base Rate
plus the applicable margin described in the chart below. Interest periods on Adjusted LIBOR Rate-based loans may be one, two, three or six months (or, if available to each lender affected,
nine or twelve months), at Validus' option. In the case of Adjusted LIBOR Rate-based loans, interest accrues on the basis of a 360-day year, and is payable on the last day of
each relevant interest period and, for any interest period longer than 3 months, on each successive date 3 months after the first day of such interest period. Interest accrues on
Alternate Base Rate-based loans on the basis of a 365/366-day year (or 360-day year if based on the Federal Funds Rate or the Adjusted LIBOR Rate) and is payable
quarterly in arrears. Unused loan commitments are subject to an unused
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commitment
fee and letters of credit issued under the Existing Three-Year L/C Facility are subject to a letter of credit fee, in each case, as described in the chart below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
Index Ratings |
|
Commitment
Fee Rate |
|
Eurodollar
Spread |
|
ABR
Spread |
|
Letter of
Credit Fee |
|
Category 1 |
|
A-/A3 or better |
|
|
0.30 |
% |
|
2.25 |
% |
|
1.25 |
% |
|
2.25 |
% |
Category 2 |
|
BBB+/Baa1 |
|
|
0.40 |
% |
|
2.50 |
% |
|
1.50 |
% |
|
2.50 |
% |
Category 3 |
|
BBB/Baa2 |
|
|
0.50 |
% |
|
3.00 |
% |
|
2.00 |
% |
|
3.00 |
% |
Category 4 |
|
BBB-/Baa3 |
|
|
0.60 |
% |
|
3.50 |
% |
|
2.50 |
% |
|
3.50 |
% |
Category 5 |
|
BB+/Ba1 or lower |
|
|
0.70 |
% |
|
4.00 |
% |
|
3.00 |
% |
|
4.00 |
% |
Each loan made under the Bridge Facility will bear interest at an Adjusted LIBOR Rate or Alternate Base Rate (as contemplated by the
commitment letter relating to the Bridge Facilities) plus, in each case, the applicable margin described in the chart below. Interest periods on Adjusted LIBOR Rate-based loans may be one,
two, three or six months, at Validus' option. In the case of Adjusted LIBOR Rate-based loans, interest will accrue on the basis of a 360-day year, and will be payable on the
last day of each relevant interest period and, for any interest period longer than 3 months, on each successive date 3 months after the first day of such interest period. Interest will
accrue on Alternate Base Rate-based loans on the basis of a 365/366-day year (or 360-day year if based on the Federal Funds Rate or the Adjusted LIBOR Rate) and
shall be payable quarterly in arrears. Unused loan commitments will be subject to an unused commitment fee, as described in the chart below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
Index Ratings |
|
Commitment
Fee Rate |
|
Eurodollar
Spread |
|
ABR
Spread |
|
Category 1 |
|
A-/A3 or better |
|
|
0.125 |
% |
|
1.125 |
% |
|
0.125 |
% |
Category 2 |
|
BBB+/Baa1 |
|
|
0.150 |
% |
|
1.375 |
% |
|
0.375 |
% |
Category 3 |
|
BBB/Baa2 |
|
|
0.200 |
% |
|
1.625 |
% |
|
0.625 |
% |
Category 4 |
|
BBB-/Baa3 |
|
|
0.250 |
% |
|
1.875 |
% |
|
0.875 |
% |
Category 5 |
|
BB+/Ba1 or lower |
|
|
0.325 |
% |
|
2.250 |
% |
|
1.250 |
% |
The
Eurodollar Spreads and ABR Spreads set forth in the chart above will increase by an additional 0.25% on the date that is 90 days following the closing date of the Bridge
Facility and every 90 days thereafter.
Additionally,
Validus shall pay a duration fee for the ratable benefit of the lenders under the Bridge Facility on the dates set forth below, equal to the Applicable Duration Fee
Percentage of the aggregate principal amount of loans outstanding as of such date:
|
|
|
|
|
|
|
|
|
|
|
Days after the closing date of the Bridge Facility
|
|
90 days |
|
180 days |
|
270 days |
|
Applicable Duration Fee Percentage |
|
|
0.50 |
% |
|
0.75 |
% |
|
1.00 |
% |
Borrowing under the Existing Three-Year L/C Facility is subject to certain conditions. Set forth below is a description of
the conditions precedent to borrowing under the Existing Three-Year L/C Facility:
- •
- the absence of any default or event of default under the Existing Three-Year L/C Facility;
- •
- accuracy of representations and warranties under the Existing Three-Year L/C Facility (subject to materiality
thresholds and customary carve-outs); and
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- •
- receipt by the administrative agent of a customary borrowing request from Validus.
Bridge Facility
Borrowing under the Bridge Facility will be subject to certain conditions. Set forth below is a description of the conditions precedent
to borrowing under the Bridge Facility:
- •
- the negotiation, delivery and execution of definitive documentation with respect to the Bridge Facility consistent with
the Existing Three-Year L/C Facility, and containing only those conditions to borrowing expressly set forth in the commitment letter relating to the Bridge Facility;
- •
- the exchange offer shall have been consummated substantially concurrently with the initial funding of the Bridge Facility,
in accordance with the terms of the definitive documents relating to the exchange offer;
- •
- since December 31, 2010, there not having been any Combined Material Adverse Effect (as defined in the commitment
letter relating to the Bridge Facility), other than any events, developments or occurrences (but not any future updates, developments or other changes in or to any such events, developments or
occurrences) that have been disclosed prior to July 24, 2011 in any public filing on Form 10-K, Form 10-Q or Form 8-K of Validus or
Transatlantic, as applicable;
- •
- as of the closing date of the Bridge Facility, no default or event of default shall have occurred and be continuing, or
shall occur as a result of the consummation of the exchange offer, the second-step merger and the financings thereof, under (x) the Existing Three-Year L/C Facility, the
Five-Year Facility or, in each case any refinancing or replacement thereof or (y) any other credit agreement of Validus, Transatlantic or any of their respective subsidiaries, or
any refinancing or replacement thereof (other than, in the case of this clause (y), any such agreements, refinancing or replacements with an aggregate outstanding principal amount (for all such
agreements, refinancing and replacements) not in excess of $150,000,000);
- •
- accuracy of representations and warranties under the Bridge Facility (subject to materiality thresholds) (excluding any
representation or warranty relating to Transatlantic or any of its subsidiaries or any of their respective businesses);
- •
- no default or event of default shall have occurred and be continuing at the time of, or after giving effect to the making
of, the loans under the Bridge Facility;
- •
- the lenders shall have received (1) audited consolidated financial statements of Validus for the three most recent
fiscal years ended at least 90 days prior to the closing date of the Bridge Facility and (2) unaudited consolidated financial statements of Validus for each interim quarterly period
ended after the latest fiscal year referred to in clause (1) above and at least 45 days prior to the closing date of the Bridge Facility, and unaudited consolidated financial statements
for the same period of the prior fiscal year;
- •
- the lenders shall have received a pro forma consolidated balance sheet of Validus as at the end of the most recent fiscal
year ended at least 90 days prior to the closing date of the Bridge Facility and a pro forma statement of operations for each of (1) the most recent fiscal year of Validus ended at least
90 days prior to the closing date of the Bridge Facility and (2) the most recent interim period of Validus ending at least 45 days prior to the closing date of the Bridge
Facility, in each case adjusted to give effect to the consummation of the exchange offer, the second-step merger and the financings contemplated thereby as if such transactions had
occurred on such date or on the first day of such period, as applicable. To the extent practicable, such pro forma financial statements shall be prepared in accordance with
Regulation S-X, but it is
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acknowledged
that to the extent Validus is limited as to information relating to Transatlantic and its subsidiaries, such preparation may not be practicable;
- •
- payment of all fees and expenses then due with respect to the Bridge Facility to the extent invoiced at least one business
day prior to the closing date of the Bridge Facility;
- •
- the lead arranger shall have received such legal opinions, certificates (including a solvency certificate from the chief
financial officer of Validus certifying the solvency of Validus and its subsidiaries on a consolidated basis, after giving effect to the exchange offer and the borrowings under the Bridge Facility),
documents and other instruments and information (including PATRIOT Act documentation and information), in each case, as are customary for transactions of this type as it may reasonably request; and
- •
- receipt by the administrative agent of a customary borrowing request from Validus.
Maturity
Existing Three-Year L/C Facility
The Existing Three-Year L/C Facility will mature on March 12, 2013.
Validus expects that the contemplated Bridge Facility will mature on the earlier of (i) one year after the closing date of the
Bridge Facility and (ii) March 12, 2013.
The loans made under the Bridge Facility and the Existing Three-Year L/C Facility may be voluntarily repaid without premium
or penalty, subject to Validus' payment of breakage costs in connection with any Adjusted LIBOR Rate-based loans.
Subject
to certain exceptions and thresholds, (a) the loans made under the Bridge Facility will be mandatorily prepaid and, (b) after the execution of the commitment letter
relating to the Bridge Facility, but prior to the closing date of the Bridge Facility, the commitments of the lenders under the Bridge Facility will be reduced, in each case, on a pro rata basis with
(i) 100% of the net cash proceeds of any issuance of equity by Validus (other than any issuance of equity pursuant to the exchange offer) and (ii) 100% of the net cash proceeds of any
incurrence of indebtedness for borrowed money by Validus or any of its subsidiaries.
Pursuant to the Three-Year Amendment, all obligations of Validus and its subsidiaries under the Existing
Three-Year L/C Facility will, from and after the consummation of the second-step merger, be unconditionally guaranteed, which we refer to as the "Guarantee," by Transatlantic
so long as the provision of such Guarantee at such time is not prohibited by any material contract of Transatlantic or applicable law or regulation and would not result in material adverse tax
consequences as reasonably determined by Validus and the administrative agent. In the event that (and solely for so long as) the Guarantee is not provided, the Existing Three-Year L/C
Facility will include the following additional covenants: (i) a minimum level of capital and surplus at Validus Re equal to at least $2,451,837,960, (ii) the delivery of quarterly
financial information with respect to Validus Re, including balance sheets and the related statements of income, changes in shareholders' equity and cash flows and (iii) a limitation on direct
or indirect investments by Validus and its subsidiaries (other than Transatlantic and its subsidiaries) in Transatlantic and its subsidiaries (other than the acquisition of common stock
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pursuant
to this exchange offer and second-step merger), which investments shall not exceed the greater of (x) $100,000,000 and (y) 1.50% of consolidated net worth of Validus
and its subsidiaries.
All obligations of Validus and its subsidiaries under the Bridge Facility will, from and after the consummation of the
second-step merger, be unconditionally guaranteed, which we refer to as the "Guarantee," by Transatlantic so long as the provision of such Guarantee at such time is not prohibited by any
material contract of Transatlantic or applicable law or regulation and would not result in material adverse tax consequences as reasonably determined by Validus and the administrative agent. In the
event that (and solely for so long as) the Guarantee is not provided, the Bridge Facility will include additional covenants to be mutually agreed and which may include the following: (i) a
minimum level of capital surplus at Validus Re, (ii) a minimum consolidated net worth financial covenant with respect to Talbot Holdings Ltd., (iii) a limitation on direct or
indirect investments by Validus and its subsidiaries (other than Transatlantic and its subsidiaries) in Transatlantic and its subsidiaries (other than the acquisition of common stock pursuant to this
exchange offer and second-step merger) and (iv) a limitation on dividends, distributions and other restricted payments by Validus, in each case, on terms and subject to exceptions
(and, with respect to clauses (i) and (ii) above, at levels) to be mutually agreed.
Representations and Warranties; Covenants; Events of Default.
Existing Three-Year L/C Facility
The Existing Three-Year L/C Facility contains covenants that include, among other things (i) the requirement that
Validus initially maintain a minimum level of consolidated net worth of at least $2,925,590,000 plus, immediately following the last day of each fiscal quarter (commencing with the fiscal quarter
ended December 31, 2009), an amount equal to 50% of Validus' consolidated net income (if positive) for such quarter plus 50% of the aggregate increases in the consolidated shareholders' equity
of Validus during such fiscal quarter by reason of the issuance and sale of common equity interests of Validus, including upon any conversion of debt securities of Validus into such equity interests,
(ii) the requirement that Validus maintain at all times a consolidated total debt to consolidated total capitalization ratio not greater than 0.35:1.00, and (iii) the requirement that
Validus Re and any other material insurance subsidiaries maintain a financial strength rating by A.M. Best of not less than "B++".
In
addition, the Existing Three-Year L/C Facility contains customary negative covenants applicable to Validus and its subsidiaries, including limitations on the ability to
pay dividends and other payments in respect of equity interests at any time that Validus is otherwise in default with respect to certain provisions under the Existing Three-Year L/C
Facility, limitations on the ability to incur liens, make investments, sell assets, merge or consolidate with others, enter into transactions with affiliates, and limitations on the ability of our
subsidiaries to incur indebtedness. The Existing Three-Year L/C Facility also contains customary affirmative covenants, representations and warranties and events of default for credit
facilities of this type.
In
addition to the covenants described in the section of this prospectus/offer to exchange titled "Guarantee—Existing Three-Year L/C Facility," the
Three-Year Amendment amends certain of the representations and warranties, covenants and events of default contained in the Existing Three-Year L/C Facility that we determined
are necessary to reflect and permit the exchange offer, the second-step merger and the other transactions contemplated by this prospectus/offer to exchange.
The terms of the Bridge Facility shall be substantially similar to the Existing Three-Year L/C Facility, as modified to
reflect and permit the exchange offer, the second-step merger and the other transactions contemplated by this prospectus/offer to exchange.
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Certain Legal Matters; Regulatory Approvals
Under the HSR Act and the rules that have been promulgated thereunder, certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division and the FTC and certain waiting period requirements have been satisfied. The exchange of shares of Transatlantic common stock pursuant
to the exchange offer is subject to such requirements.
Pursuant
to the requirements of the HSR Act, Validus filed a Notification and Report Form and requested early termination of the HSR Act waiting period with respect to the exchange offer
and the second-step merger with the Antitrust Division and the FTC on July 18, 2011. On August 17, 2011 at 11:59 p.m. Eastern time, the applicable waiting period under
the HSR Act for the acquisition by Validus of shares of Transatlantic common stock pursuant to the exchange offer expired and the related condition to the exchange offer was satisfied.
Subject
to certain circumstances described in the section of this prospectus/offer to exchange titled "The Exchange Offer—Extension, Termination and Amendment," any extension
of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. Please see the section of this prospectus/offer to exchange titled "Withdrawal Rights."
The insurance laws and regulations of all 50 U.S. states and the District of Columbia generally require that, prior to the acquisition
of an insurance company, either through the acquisition of or merger with the insurance company or a holding company of that insurance company, the acquiring company must obtain approval from the
insurance commissioner of the insurance company's state of domicile or, in certain jurisdictions, where such insurance company is commercially domiciled.
Transatlantic
owns Transatlantic Reinsurance Company and Putnam Reinsurance Company, each of which are insurance companies domiciled in New York. Accordingly, before it can acquire
indirect control of each of Transatlantic Reinsurance Company and Putnam Reinsurance Company through its acquisition of Transatlantic, Validus will be required to obtain approval for acquisition of
control under Section 1506 of the New York Insurance Code. Validus does not believe based on publicly available information that Transatlantic Reinsurance Company or Putnam Reinsurance Company
is commercially domiciled in any U.S. State.
The exchange offer and the second-step merger will also be subject to review by antitrust, insurance and other authorities
in jurisdictions outside the U.S. Validus has filed and is in the process of filing as soon as practicable all applications and notifications determined by Validus to be necessary or advisable under
the laws of the respective jurisdictions for the consummation of the exchange offer and the second-step merger.
No
assurance can be given that the required consents and approvals of the applicable governmental authorities to complete the exchange offer and second-step merger will be
obtained, and, if all required consents and approvals are obtained, no assurance can be given as to the terms, conditions and timing of the consents and approvals. If Validus agrees to any material
requirements, limitations, costs, divestitures or restrictions in order to obtain any consents or approvals required to consummate the exchange offer, these requirements, limitations, additional costs
or restrictions could adversely affect Validus' ability to integrate the operations of Validus and Transatlantic or reduce the anticipated benefits of the combination contemplated by the exchange
offer and second-step merger.
Please
see the sections of this prospectus/offer to exchange titled "Risk Factors" and "The Exchange Offer—Conditions of the Exchange Offer."
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The exchange offer is subject to the condition that the Transatlantic board of directors shall have approved the acquisition of shares
of Transatlantic stock pursuant to the exchange offer and the second-step merger or any other business combination satisfactory to Validus between Transatlantic and Validus (and/or any of
Validus' subsidiaries) pursuant to the requirements of Section 203 of the DGCL, or Validus shall be satisfied that Section 203 does not apply to or otherwise restrict the exchange offer,
the second-step merger or any such business combination. This condition will be satisfied if (1) prior to the acceptance for exchange of shares of Transatlantic common stock
pursuant to the exchange offer, the Transatlantic board of directors (x) shall have approved the acquisition of shares of Transatlantic common stock pursuant to the exchange offer and the
second-step merger or (y) shall have approved each of Validus and its subsidiaries as an "interested stockholder" or (2) there are validly tendered and not withdrawn prior to
the expiration date a number of shares of Transatlantic common stock that, together with the shares of Transatlantic common stock then owned by Validus, would represent at least 85% of the shares of
Transatlantic common stock outstanding on the date hereof (excluding for the purposed of determining voting stock outstanding, shares of Transatlantic common stock owned by certain employee stock
plans and directors who are also officers of Transatlantic).
Section 203,
in general, prevents an "interested stockholder" (generally, a stockholder and an affiliate or associate thereof owning 15% or more of a corporation's outstanding
voting stock) from engaging in a "business combination" (as defined in Section 203) (defined to include a merger or consolidation and certain other transactions) with a Delaware corporation for
a period of three years following the time
such stockholder became an interested stockholder unless (1) prior to such time the corporation's board of directors approved either the business combination or the transaction which resulted
in such stockholder becoming an interested stockholder, (2) upon consummation of the transaction which resulted in such stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the corporation's voting stock outstanding at the time the transaction commenced (excluding shares of stock owned by certain employee stock plans and persons who are
directors and also officers of the corporation) or (3) at or subsequent to such time, the business combination is approved by the corporation's board of directors and authorized at an annual or
special meeting of stockholders (and not by written consent) by the affirmative vote of at least 662/3% of the outstanding voting stock of the corporation (excluding for such purposes
voting stock owned by the interested stockholder). Unless at least one of the conditions described above is satisfied, Section 203 of the DGCL would apply to the second-step merger
and any other business combination involving Validus or any of its subsidiaries, on the one hand, and Transatlantic, on the other hand. Consequently, Section 203 could significantly delay
Validus' ability to acquire the entire equity interest in Transatlantic.
A number of other states have adopted laws and regulations applicable to attempts to acquire securities of corporations which are
incorporated, or have substantial assets, stockholders, principal executive offices or principal places of business, or whose business operations otherwise have substantial economic effects, in such
states. To the extent that these state takeover statutes (other than Section 203 of the DGCL) purport to apply to the exchange offer or the second-step merger, Validus believes that
there are reasonable bases for contesting such laws. In Edgar v. MITE Corp., the Supreme Court of the United States invalidated on constitutional
grounds the Illinois Business Takeover Statute, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of
America, the Supreme Court held that the State of Indiana may, as a matter of corporate law and, in particular, with
respect to those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without the prior
approval of the remaining stockholders. The state law before the Supreme Court was by its terms applicable only to corporations
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that
had a substantial number of stockholders in the state and were incorporated there. Subsequently, in TLX Acquisition Corp. v. Telex Corp., a Federal
district court in Oklahoma ruled that the Oklahoma statutes were unconstitutional insofar as they apply to corporations incorporated outside Oklahoma because they would subject those corporations to
inconsistent regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a federal district court in Tennessee ruled that four Tennessee takeover
statutes were unconstitutional as applied to corporations incorporated outside Tennessee. This decision was affirmed by the United States Court of Appeals for the Sixth Circuit. In December 1988, a
federal district court in Florida held, in Grand Metropolitan P.L.C. v. Butterworth, that the provisions of the Florida Affiliated Transactions Act and
the Florida Control Share Acquisition Act were unconstitutional as applied to corporations incorporated outside of Florida.
Transatlantic,
directly or through its subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted takeover laws. Validus does not know
whether any of these laws will, by their terms, apply to the exchange offer or the second-step merger and has not complied with any such laws. Should any person seek to apply any state
takeover law, Validus will take such action as then appears desirable, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it
is asserted that one or more state takeover laws is applicable to the exchange offer or the second-step merger, and an appropriate court does not determine that it is inapplicable or
invalid as applied to the exchange offer, Validus might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, Validus might
be unable to accept for exchange any shares of Transatlantic common stock tendered pursuant to the exchange offer, or be delayed in continuing or consummating the exchange offer and the
second-step merger. In such case, Validus may not be obligated to accept for exchange any shares of Transatlantic common stock tendered. Please see the section of this prospectus/offer to
exchange titled "The Exchange Offer—Conditions of the Exchange Offer."
The SEC has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions
and which may under certain circumstances be applicable to the second-step merger or another business combination following the exchange of shares of Transatlantic common stock pursuant to
the exchange offer in which Validus seeks to acquire the remaining share of Transatlantic common stock not held by it. Validus believes that Rule 13e-3 should not be applicable to
the second-step merger; however, the SEC may take a different view under the circumstances. Rule 13e-3 requires, among other things, that certain financial information
concerning Transatlantic and certain information relating to the fairness of the proposed transaction and the consideration offered to minority shareholders in such transaction be filed with the SEC
and disclosed to shareholders prior to consummation of the transaction.
On July 28, 2011, Transatlantic announced that it had filed a complaint against Validus in the United States District Court for
the District of Delaware, alleging that Validus violated the securities laws by making false and misleading statements to Transatlantic's stockholders in connection with the exchange offer and its
opposition to the proposed Allied World acquisition. Validus believes that this suit is meritless. On August 10, 2011, Validus moved to dismiss this complaint for failure to state a claim. As
of the date of this prospectus/offer to exchange, no hearing date has been set on Validus' motion.
On
August 10, 2011, Validus filed a complaint in the Court of Chancery of the State of Delaware against Transatlantic, the members of its board of directors, and Allied World. The
complaint alleges that Transatlantic directors have breached and are breaching their fiduciary duties by refusing to recommend against the proposed Allied World acquisition, refusing to engage Validus
in discussions
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about
the Validus offer, and making false and misleading statements and omissions in connection with seeking stockholder approval of the Allied World acquisition. The complaint also alleges that
Allied World has aided and abetted these breaches of fiduciary duty.
The
complaint seeks injunctive relief against these breaches of fiduciary duty, and a declaratory judgment that the terms of the merger agreement between Transatlantic and Allied World
do not preclude the Transatlantic board of directors from determining in good faith that a confidentiality agreement entered into with Validus (or any other third party) is substantially similar to
Transatlantic's confidentiality agreement with Allied World, even if such third party confidentiality agreement does not contain a standstill, and does not require Validus to enter into a standstill
before Transatlantic is permitted to enter into discussions and exchange information with Validus.
On
August 16, 2011, Validus filed a motion seeking (i) a preliminary injunction seeking a declaratory judgment regarding Transatlantic's interpretation of
Section 5.5(e) of the Allied World acquisition agreement and whether the Transatlantic board of directors has breached its fiduciary duties by refusing to enter into discussions and exchange
information with Validus and (ii) expedited discovery in connection with the preliminary injunction hearing.
Based upon our examination of publicly available information concerning Transatlantic, it appears that Transatlantic and its
subsidiaries conduct business in a number of jurisdictions outside of the United States. In connection with the acquisition of shares of Transatlantic common stock pursuant to the exchange offer, the
laws of certain of these jurisdictions outside of the United States may require the filing of information with, or the obtaining of the approval of, governmental authorities therein. After
commencement of the exchange offer, we will seek further information regarding the applicability of any such laws and currently intend to take such action as they may require, but no assurance can be
given that such approvals will be obtained. If any action is taken before completion of the exchange offer by any such governmental authority, we may not be obligated to accept for payment or pay for
any tendered shares of Transatlantic common stock. Please see the section of this prospectus/offer to exchange titled "The Exchange Offer—Conditions of the Exchange Offer."
Certain Relationships With Transatlantic and Interests of Validus in the Exchange Offer
Except as otherwise described in this prospectus/offer to exchange, there have been no contacts, negotiations or transactions since
January 1, 2009, between us or, after due inquiry and to the best of our knowledge and belief, any of the persons listed on Schedule I to this prospectus/offer to exchange, and
Transatlantic or its affiliates, on the other hand, concerning an amalgamation, consolidation or acquisition, an exchange offer or other acquisition of securities, an election of directors, or a sale
or other transfer of a material amount of assets. In the ordinary course of business, Validus and Transatlantic enter into, from time to time, various insurance and reinsurance arrangements.
As
of the date of the exchange offer, Validus owns 200 shares of Transatlantic common stock, representing less than one percent of the outstanding shares of Transatlantic common stock.
These shares were purchased by Validus in a privately negotiated transaction and such purchase is described on Schedule II to this prospectus/offer to exchange. With the exception of the
foregoing, Validus has not effected any transaction in securities of Transatlantic in the past 60 days.
The
name, citizenship, business address, business telephone number, principal occupation or employment, and five-year employment history for each of the directors and
executive officers of Validus and certain other information is set forth in Schedule I to this prospectus/offer to exchange. Except as described in this prospectus/offer to exchange and in
Schedule I hereto, none of Validus or, after due inquiry and to the best of our knowledge and belief, any of the persons listed on Schedule I to this prospectus/offer to exchange, has
during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to any judicial or administrative
proceeding (except for matters that were dismissed without sanction or settlement) that
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resulted
in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such
laws. Except as set forth in this prospectus/offer to exchange and set forth in Schedule II to this prospectus/offer to exchange, after due inquiry and to the best of our knowledge and belief,
none of the persons listed on Schedule I hereto, nor any of their respective associates or majority owned subsidiaries, beneficially owns or has the right to acquire any securities of
Transatlantic or has effected any transaction in securities of Transatlantic during the past 60 days.
Validus
does not believe that the exchange offer and the second-step merger will result in a change in control under any of Validus' stock option plans or any employment
agreement between
Validus and any of its employees. As a result, no options or other equity grants held by such persons will vest as a result of the exchange offer and the second-step merger.
Fees and Expenses
Validus has engaged Greenhill & Co., LLC, which we refer to as "Greenhill," as a financial advisor with respect to
the transaction. In connection with Greenhill's services as a financial advisor to Validus in connection with the transaction, Validus has agreed to pay Greenhill an aggregate fee of
$20.0 million, $4.25 million of which has already been paid and $15.75 million (less the fee for Greenhill's service as dealer manager in connection with the exchange offer
described below) of which is contingent upon the consummation of a transaction with Transatlantic or entry into a definitive agreement that subsequently results in a transaction with Transatlantic. In
addition, Validus will reimburse Greenhill for its reasonable out-of-pocket expenses, including the reasonable fees and expenses of its legal counsel. Validus has also agreed
to indemnify Greenhill and its affiliates in connection with Greenhill's service as a financial advisor against certain liabilities in connection with their engagement.
Validus
has also engaged Greenhill to act as dealer manager in connection with the exchange offer. Greenhill may contact beneficial owners of shares of Transatlantic common stock in its
capacity as dealer manager regarding the exchange offer and may request brokers, dealers, commercial banks, trust companies and other nominees to forward this prospectus/offer to exchange and related
materials to beneficial owners of shares of Transatlantic common stock. Validus has agreed to pay Greenhill a fee of $50,000 for its service as dealer manager in connection with the exchange offer
(with such amount offset against the contingent portion of the fee payable to Greenhill in its capacity as a financial advisor to Validus as described above). In addition, Validus will reimburse
Greenhill for its reasonable out-of-pocket expenses, including the reasonable fees and expenses of its legal counsel. Validus has also agreed to indemnify Greenhill and its
affiliates in connection with Greenhill's service as dealer manager against certain liabilities in connection with their engagement.
Validus
has also engaged J.P. Morgan Securities LLC, which we refer to as "J.P. Morgan," as a financial advisor with respect to the transaction. In connection with J.P. Morgan's
services as a financial advisor to Validus in connection with the transaction, Validus agreed to pay J.P. Morgan an aggregate fee of $4.0 million, $1.0 million of which has already been
paid and $3.0 million of which is contingent upon the consummation of a transaction with Transatlantic or entry into a definitive agreement that subsequently results in a transaction with
Transatlantic. In addition, Validus will reimburse J.P. Morgan for its reasonable out-of-pocket expenses, including the reasonable fees and expenses of its legal counsel.
Validus has also agreed to indemnify J.P. Morgan and its affiliates in connection with J.P. Morgan's service as financial advisor against certain liabilities in connection with their engagement.
Validus
has also engaged J.P. Morgan to provide financing for the exchange offer and Validus has agreed to pay J.P. Morgan customary fees in respect thereof. As part of this engagement,
Validus has agreed that J.P. Morgan will have the right to act as, among other roles, lead manager and lead left bookrunner in connection with any public or Rule 144A offering, exclusive
placement agent in connection with an private placement and lead left book runner in connection with any credit facility,
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in
each case, in connection with the refinancing in full of the Bridge Facility occurring at any time prior to July 12, 2013.
Validus
has retained Innisfree M&A Incorporated, which we refer to as "Innisfree," as information agent in connection with the exchange offer. The information agent may contact holders
of shares of Transatlantic common stock by mail, telephone, facsimile, telegraph, the internet, e-mail, newspapers and other publications of general distribution and in person and may
request brokers, dealers, commercial banks, trust companies and other nominees to forward materials relating to the exchange offer to beneficial owners of shares of Transatlantic common stock. Validus
will pay the information agent up to $600,000 for these services and the solicitation and advisory services described below, in addition to reimbursing the information agent for its reasonable
out-of-pocket expenses. Validus agreed to indemnify the information agent against certain liabilities and expenses in connection with the exchange offer.
Validus
has also retained Innisfree for solicitation and advisory services in connection certain solicitations described in this prospectus/offer to exchange, for which Innisfree will
receive a customary fee. Validus has also agreed to reimburse Innisfree for out-of-pocket expenses and to indemnify Innisfree against certain liabilities and expenses,
including reasonable legal fees and related charges.
In
addition, Validus has retained BNY Mellon Shareowner Services as the exchange agent in connection with the exchange offer. Validus will pay the exchange agent reasonable and customary
compensation for its services in connection with the exchange offer, will reimburse the exchange agent for its reasonable out-of-pocket expenses and will indemnify the exchange
agent against certain liabilities and expenses.
Except
as set forth above, Validus will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of shares pursuant to the exchange offer. Validus
will reimburse brokers, dealers, commercial banks and trust companies and other nominees, upon request, for customary clerical and mailing expenses incurred by them in forwarding offering materials to
their customers.
Accounting Treatment
Validus will account for the acquisition of shares of Transatlantic common stock under the acquisition method of accounting in
accordance with Accounting Standards Codification Topic 805, "Business Combinations," which we refer to as ASC 805," under which the total consideration paid in the exchange offer will be allocated
among acquired assets and assumed liabilities based on the fair values of the assets acquired and liabilities assumed. In the event there is an excess of the total consideration paid in the exchange
offer over the fair values, the excess will be accounted for as goodwill. Intangible assets with definite lives will be amortized over their estimated useful lives. Goodwill resulting from the
exchange offer will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that the management of Validus
determines that the value of goodwill has become impaired, an accounting charge will be taken in the fiscal quarter in which such determination is made. In the event there is an excess of the fair
values of the acquired assets and liabilities assumed over the total consideration paid in the exchange offer, the excess will be accounted for as a gain to be recognized through the income statement
at the close of the transaction, in accordance with ASC 805. Validus anticipates the acquisition will result in an excess of the fair values of the acquired assets and liabilities assumed over the
total consideration paid.
Memorandum of Association and Bye-law Provisions
Various provisions contained in Validus' Memorandum of Association, as amended, and Amended and Restated Bye-laws could
delay or discourage some transactions involving an actual or potential change in control of Validus or its management and may limit the ability of Validus shareholders to
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current management or approve transactions that Validus shareholders may deem to be in their best interests. These provisions:
- •
- authorize Validus' board of directors to establish one or more series of undesignated preferred shares, the terms of which
can be determined by the board of directors at the time of issuance;
- •
- divide the board of directors into three classes, each class serving a three-year term;
- •
- allow Validus' directors, and not its shareholders, to fill vacancies on its board of directors resulting from enlargement
of the board;
- •
- deny shareholders the right to vote at any annual or special meeting if that shareholder has not paid all the calls on the
Validus common shares held;
- •
- provide that shareholders may only remove a director for cause and requires the shareholders to give that director
advanced written notice and an opportunity to be heard at the meeting as well as a supermajority vote (662/3%) of the outstanding shares; and
- •
- reduce the voting power of a shareholder or group of related shareholders who would otherwise represent more than 9.09% of
the aggregate voting power of Validus common shares to represent 9.09% of the aggregate voting power of Validus common shares.
Shareholders' Equity; Share Premium Account
Under Bermuda law, the excess of any consideration paid on issue of shares over the aggregate par value of such shares must (except in
certain limited circumstances) be credited to a share premium account. Share premium may be distributed in certain limited circumstances, for example to pay up unissued shares which may be distributed
to shareholders in proportion to their holdings, but is otherwise subject to limitation and cannot be paid to shareholders as a dividend.
A
Bermuda company may also create a contributed surplus account and may credit to such account any cash and other property paid or transferred to the company as sole beneficial owner
(other than in connection with the issuance of shares). Unlike share premium arising upon the issuance of shares, the
amount standing to the credit of a company's contributed surplus account may be distributed to shareholders subject to the solvency of the company.
As
of June 30, 2011, Validus had paid in nominal share capital of approximately $17.3 million, a share premium account of approximately $1.88 billion. Validus does
not currently have a contributed surplus account.
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COMPARISON OF SHAREHOLDERS' AND STOCKHOLDERS' RIGHTS
The following is a summary of the material differences between the current rights of Validus shareholders and the current rights of
Transatlantic stockholders. The rights of the Transatlantic stockholders who become Validus shareholders pursuant to the exchange offer and second-step merger will be governed by the
memorandum of association and the amended and restated bye-laws of Validus, which will remain subject to amendment in accordance with their terms. This summary is not intended to be
complete and is qualified by reference to Validus' memorandum of association and its amended and restated bye-laws, and Transatlantic's restated certificate of incorporation and its
amended and restated by-laws, as well as the laws of Bermuda or the state of Delaware. Validus' memorandum of association and amended and restated bye-laws are incorporated by
reference (as Exhibit 3.1 to Validus' Registration Statement on Form S-1 filed on January 16, 2007 and Exhibit 3.2 to Validus' Registration Statement on
Form S-1 (Amendment No. 4) filed on July 5, 2007, respectively). Each of Transatlantic's restated certificate of incorporation, Certificate of Designation, Preferences
and Rights of Series A Junior Participating Preferred Stock and amended and restated by-laws is incorporated by reference (as Exhibit 3.1 to Transatlantic's Current Report on
Form 8-K, filed on September 9, 2009, Exhibit 3.1 to Transatlantic's Current Report on Form 8-K, filed on July 28, 2011, and
Exhibit 3.2 to Transatlantic's Current Report on Form 8-K, filed on July 28, 2011, respectively).
The
following information relating to Transatlantic is taken from the Allied World/Transatlantic S-4 or other publicly available information filed by Transatlantic with the
SEC. Please see the section of this prospectus/offer to exchange titled "Note on Transatlantic Information." Shareholders of Validus and stockholders of Transatlantic may request copies of these
documents as provided in the section of this prospectus/offer to exchange titled "Where You Can Find More Information."
Share Capital and Authorized and Outstanding Capital Stock
As of June 30, 2011, Validus had an authorized share capital of 571,428,571 authorized common shares, par value of $0.175 per
share. As of June 30, 2011, Validus' issued and outstanding share capital consisted of 87,076,269 common shares, par value $0.175 per share and 11,687,659 non-voting common shares,
par value $0.175 per share. Validus common shares trade on the NYSE.
As
of June 30, 2011, Transatlantic had 200,000,000 authorized shares of common stock, par value of $1.00 per share, and 10,000,000 shares of preferred stock, par value of $1.00
per share. As of June 30, 2011, Transatlantic had issued and outstanding 62,483,787 shares of common stock and no shares of preferred stock. Shares of Transatlantic common stock trade on the
NYSE. On July 26, 2011, the Transatlantic board of directors declared a dividend of one preferred stock purchase right for each share of Transatlantic common stock. The dividend is payable on
August 8, 2011 to Transatlantic stockholders of record as of the close of business on August 8, 2011.
Assuming
the acquisition of shares of Transatlantic common stock contemplated by the exchange offer were completed on June 30, 2011, as of such date, Validus would have had
(i) an authorized share capital of 571,428,571 authorized common shares, par value $0.175 per share, and (ii) issued and outstanding share capital of 184,326,035 common shares, par value
$0.175 per share and 11,687,659 non-voting common shares, par value $0.175 per share.
Organizational Documents
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| Validus |
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Transatlantic |
The rights of Validus shareholders are currently governed by its memorandum of association and bye-laws and by Bermuda law. There is also a shareholder agreement dated December 7, 2005. These rights are described
in more detail below. |
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The rights of Transatlantic stockholders are currently governed by its restated certificate of incorporation and amended and restated by-laws and by Delaware law. These rights are described in more detail
below. |
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Limitation on Voting Rights
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| Validus |
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Transatlantic |
If the number of Controlled Shares of any shareholder or group of related shareholders would constitute more than 9.09% of the aggregate voting power of all Validus common shares entitled to vote on a matter, the
votes conferred by such Controlled Shares will be reduced, such that the vote conferred by such shares represent 9.09% of the aggregate voting power of all common shares entitled to vote on such matter. |
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There are voting rights limitations generally applicable to shares of Transatlantic common stock. |
A "Controlled Share" of any person refers to all (i) Validus voting common shares and Validus non-voting common shares, (ii) securities convertible into or exchangeable into Validus voting
common shares or Validus non-voting common shares, and (iii) options, warrants or other rights to acquire Validus voting common shares or Validus non-voting common shares that a person is deemed to own directly, indirectly or constructively
within the meaning of (x) Section 958 of the Code or (y) Section 13(d)(3) of the Exchange Act. |
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Ownership Limitation
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| Validus |
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Transatlantic |
Validus is authorized to request information from any holder of shares and has the right to repurchase shares (other than shares that have been sold pursuant to an effective registration statement under the Securities
Act) if the board of directors determines that such repurchase is required in order to avoid or ameliorate adverse legal, tax or regulatory consequences or if such holder has undergone a Change of Control. Similar restrictions apply to Validus'
ability to redeem shares. |
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There are no ownership limitations generally applicable to shares of Transatlantic common stock. |
"Change of Control" in the Validus bye-laws means the occurrence of one or more of the following events: (i) a majority of the board of directors (or equivalent governing body) of a shareholder shall
consist of persons who were not (a) a member of the board of directors (or equivalent governing body) of such shareholder on the December 7, 2005 or (b) nominated for election or elected to the board of directors (or equivalent
governing body) of such shareholder, with the affirmative vote of a majority of persons who were members of such board of directors (or equivalent governing body) at the time of such nomination or election or (ii) the acquisition by any person
or group of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of the directors of a shareholder (other than certain permitted transferees, persons, groups
or their Affiliates who had such power when such shareholder first became a shareholder or acquisitions approved in advance by a majority of the members of the board of directors (or equivalent governing body) of such shareholder or upon the death or
disability of a natural person). |
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Dividends and Distributions
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| Validus |
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Transatlantic |
Under the Validus bye-laws, the board of Validus has the power to declare dividends and to determine whether such dividends are to be paid in cash or wholly or partly in specie and to fix the value for distribution in
specie of any assets. No unpaid dividend shall bear interest against Validus. |
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Under the Transatlantic by-laws, subject to the express terms of any outstanding series of preferred stock, the Transatlantic board of directors may, out of funds legally available therefor at any regular or special
meeting, declare dividends upon the capital stock of Transatlantic as and when they deem expedient. |
Preferred Shares
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| Validus |
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Transatlantic |
Subject to the Validus bye-laws, to the shareholders' agreement and to any resolution of the members to the contrary, and without prejudice to any special rights previously conferred on the holders of any existing
shares or class of shares, the board may issue any unissued shares of Validus on such terms and conditions as it may determine and any shares or class of shares (including the issue or grant of options, warrants and other rights, renounceable or
otherwise in respect of shares) may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital, or otherwise as the board may by resolution prescribe. |
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Under the Transatlantic restated certificate of incorporation, Transatlantic has 10,000,000 authorized shares of "blank check" preferred stock, par value $1.00. As such, the Transatlantic board of directors may
determine the preferences, limitations, and relative rights of this preferred stock by adopting resolutions fixing the same. Such a determination may include, without limitation, provisions with respect to voting rights (including rights with respect
to any transaction of a specified nature), redemption, convertibility, distribution and preference on dissolution or otherwise.
On July 27, 2011, the Transatlantic board of directors adopted the Transatlantic rights plan and declared a dividend of one right for each share of Transatlantic common stock. The dividend is payable on August 8, 2011 to Transatlantic
stockholders of record as of the close of business on August 8, 2011. As of and after the "distribution date" (as defined in the Transatlantic rights plan) rights will separate from the shares of Transatlantic common stock and each right will
become exercisable to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $1.00 per share, of Transatlantic at a purchase price of $225. Transatlantic has designated 1,000,000 shares of preferred
stock as Series A Junior Participating Preferred Stock. |
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Preemptive Rights
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| Validus |
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Transatlantic |
The Validus bye-laws are silent with respect to preemptive rights for shareholders. |
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Under the Transatlantic restated certificate of incorporation, the holders of common stock and preferred stock are not entitled to preemptive or other similar subscription rights to purchase any of Transatlantic's
securities. |
Right to Call Special General Meeting / Special Meeting
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| Validus |
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Transatlantic |
The Validus bye-laws provide that special general meetings of the shareholders may be called only by Validus' (i) chairman of the board, (ii) any two directors who are directors at the time the bye-laws
first become effective on July 24, 2007, or (iii) a majority of the board.
Bermuda law also requires the board to call a special general meeting upon the requisition of shareholders holding not less than one-tenth of the paid-up share capital of Validus as at the date of the deposit. |
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Under the Transatlantic by-laws, a special meeting of stockholders for any purpose or purposes may be called by (i) the Transatlantic board of directors, the chairman of the board of directors, the lead director
(as appointed under the Transatlantic by-laws), the president or a committee of the Transatlantic board of directors given such power or (ii) the secretary of Transatlantic, upon the request in writing of stockholders holding of record at least
25% of the voting power of the outstanding shares of capital stock of Transatlantic entitled to vote at such meeting. |
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The Transatlantic board of directors may postpone, reschedule or cancel any special meeting of stockholders previously called or scheduled by the Chairman of the Transatlantic board of directors, the lead director (if
the Transatlantic board of directors shall have appointed a lead director), the Transatlantic board of directors or a duly authorized committee of the Transatlantic board of directors, or the President. |
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Notice of Shareholder and Stockholder Proposals and Nomination of Candidates for Election to the Board by Shareholders and Stockholders
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| Validus |
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Transatlantic |
Under Bermuda law, shareholders may, at their own expense (unless the company otherwise resolves), as set forth below, require a company to give notice of any resolution that shareholders can properly propose at the
next annual general meeting and/or to circulate a statement (of not more than 1000 words) in respect of any matter referred to in a proposed resolution or any business to be conducted at that general meeting. The number of shareholders necessary for
such a request is either the number of shareholders representing not less than one-twentieth of the total voting rights of all the shareholders having at the date of the request a right to vote at the meeting to which the request relates, or not less
than 100 shareholders. Each such written request is referred to in this section as a "Shareholder Notice." |
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Under the Transatlantic by-laws, for nominations of directors and other proposals properly brought before an annual meeting of stockholders by a stockholder, timely notice must be given. In general, to be considered
timely, a stockholder's notice must be received by Transatlantic's secretary at the principal office of Transatlantic not later than the close of business on the 90th day nor earlier than the close of business on the 60th day prior to the
first anniversary of the preceding year's annual meeting or in the case of the special meeting, not later than the close of the 10th business day following the day on which notice of the special meeting was mailed or public announcement thereof
was made, whichever occurs first. |
The Validus bye-laws are silent on matters relating to notice of shareholder proposals and nominations of candidates. |
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Shareholder and Stockholder Action by Written Consent
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| Validus |
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Transatlantic |
Under the Validus bye-laws, a resolution may only be passed by written consent to be signed by all of the shareholders who at the date of the resolution would be entitled to attend a shareholder meeting and vote on
the resolution. |
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Action by written consent by stockholders is not prohibited by Transatlantic's restated certificate of incorporation or by-laws. |
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Size of Board of Directors
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| Validus |
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Transatlantic |
The Validus bye-laws provide that the board shall consist of not less than nine and not more than 12 directors. The exact number of directors is determined by a resolution adopted by the affirmative vote of at least a
two- thirds majority of the board then in office. If no such resolution is in effect, the board will consist of 11 directors. Any increase in the size of the board pursuant to this provision may be filled by the directors appointing additional
directors. |
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The Transatlantic by-laws provide that the number of directors will not be less than three nor more than twelve, which number may be fixed from time to time by the Transatlantic board of directors. Under the
Transatlantic restated certificate of incorporation, only the Transatlantic board of directors may change the size of the Transatlantic board of directors. The size of Transatlantic board is currently fixed at seven directors and there are currently
seven directors serving on the Transatlantic board of directors. |
Classification of Board of Directors
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| Validus |
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Transatlantic |
The Validus bye-laws divide the directors into three classes of directors, each class to have as nearly the same number of directors as possible. The initial terms of the class 1, class 2 and class 3
directors expire in one-year, two-years and three-years, respectively, following the adoption of the bye-laws on July 24, 2007. Following their initial terms, all three classes shall be elected to three-year terms. |
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The Transatlantic board of directors is not divided into classes. Each director is elected at the annual meeting of stockholders, to hold office until the next annual meeting and until his or her respective successor
is duly elected and qualified or until his or her prior death, resignation or removal. |
Election of Directors
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| Validus |
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Transatlantic |
According to the Validus bye-laws, at any election of directors, nominees shall be elected by a plurality of the votes cast. |
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Under the Transatlantic by-laws, each director shall be elected by the vote of the majority of the votes cast with respect to the nominee at any meeting at which directors are to be elected at which a quorum is
present; provided, however, that the directors shall be elected by a plurality of votes cast on an election that is contested. An election is deemed to be contested if as of a date that is 14 days in advance of the filing date of Transatlantic's
proxy statement for the relevant meeting with the SEC, the number of nominees exceeds the number of directors to be elected. |
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For purposes of the foregoing, a majority of votes cast means that the number of shares voted "for" a nominee must exceed the votes cast "against" such nominee. |
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Removal of Directors
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Transatlantic |
Under the Validus bye-laws, the shareholders may, at any annual meeting or special general meeting called for that purpose, remove a director only for Cause by the affirmative vote of at least sixty-six and two-thirds
percent of the votes cast, provided that the notice of the meeting is served on the director or directors concerned not less than 14 days before such meeting and at such meeting such director shall be entitled to be heard on the motion for such
director's removal. |
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Under the Transatlantic restated certificate of incorporation, a director may be removed from office with or without cause, and only by the affirmative vote of the holders of a majority of the voting power of all of
the outstanding capital stock of Transatlantic entitled to vote in respect thereof. |
"Cause" in the Validus bye-laws means willful misconduct, fraud, gross negligence, embezzlement or a conviction of, or a plea of "guilty" or "no contest" to, a felony or other crime involving moral
turpitude. |
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Vacancies on the Board of Directors
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| Validus |
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Transatlantic |
Under the Validus bye-laws, the office of director shall be vacated if the director (1) is removed from office pursuant to the bye-laws or is prohibited from being a director by law, (2) is or becomes
bankrupt or makes any arrangement or composition with his creditors generally, (3) is or becomes of unsound mind or an order for his detention is made, or dies, or (4) resigns his office. The board of directors has the power to appoint any
person to be a director to fill a vacancy and a director so appointed shall hold office until such director's office is otherwise vacated and shall serve within the same class of directors as the predecessor. |
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Under the Transatlantic by-laws, any vacancy occurring in the board by reason of death, resignation, or removal shall be filled only by the affirmative vote of a majority of the remaining directors entitled to vote,
even if the remaining directors may constitute less than a quorum of the board of directors. A director elected to fill a vacancy shall serve for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase
in the number of directors may be filled by election at a regular meeting or a special meeting of the board of directors called for that purpose, or at an annual meeting or a special meeting of stockholders called for that purpose. |
Under the Validus bye-laws, the board of directors may act notwithstanding any vacancy in its number but, if and so long as its number is reduced below the number fixed by the bye-laws as the quorum
necessary for the transaction of business at meetings of the board of directors, the continuing directors or director may act for the purpose of (1) summoning a general meeting or (2) preserving the assets of the company. |
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Duties of Directors and Director Liability
The Companies Act provides that the business of a company is to be managed and conducted by the board of directors. Under Bermuda law,
at common law, members of a board of directors owe fiduciary and other duties to the company to act in good faith in their dealings
with or on behalf of the company and exercise their powers and fulfill the duties of their office honestly. This duty has the following essential elements:
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- a duty to act in good faith in the best interests of the company;
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- a duty not to make a personal profit from opportunities that arise from the office of director;
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- a duty to avoid conflicts of interest; and
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- a duty to exercise powers for the purpose for which such powers were intended.
The
Companies Act imposes a duty on directors and officers of a Bermuda company:
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- to act honestly and in good faith with a view to the best interests of the company;
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- to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances; and
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- to disclose material conflicts of interest to the board of the company at the first opportunity.
In
addition, the Companies Act imposes various duties on directors and officers of a company with respect to certain matters of management and administration of the company.
The
Companies Act provides that in any proceedings for negligence, default, breach of duty or breach of trust against any officer, if it appears to a court that such officer is or may be
liable in respect of the negligence, default, breach of duty or breach of trust, but that he or she has acted honestly and reasonably, and that, having regard to all the circumstances of the case,
including those connected with his or her appointment, he or she ought fairly to be excused for the negligence, default, breach of duty or breach of trust, that court may relieve him, either wholly or
partly, from any liability on such terms as the court may think fit. This provision has been interpreted to apply only to actions brought by or on behalf of the company against such officers.
The
Companies Act also provides that a company may agree in its bye-laws or by contract or some other arrangement to exempt or indemnify its directors from any loss arising
or liability attaching to him or her by virtue of any rule of law in respect of any negligence, default, breach of duty or trust in relation to the company or any subsidiary thereof, except for any
liability in respect of any fraud or dishonesty, which would otherwise attach to such director. Please see the subheading "Indemnification of Officers, Directors and Employees" in this section.
Under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In
exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its
shareholders. The duty of care requires that directors act in an informed and deliberate manner, and inform themselves, prior to making a business decision, of all relevant material information
reasonably available to them. The duty of care also requires that directors exercise care in overseeing and investigating the conduct of corporate employees. The duty of loyalty may be summarized as
the duty to act in good faith, not out of self-interest, and in a manner that the director reasonably believes to be in the best interests of the shareholders.
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Under
the "business judgment rule," courts generally do not second guess the business judgment of directors and officers. A party challenging the propriety of a decision of a board of
directors bears the burden of rebutting the presumption afforded to directors by the business judgment rule. If the
presumption is not rebutted, the business judgment rule attaches to protect the directors from liability for their decisions. Where, however, the presumption is rebutted, the directors bear the burden
of demonstrating the fairness of the relevant transaction. However, when the board of directors takes defensive action in response to a threat to corporate control and approves a transaction resulting
in a sale of control of the corporation, Delaware courts subject directors' conduct to enhanced scrutiny.
Under
the DGCL, a Delaware corporation must indemnify its present or former directors and officers against expenses (including attorneys' fees) actually and reasonably incurred to the
extent that the officer or director has been successful on the merits or otherwise in defense of any action, suit or proceeding brought against him or her by reason of the fact that he or she is or
was a director or officer of the corporation. The DGCL permits the adoption of a provision in the certificate of incorporation limiting or eliminating the monetary liability of a director to the
corporation or its stockholders by reason of a director's breach of the fiduciary duty of care.
However,
the law does not permit any limitation of the liability of a director for: breaching the duty of loyalty to the corporation or its stockholders; failing to act in good faith;
obtaining an improper personal benefit from the corporation; or paying a dividend or approving a stock repurchase that was illegal under Delaware law.
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Indemnification of Officers, Directors and Employees
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Transatlantic |
The Validus bye-laws indemnify its directors, officers and (in the discretion of the board) employees and agents and their heirs, executors and administrators who were or are threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (including, without limitation, an action by or in the right of the company), by reason of his acting in such capacity or his acting
in any other capacity for, or on behalf of, the company, against any liability or expense actually and reasonably incurred by such person in respect thereof. In addition, the company shall, in the case of directors and officers, and may, in other
cases, advance the expenses of defending any such act, suit or proceeding in accordance with and to the full extent now or hereafter permitted by law.
Under the Validus bye-laws, each shareholder agrees to waive any claim or right of action, other than those involving willful negligence, willful default, fraud or dishonesty, against the company or any of its officers or directors on account of any
action taken by such director or officer, or the failure of such director or officer to take any action in the performance of his or her duties with or for the company.
Validus has purchased and maintains directors' and officers' liability policies for such purposes.
Under the Validus bye-laws, no specific provision is made for the indemnification of directors and officers of the company in relation to the affairs of the company's subsidiaries, although (as noted above) such indemnification is not prohibited by
Bermuda law. |
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Under the Transatlantic by-laws, Transatlantic shall indemnify, to the full extent of the law, any person made or threatened to be made a party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding by reason of the fact that such person is or was a director or officer of Transatlantic or serves or served at the request of Transatlantic as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, or other enterprise, including service with respect to an employee benefit plan, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such a proceeding, if he or she acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of Transatlantic, and, with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
Such rights shall be contract rights and shall include the right to be paid by Transatlantic expenses incurred in defending any action, suit or proceeding in advance of its final disposition, provided that such person shall repay all amounts advanced
if it is ultimately determined that such person is not entitled to indemnification under the Transatlantic by-laws. |
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Interested Directors / Corporate Opportunities
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Transatlantic |
The Validus bye-laws provide that, a director who is directly or indirectly interested in a contract or proposed contract or arrangement with the company or any of its subsidiaries shall declare the nature of such
interest to the board, whether or not such declaration is required by law. Unless disqualified by the chairman of the relevant board meeting, a director may vote in respect of any contract or proposed contract or arrangement in which such director is
interested and may be counted in the quorum for such meeting. |
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Subject to the requirements set forth in "Duties of Directors and Director Liability," Transatlantic directors are not prohibited from undertaking transactions with Transatlantic or any of its
subsidiaries. |
Voting Rights and Quorum Requirements
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Transatlantic |
Any individual who is a Validus shareholder and who is present at a meeting may vote in person as may any corporate shareholder that is represented by a duly authorized representative at a meeting of shareholders.
The Validus bye-laws also permit attendance at general meetings by proxy.
Subject to the "Limitations on Voting Rights" described above, each holder of voting common shares is entitled to one vote per voting common share held. |
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Under the Transatlantic restated certificate of incorporation, each holder of common stock shall be entitled to one vote for each share of common stock standing in his or her name on the stock transfer books of
Transatlantic. Except as otherwise provided in the rights, powers or preferences in any class or series of preferred stock of Transatlantic, all voting rights of Transatlantic shall be vested in the common stock.
Any individual who is a Transatlantic stockholder and who is present at a meeting may vote in person as may any corporate stockholder that is represented by a duly authorized representative at a meeting of stockholders.
The Transatlantic by-laws also permit attendance at general meetings by proxy.
Subject to the "Limitations on Voting Rights" described above, each holder of voting common shares is entitled to one vote per voting common share held. |
Approval of Certain Transactions
The Companies Act is silent on whether a company's shareholders are required to approve a sale, lease or exchange of all or
substantially all of a company's property and assets. Bermuda law does require, however, that shareholders approve certain forms of mergers and reconstructions.
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Takeovers: Bermuda law provides that where an offer is made for shares of a company and within four months of the offer the holders of
not less than
90% of the shares which are the subject of the offer accept the offer, the offeror may, by notice, require the non-tendering shareholders to transfer their shares on the terms of the offer
dissenting shareholders may apply to the Court within one month of the notice objecting to the transfer. The burden is on the dissenting shareholders to show that the Court should exercise its
discretion to enjoin the required transfer, which the Court will be unlikely to do unless there is evidence of fraud, bad faith or collusion between the offeror and the holders of the shares who have
accepted the offer as a means of unfairly forcing out minority shareholders.
Amalgamations: Pursuant to Bermuda law, the amalgamation of a Bermuda company with another company or corporation (other than certain
affiliated
companies) requires the amalgamation agreement to be approved by the company's board of directors and by its shareholders. Unless the company's bye-laws provide otherwise, the approval of
75% of the shareholders voting at such meeting is required to approve the amalgamation agreement, and the quorum for such meeting must be two or more persons holding or representing more than
one-third of the issued shares of the company. The required vote of shareholders may be reduced by a company's bye-laws. For purposes of approval of an amalgamation, all
shares, whether or not otherwise entitled to vote, carry the right to vote. A separate vote of a class of shares is required if the rights of such class would be altered by virtue of the amalgamation.
Any shareholder who does not vote in favor of the amalgamation and who is not satisfied that he or she has been offered fair value for his or her shares may, within one month of receiving the
company's notice of shareholder meeting to consider the amalgamation, apply to the Court to appraise the fair value of his or her shares. No appeal will lie from an appraisal by the Court. The costs
of any application to the Court shall be in the discretion of the Court.
Under Delaware law, with certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation
must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon. Additionally, Delaware law provides that a parent corporation, by resolution of its board
of directors and without any shareholder vote, may merge with any subsidiary of which it owns at least 90% of each class of capital stock.
Discontinuance or Change of Jurisdiction of Incorporation
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Transatlantic |
The Validus bye-laws permit the Validus board, subject to approval by a majority of shareholders, to exercise all the powers of the company to discontinue the company. |
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Under the Transatlantic by-laws and Delaware law, the affirmative vote of the holders of a majority of the outstanding shares of Transatlantic stock is required for a proposal to dissolve Transatlantic. |
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Amalgamation, Merger or Other Business Combination
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Transatlantic |
The Validus bye-laws do not currently make specific provision for a different majority vote or a different quorum than that which has been set out in the Companies Act. |
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Under the Transatlantic by-laws, the affirmative vote of the holders of a majority of the outstanding shares of Transatlantic stock is all that is required for certain transactions that by applicable law must be
submitted to shareholders for their approval, such as, a merger, the sale of substantially all of Transatlantic's assets, or a proposal to dissolve Transatlantic. |
Business Combination Statutes
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| Validus |
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Transatlantic |
A Bermuda company may not enter into certain business transactions with its significant shareholders or affiliates without obtaining prior approval from its board of directors and, in certain instances, its
shareholders. Examples of such business transactions include amalgamation, mergers, asset sales and other transactions in which a significant shareholder or affiliate receives or could receive a financial benefit that is greater than that received or
to be received by other shareholders. |
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The DGCL prohibits a Delaware corporation from engaging in a "business combination" with an "interested stockholder" owning 15% or more of the corporation's voting stock for three years following the time that the
"interested stockholder" becomes such, subject to certain exceptions. Transatlantic has not opted out of Section 203 in the Transatlantic charter and is therefore governed by the terms of this provision of the DGCL. |
Appraisal Rights/Dissenters' Rights
Under Bermuda law, a dissenting shareholder of an amalgamating company that does not believe it has been offered fair value for its
shares may apply to the Court to appraise the fair value of its shares. Where the Court has appraised any such shares and the amalgamation has been consummated prior to the appraisal then, within one
month of the Court appraising the value of the shares, if the amount (if any) paid to the dissenting shareholder for his or her shares is less than that appraised by the Court, the amalgamated company
shall pay to such shareholder the difference between the amount paid to such shareholder and the value appraised by the Court. Bermuda law provides for dissenters' rights in an amalgamation between
non-affiliated companies and affiliated companies where one company is not a Bermuda company.
Under Delaware law, in certain situations, appraisal rights may be available in connection with a merger or a consolidation. Appraisal
rights are not available under Delaware law to stockholders of the surviving corporation when a corporation is to be the surviving corporation and no vote of its stockholders is required to approve
the merger in accordance with Section 251(f) of the DGCL. In addition, no appraisal rights are available under Delaware law to holders of shares of any class of or series of stock which is
either listed on a national securities exchange; or held of record by more than 2,000 stockholders.
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Notwithstanding
the above, appraisal rights shall be available to those stockholders who are required by the terms of the agreement of merger or consolidation to accept for that stock
anything other than:
- •
- shares of stock of the corporation surviving or resulting from the merger or consolidation, or depository receipts in
respect thereof;
- •
- shares of stock of another corporation, or depository receipts in respect thereof, which, as of the effective date of the
merger or consolidation, are listed on a national securities exchange or held of record by more than 2,000 stockholders;
- •
- cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs; or
- •
- any combination of the items listed above.
Shareholder's and Derivative Suits
|
|
|
|
|
|
| Validus |
|
Transatlantic |
The Validus bye-laws provide that shareholders waive any claim or right of action that they might have, whether individually or by or in the right of the company, against any of its directors or officers for any act
or failure to act in the performance of such director's or officer's duties, except in respect of any fraud or dishonesty which may attach to such director or officer. |
|
Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable
law. In such actions, the court generally has discretion to permit the winning party to recover attorneys' fees incurred in connection with such action. |
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Table of Contents
Amendment of Memorandum of Association and Certificate of Incorporation
|
|
|
|
|
|
| Validus |
|
Transatlantic |
Bermuda law provides that the memorandum of association of a company may be amended by a resolution passed at a general meeting of shareholders of which due notice has been given. An amendment to the memorandum of
association that alters a company's business objects may require approval of the Bermuda Minister of Finance, who may grant or withhold approval at his or her discretion.
Under Bermuda law, the holders of an aggregate of not less than 20% in par value of a company's issued share capital or of any class of shares have the right to apply to the Bermuda courts for an annulment of any amendment of the memorandum of
association adopted by shareholders at any general meeting, other than an amendment that alters or reduces a company's share capital as provided in the Companies Act. Where such an application is made, the amendment becomes effective only to the
extent that it is confirmed by the Bermuda court. An application for an annulment of an amendment of the memorandum of association must be made within 21 days after the date on which the resolution altering a company's memorandum of association
is passed and may be made on behalf of persons entitled to make the application by one or more of their designees as such holders may appoint in writing for such purpose. No application may be made by the shareholders voting in favor of the
amendment. |
|
Under the Transatlantic restated certificate of incorporation, Transatlantic has reserved the right to amend the Transatlantic restated certificate of incorporation. However, the DGCL provides that any amendment to
the certificate of incorporation of a Delaware corporation shall be approved by the Transatlantic board of directors, by an affirmative vote of a majority of the outstanding stock entitled to vote thereon, and a majority of the outstanding stock of
each class entitled to vote thereon as a class. |
113
Table of Contents
Amendment of Bye-laws and By-laws
|
|
|
|
|
|
| Validus |
|
Transatlantic |
Consistent with Bermuda law, the Validus bye-laws may only be amended by a resolution adopted by the board of directors and by resolution of the shareholders. |
|
Under the Transatlantic restated certificate of incorporation, the Transatlantic board of directors may amend the Transatlantic by-laws without the approval of the stockholders of Transatlantic in any manner that is
not inconsistent with the DGCL or the Transatlantic restated certificate of incorporation. In addition, under the Transatlantic by-laws, either of the board of directors, by majority vote, or the stockholders, by the affirmative vote of holders of
record of at least a majority of the combined voting power of all of the outstanding capital stock entitled to vote thereon, may amend or repeal the by-laws of Transatlantic. |
Inspection of Books and Records; Shareholder Lists
Under Bermuda law, members of the general public have the right to inspect a company's public documents available at the office of the
Registrar of Companies in Bermuda, which will include a company's memorandum of association (including its objects and powers) and certain alterations to its memorandum of association, including any
increase or reduction of the company's authorized capital.
Registered
shareholders have the additional right to inspect the bye-laws, minutes of general meetings and audited financial statements of a company, which must be presented
to the annual general meeting of shareholders. A company's register of members is also open to inspection by shareholders, and to members of the public, without charge. The register of members is
required to be
open for inspection for not less than two hours in any business day (subject to the ability of a company to close the register of members for not more than 30 days in a year). A company is
required to maintain a share register in Bermuda but may, subject to the provisions of the Companies Act, establish a branch register outside Bermuda. A company is required to keep at its registered
office a register of its directors and officers which is open for inspection for not less than two hours in any business day by members of the public without charge. Bermuda law does not, however,
provide a general right for shareholders to inspect or obtain copies of any other corporate records.
Delaware law permits any stockholder to inspect or obtain copies of a corporation's stockholder list and its other books and records
for any purpose reasonably related to such person's interest as a shareholder.
Required Purchase and Sale of Shares
An acquiring party is generally able to acquire compulsorily the common shares of minority holders in the following
ways:
- •
- By a procedure under the Companies Act known as a "scheme of arrangement." A scheme of arrangement could be effected by
obtaining the agreement of the company and of holders of
114
Table of Contents
common
shares, representing in the aggregate a majority in number and at least 75% in value of the common shareholders (excluding shares owned by the acquirer) present and voting at a court-ordered
meeting held to consider the scheme of arrangement. The scheme of arrangement must then be
sanctioned by the Court. If a scheme of arrangement receives all necessary agreements and sanctions, upon the filing of the Court order with the Registrar of Companies in Bermuda, all holders of
common shares could be compelled to sell their shares under the terms of the scheme of arrangement;
- •
- If the acquiring party is a company it may compulsorily acquire all the shares of the target company by acquiring,
pursuant to a tender offer, 90% in value of the shares or class of shares not already owned by, or by a nominee for, the acquiring party (the offeror), or any of its subsidiaries. If an offeror has,
within four months after the making of an offer for all the shares or class of shares not owned by, or by a nominee for, the offeror, or any of its subsidiaries, obtained the approval of the holders
of at least 90% in value of all the shares to which the offer relates, the offeror may, at any time within two months beginning with the date on which the approval was obtained, require by notice any
nontendering shareholder to transfer its shares on the same terms as the original offer. In those circumstances, nontendering shareholders could be compelled to sell their shares unless the Court (on
application made within a one-month period from the date of the offeror's notice of its intention to acquire such shares) orders otherwise; or
- •
- Where one or more parties holds not less than 95% of the shares or a class of shares of a company, such holder(s) may,
pursuant to a notice given to the remaining shareholders or class of shareholders, acquire the shares of such remaining shareholders or class of shareholders. When this notice is given, the acquiring
party is entitled and bound to acquire the shares of the remaining shareholders on the terms set out in the notice, unless a remaining shareholder, within one month of receiving such notice, applies
to the Court for an appraisal of the value of their shares. This provision only applies where the acquiring party offers the same terms to all holders of shares whose shares are being acquired.
Delaware law provides that a parent corporation, by resolution of its board of directors and without any stockholder vote, may merge
with any subsidiary of which it owns at least 90% of each class of capital stock.
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Table of Contents
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma financial information is intended to provide you with information about how
the acquisition of Transatlantic might have affected the historical financial statements of Validus if it had been consummated at an earlier time. The unaudited condensed consolidated pro forma
information has been prepared using Transatlantic's publicly available financial statements and disclosures, without the benefit of inspection of Transatlantic's books and records. Therefore, limited
pro forma adjustments, such as recording fair value of assets and liabilities and adjustments for consistency of accounting policy, are reflected in these unaudited condensed consolidated pro forma
financial statements. The following unaudited condensed consolidated pro forma financial information does not necessarily reflect the financial position or results of operations that would have
actually resulted had the acquisition occurred as of the dates indicated, nor should they be taken as necessarily indicative of the future financial position or results of operations of Validus. For a
summary of the proposed business combination contemplated by the exchange offer and the second-step merger, see the section of this prospectus/offer to exchange titled "The Exchange
Offer—Overview."
The
unaudited condensed consolidated pro forma financial information should be read in conjunction with the Validus 10-Q, the Validus 10-K, the Transatlantic 10-Q and the Transatlantic
10-K, each as
filed with the SEC. The unaudited condensed consolidated pro forma financial information gives effect to the proposed acquisition as if it had occurred at June 30, 2011 for the purposes of the
unaudited consolidated pro forma balance sheet and at January 1, 2010 for the purposes of the unaudited condensed consolidated pro forma statements of operations for the year ended
December 31, 2010 and the six months ended June 30, 2011.
This
pro forma information is subject to risks and uncertainties, including those discussed in the section of this prospectus/offer to exchange titled "Risk Factors."
116
Table of Contents
The
following table presents unaudited condensed consolidated pro forma balance sheet data at June 30, 2011 (expressed in thousands of U.S. dollars, except share and per share
data) giving effect to the proposed acquisition of shares of Transatlantic common stock as if it had occurred at June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Validus
Holdings, Ltd. |
|
Historical
Transatlantic
Holdings, Inc. |
|
Pro Forma
Purchase
adjustments |
|
Notes |
|
Pro Forma
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, at fair value |
|
$ |
4,603,534 |
|
$ |
12,436,986 |
|
$ |
(107,000 |
) |
3(b), 3(i), 4 |
|
$ |
16,933,520 |
|
Short-term investments, at fair value |
|
|
725,258 |
|
|
210,307 |
|
|
— |
|
|
|
|
935,565 |
|
Other investments, at fair value |
|
|
18,746 |
|
|
863,380 |
|
|
— |
|
|
|
|
882,126 |
|
Cash and cash equivalents |
|
|
815,921 |
|
|
341,673 |
|
|
— |
|
|
|
|
1,157,594 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total investments and cash |
|
|
6,163,459 |
|
|
13,852,346 |
|
|
(107,000 |
) |
|
|
|
19,908,805 |
|
Premiums receivable |
|
|
1,046,775 |
|
|
785,550 |
|
|
(2,527 |
) |
3(e) |
|
|
1,829,798 |
|
Deferred acquisition costs |
|
|
176,724 |
|
|
276,045 |
|
|
— |
|
|
|
|
452,769 |
|
Prepaid reinsurance premiums |
|
|
177,729 |
|
|
61,990 |
|
|
(2,922 |
) |
3(e) |
|
|
236,797 |
|
Securities lending collateral |
|
|
21,409 |
|
|
— |
|
|
— |
|
|
|
|
21,409 |
|
Loss reserves recoverable |
|
|
439,805 |
|
|
956,097 |
|
|
(8,782 |
) |
3(e) |
|
|
1,387,120 |
|
Paid losses recoverable |
|
|
30,854 |
|
|
— |
|
|
(1,763 |
) |
3(e) |
|
|
29,091 |
|
Accrued investment income |
|
|
21,320 |
|
|
152,323 |
|
|
— |
|
|
|
|
173,643 |
|
Current taxes recoverable |
|
|
3,503 |
|
|
— |
|
|
128,822 |
|
3(h) |
|
|
132,325 |
|
Intangible assets |
|
|
116,813 |
|
|
— |
|
|
— |
|
|
|
|
116,813 |
|
Goodwill |
|
|
20,393 |
|
|
— |
|
|
— |
|
|
|
|
20,393 |
|
Other assets |
|
|
41,004 |
|
|
622,002 |
|
|
29,235 |
|
3(b), 3(h), 3(i) |
|
|
692,241 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,259,788 |
|
$ |
16,706,353 |
|
$ |
35,063 |
|
|
|
$ |
25,001,204 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for losses and loss expense |
|
$ |
2,620,360 |
|
$ |
9,950,709 |
|
$ |
491,218 |
|
3(e), 3(h) |
|
$ |
13,062,287 |
|
Unearned premiums |
|
|
1,192,772 |
|
|
1,349,101 |
|
|
(2,922 |
) |
3(e) |
|
|
2,538,951 |
|
Reinsurance balances payable |
|
|
181,013 |
|
|
|
|
|
(4,290 |
) |
3(e) |
|
|
176,723 |
|
Deferred taxation |
|
|
22,122 |
|
|
— |
|
|
— |
|
|
|
|
22,122 |
|
Securities lending payable |
|
|
22,133 |
|
|
— |
|
|
— |
|
|
|
|
22,133 |
|
Net payable for investments purchased |
|
|
49,479 |
|
|
— |
|
|
|
|
|
|
|
49,479 |
|
Accounts payable and accrued expenses |
|
|
91,969 |
|
|
166,826 |
|
|
— |
|
|
|
|
258,795 |
|
Senior notes payable and credit facility payable |
|
|
246,928 |
|
|
1,005,785 |
|
|
500,000 |
|
3(g) |
|
|
1,752,713 |
|
Debentures payable |
|
|
289,800 |
|
|
— |
|
|
— |
|
|
|
|
289,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,716,576 |
|
|
12,472,421 |
|
|
984,006 |
|
|
|
|
18,173,003 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
|
|
23,414 |
|
|
67,847 |
|
|
(50,828 |
) |
3(a), 3(d) |
|
|
40,433 |
|
Treasury shares |
|
|
(6,131 |
) |
|
(244,722 |
) |
|
244,722 |
|
3(d) |
|
|
(6,131 |
) |
Additional paid-in capital |
|
|
1,880,748 |
|
|
322,925 |
|
|
1,996,968 |
|
3(a), 3(d) |
|
|
4,200,641 |
|
Accumulated other comprehensive gain (loss) |
|
|
(4,519 |
) |
|
234,984 |
|
|
(234,984 |
) |
3(d) |
|
|
(4,519 |
) |
Retained earnings |
|
|
1,514,805 |
|
|
3,852,898 |
|
|
(2,904,821 |
) |
3(b), 3(d), 3(f)
3(g), 3(h), 3(i) |
|
|
2,462,882 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity available to Company |
|
|
3,408,317 |
|
|
4,233,932 |
|
|
(948,943 |
) |
|
|
|
6,693,306 |
|
Non controlling interest |
|
|
134,895 |
|
|
— |
|
|
— |
|
|
|
|
134,895 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
|
3,543,212 |
|
|
4,233,932 |
|
|
(948,943 |
) |
|
|
|
6,828,201 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
8,259,788 |
|
$ |
16,706,353 |
|
$ |
35,063 |
|
|
|
$ |
25,001,204 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
98,763,928 |
|
|
62,483,787 |
|
|
97,249,766 |
|
|
|
|
196,013,694 |
|
Common shares and common share equivalents outstanding |
|
|
112,563,933 |
|
|
66,312,398 |
|
|
103,364,256 |
|
|
|
|
215,928,189 |
|
Book value per share |
|
$ |
34.51 |
|
$ |
67.76 |
|
|
|
|
7 |
|
$ |
34.15 |
|
Diluted book value per share |
|
$ |
31.91 |
|
$ |
65.77 |
|
|
|
|
7 |
|
$ |
32.44 |
|
Diluted tangible book value per share |
|
$ |
30.69 |
|
$ |
65.77 |
|
|
|
|
7 |
|
$ |
31.80 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
117
Table of Contents
The following table sets forth unaudited condensed consolidated pro forma results of operations for the year ended December 31, 2010
(expressed in thousands of U.S. dollars, except share and per share data) giving effect to the proposed acquisition of shares of Transatlantic common stock as if it had occurred at January 1,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Validus
Holdings, Ltd. |
|
Historical
Transatlantic
Holdings, Inc. |
|
Pro Forma
Purchase
adjustments |
|
Notes |
|
Pro Forma
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
1,990,566 |
|
$ |
4,132,931 |
|
$ |
(5,121 |
) |
3(e) |
|
$ |
6,118,376 |
|
Reinsurance premiums ceded |
|
|
(229,482 |
) |
|
(251,238 |
) |
|
5,121 |
|
3(e) |
|
|
(475,599 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
1,761,084 |
|
|
3,881,693 |
|
|
— |
|
|
|
|
5,642,777 |
|
Change in unearned premiums |
|
|
39 |
|
|
(23,073 |
) |
|
— |
|
|
|
|
(23,034 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
1,761,123 |
|
|
3,858,620 |
|
|
— |
|
|
|
|
5,619,743 |
|
Net investment income |
|
|
134,103 |
|
|
473,547 |
|
|
(5,996 |
) |
3(b) |
|
|
601,654 |
|
Net realized gains on investments |
|
|
32,498 |
|
|
38,073 |
|
|
— |
|
|
|
|
70,571 |
|
Net unrealized gains (losses) on investments |
|
|
45,952 |
|
|
— |
|
|
(63,509 |
) |
3(i) |
|
|
(17,557 |
) |
Other-than-temporary impairments charged to earnings |
|
|
— |
|
|
(7,972 |
) |
|
7,972 |
|
3(i) |
|
|
— |
|
Loss on early extinguishment of debt |
|
|
— |
|
|
(115 |
) |
|
— |
|
|
|
|
(115 |
) |
Other income |
|
|
5,219 |
|
|
— |
|
|
— |
|
|
|
|
5,219 |
|
Foreign exchange gains |
|
|
1,351 |
|
|
— |
|
|
— |
|
|
|
|
1,351 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,980,246 |
|
|
4,362,153 |
|
|
(61,533 |
) |
|
|
|
6,280,866 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expense |
|
|
987,586 |
|
|
2,681,774 |
|
|
— |
|
5 |
|
|
3,669,360 |
|
Policy acquisition costs |
|
|
292,899 |
|
|
929,922 |
|
|
— |
|
|
|
|
1,222,821 |
|
General and administrative expenses |
|
|
209,290 |
|
|
209,397 |
|
|
(35,300 |
) |
3(j) |
|
|
383,387 |
|
Share compensation expense |
|
|
28,911 |
|
|
— |
|
|
35,300 |
|
3(j) |
|
|
64,211 |
|
Finance expenses |
|
|
55,870 |
|
|
68,272 |
|
|
16,250 |
|
3(g) |
|
|
140,392 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,574,556 |
|
|
3,889,365 |
|
|
16,250 |
|
|
|
|
5,480,171 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
405,690 |
|
|
472,788 |
|
|
(77,783 |
) |
|
|
|
800,695 |
|
Income tax expense (benefit) |
|
|
(3,126 |
) |
|
(70,587 |
) |
|
21,277 |
|
3(b) 3(i) |
|
|
(52,436 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Income after taxes |
|
$ |
402,564 |
|
$ |
402,201 |
|
$ |
(56,506 |
) |
|
|
$ |
748,259 |
|
Preferred dividend and warrant dividend |
|
|
6,991 |
|
|
— |
|
|
— |
|
|
|
|
6,991 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
395,573 |
|
$ |
402,201 |
|
$ |
(56,506 |
) |
|
|
$ |
741,268 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share equivalents outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
116,018,364 |
|
|
64,092,000 |
|
|
97,236,888 |
|
|
|
|
213,255,252 |
|
Diluted |
|
|
120,630,945 |
|
|
64,930,000 |
|
|
98,541,151 |
|
|
|
|
219,172,096 |
|
Basic earnings per share |
|
$ |
3.41 |
|
$ |
6.28 |
|
|
|
|
6 |
|
$ |
3.48 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
3.34 |
|
$ |
6.19 |
|
|
|
|
6 |
|
$ |
3.41 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
118
Table of Contents
The following table sets forth unaudited condensed consolidated pro forma results of operations for the six months ended June 30, 2011
(expressed in thousands of U.S. dollars, except share and per share data) giving effect to the proposed acquisition of shares of Transatlantic common stock as if it had occurred at January 1,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Validus
Holdings, Ltd. |
|
Historical
Transatlantic
Holdings, Inc. |
|
Pro Forma
Purchase
Adjustments |
|
Notes |
|
Pro Forma
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
1,455,283 |
|
$ |
2,157,464 |
|
$ |
(9,052 |
) |
3(e) |
|
$ |
3,603,695 |
|
Reinsurance premiums ceded |
|
|
(242,166 |
) |
|
(116,992 |
) |
|
9,052 |
|
3(e) |
|
|
(350,106 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
1,213,117 |
|
|
2,040,472 |
|
|
— |
|
|
|
|
3,253,589 |
|
Change in unearned premiums |
|
|
(357,944 |
) |
|
(128,714 |
) |
|
— |
|
|
|
|
(486,658 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
855,173 |
|
|
1,911,758 |
|
|
— |
|
|
|
|
2,766,931 |
|
Net investment income |
|
|
56,469 |
|
|
226,348 |
|
|
(2,748 |
) |
3(b) |
|
|
280,069 |
|
Net realized gains on investments |
|
|
17,931 |
|
|
57,785 |
|
|
— |
|
|
|
|
75,716 |
|
Other-than-temporary impairments charged to earnings |
|
|
— |
|
|
(3,139 |
) |
|
3,139 |
|
3(i) |
|
|
— |
|
Net unrealized gains on investments |
|
|
5,698 |
|
|
— |
|
|
90,257 |
|
3(i) |
|
|
95,955 |
|
Loss on early extinguishment of debt |
|
|
— |
|
|
(1,179 |
) |
|
— |
|
|
|
|
(1,179 |
) |
Other income |
|
|
2,201 |
|
|
— |
|
|
— |
|
|
|
|
2,201 |
|
Foreign exchange losses |
|
|
(2,458 |
) |
|
— |
|
|
— |
|
|
|
|
(2,458 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
935,014 |
|
|
2,191,573 |
|
|
90,648 |
|
|
|
|
3,217,235 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
683,505 |
|
|
1,850,178 |
|
|
— |
|
5 |
|
|
2,533,683 |
|
Policy acquisition costs |
|
|
155,526 |
|
|
437,782 |
|
|
— |
|
|
|
|
593,308 |
|
General and administrative expenses |
|
|
109,318 |
|
|
96,051 |
|
|
(24,150 |
) |
3(b), 3(j) |
|
|
181,219 |
|
Share compensation expenses |
|
|
19,677 |
|
|
— |
|
|
17,650 |
|
3(j) |
|
|
37,327 |
|
Finance expenses |
|
|
30,362 |
|
|
33,587 |
|
|
8,125 |
|
3(g) |
|
|
72,074 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
998,388 |
|
|
2,417,598 |
|
|
1,625 |
|
|
|
|
3,417,611 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before taxes |
|
|
(63,374 |
) |
|
(226,025 |
) |
|
89,023 |
|
|
|
|
(200,376 |
) |
Tax benefit (expense) |
|
|
1,488 |
|
|
116,755 |
|
|
(34,110 |
) |
3(b), 3(i) |
|
|
84,133 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(61,886 |
) |
|
(109,270 |
) |
|
54,913 |
|
|
|
|
(116,243 |
) |
Net income attributable to noncontrolling interest |
|
|
(594 |
) |
|
— |
|
|
— |
|
|
|
|
(594 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Validus |
|
$ |
(62,480 |
) |
$ |
(109,270 |
) |
$ |
54,913 |
|
|
|
$ |
(116,837 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and common share equivalents outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic |
|
|
98,165,132 |
|
|
62,430,000 |
|
|
97,249,766 |
|
|
|
|
195,414,898 |
|
| |
Diluted |
|
|
98,165,132 |
|
|
62,430,000 |
|
|
97,249,766 |
|
|
|
|
195,414,898 |
|
Basic loss per share |
|
$ |
(0.68 |
) |
$ |
(1.75 |
) |
|
|
|
6 |
|
$ |
(0.62 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share |
|
$ |
(0.68 |
) |
$ |
(1.75 |
) |
|
|
|
6 |
|
$ |
(0.62 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
119
Table of Contents
Validus Holdings, Ltd.
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share data)
1. Basis of Presentation
The unaudited condensed consolidated pro forma financial information gives effect to the proposed acquisition as if it had occurred at June 30, 2011 for
the purposes of the unaudited condensed consolidated pro forma balance sheet and at January 1, 2010 for the purposes of the unaudited condensed consolidated pro forma statements of operations
for the year ended December 31, 2010 and six months ended June 30, 2011. The unaudited condensed consolidated pro forma financial information has been prepared by Validus' management and
is based on Validus' historical consolidated financial statements and Transatlantic's historical consolidated financial statements. Certain amounts from Transatlantic's historical consolidated
financial statements have been reclassified to conform to the Validus presentation. The unaudited condensed consolidated pro forma financial statements have been
prepared using Transatlantic's publicly available financial statements and disclosures, without the benefit of inspection of Transatlantic's books and records or discussion with the Transatlantic
management team. Therefore, certain pro forma adjustments, such as recording fair value of assets and liabilities and adjustments for consistency of accounting policy, are not reflected in these
unaudited condensed consolidated pro forma financial statements. Additional reclassifications of Transatlantic data to conform to the Validus presentation may also be required.
This
unaudited condensed consolidated pro forma financial information is prepared in conformity with United States Generally Acceptable Accounting Principles ("US GAAP"). The
unaudited condensed consolidated pro forma balance sheet as of June 30, 2011 and the unaudited condensed consolidated pro forma statements of operations for the year ended December 31,
2010 and the six month period ended June 30, 2011 have been prepared using the following information:
- (a)
- Audited
historical consolidated financial statements of Validus as of December 31, 2010 and for the year ended December 31, 2010;
- (b)
- Audited
historical consolidated financial statements of Transatlantic as of December 31, 2010 and for the year ended December 31, 2010;
- (c)
- Unaudited
historical consolidated financial statements of Validus as of June 30, 2011 and for the six months ended June 30, 2011;
- (d)
- Unaudited
historical consolidated financial statements of Transatlantic as of June 30, 2011 and for the six months ended June 30, 2011; and
- (e)
- Such
other known supplementary information as considered necessary to reflect the acquisition in the unaudited condensed consolidated pro forma financial
information.
The
pro forma adjustments reflecting the consummation of the exchange offer and the second-step merger under the acquisition method of accounting are based on certain
estimates and assumptions. The unaudited condensed consolidated pro forma adjustments may be revised as additional information becomes available. The actual adjustments upon consummation of the
exchange offer and the second-step merger and the allocation of the final purchase price will depend on a number of factors, including additional financial information available at such
time, changes in values and changes in Transatlantic's operating results between the date of preparation of this unaudited condensed consolidated pro forma financial information and the effective date
of the exchange offer and the second-step merger. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the differences may be
material. Validus' management believes that its assumptions provide a reasonable basis for presenting all of the significant effects of the transactions
120
Table of Contents
contemplated
based on information available to Validus at the time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited condensed
consolidated pro forma financial information.
The
unaudited condensed consolidated pro forma financial information does not include any financial benefits, revenue enhancements or operating expense efficiencies arising from the
exchange offer and the second-step merger.
Estimated
costs of the transaction as well as the benefit of the negative goodwill have been reflected in the unaudited condensed consolidated pro forma balance sheet, but have not been
included on the pro forma income statement due to their non-recurring nature.
The
unaudited condensed consolidated pro forma financial information is not intended to reflect the results of operations or the financial position that would have resulted had the
exchange offer and the second-step merger been effected on the dates indicated and if the companies had been managed as one entity. The unaudited condensed consolidated pro forma financial
information should be read in conjunction with the Validus 10-Q, the Validus 10-K, the Transatlantic 10-Q and the Transatlantic 10-K, as filed with the SEC. Please see the section of this
prospectus/offer to exchange titled "Where You Can Find More Information."
2. Recent Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs" ("ASU 2011-04"). The objective of ASU 2011-04 is to provide common fair
value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring
fair value and for disclosing information about fair value measurements. For many of the requirements, the amendments do not result in a change in the application of the requirements in
Topic 820 "Fair Value Measurements." ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. Validus is currently evaluating the
impact of this guidance, however it is not expected to have a material impact on Validus' consolidated financial statements.
In
June 2011, the FASB issued Accounting Standards Update No. 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"). The objective of
ASU 2011-05 is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.
ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011. Validus is currently evaluating the impact of this guidance, however it is not
expected to have a material impact on Validus' consolidated financial statements.
3. Purchase Adjustments
Validus is offering to exchange for each outstanding share of Transatlantic common stock that is validly tendered and not properly withdrawn prior to the
expiration time of the exchange offer, 1.5564 Validus common shares and $8.00 in cash (less applicable withholding taxes and without interest), upon the terms and subject to the conditions
contained in this prospectus/offer to exchange and the accompanying revised letter of transmittal. Validus intends, promptly following acceptance for exchange and exchange of shares of Transatlantic
common stock in the exchange offer, to effect the second-step merger pursuant to which Validus will acquire all shares of Transatlantic common stock of those Transatlantic stockholders who
choose not to tender their shares of Transatlantic common stock pursuant to the exchange offer in accordance with the DGCL. Please see the section of this prospectus/offer to exchange titled "The
Exchange Offer—Purpose and Structure of the Exchange Offer."
121
Table of Contents
In
connection with the exchange offer, transaction costs currently estimated at $55,035 will be incurred and expensed. In addition, upon termination of the Allied World acquisition
agreement, the Allied World termination fee will be incurred and expensed. The Allied World termination fee is not tax deductible.
As
discussed above, these pro forma purchase adjustments are based on certain estimates and assumptions made as of the date of the unaudited condensed consolidated pro forma financial
information. The actual adjustments will depend on a number of factors, including the review of Transatlantic's books and records, and changes in the estimated fair value of net balance sheet assets
and operating results of Transatlantic between June 30, 2011 and the date of the consummation of the exchange offer and second-step merger. Validus expects to make such adjustments
at such time. These adjustments are likely to be different from the adjustments made to prepare the unaudited condensed consolidated pro forma financial information and such differences may be
material.
The
share prices for both Validus and Transatlantic used in determining the preliminary estimated purchase price are based on the closing share prices on August 10, 2011. The
preliminary total purchase price is calculated as follows:
Calculation of Total Purchase Price
|
|
|
|
|
Transatlantic shares of common stock outstanding as of June 30, 2011 |
|
|
62,483,787 |
|
| |
|
|
|
Exchange ratio |
|
|
1.5564 |
|
| |
|
|
|
Total Validus common shares to be issued |
|
|
97,249,766 |
|
Validus closing share price on August 10, 2011 |
|
$ |
24.03 |
|
| |
|
|
|
Total value of Validus common shares to be issued |
|
$ |
2,336,912 |
|
Total cash consideration paid |
|
$ |
500,000 |
|
| |
|
|
|
Total Purchase Price |
|
$ |
2,836,912 |
|
| |
|
|
|
The
allocation of the purchase price is as follows:
Allocation of Purchase Price
|
|
|
|
|
Transatlantic stockholders' equity |
|
$ |
4,233,932 |
|
Allied termination fee |
|
|
(115,000 |
) |
Mark held-to-maturity investments to market, net of tax |
|
|
39,592 |
|
Less reserve increase, after tax |
|
|
(325,000 |
) |
| |
|
|
|
Transatlantic stockholders' equity, adjusted (B) |
|
$ |
3,833,524 |
|
Total purchase price(A) |
|
$ |
2,836,912 |
|
| |
|
|
|
Negative goodwill (A-B) |
|
$ |
996,612 |
|
| |
|
|
|
- (a)
- In
connection with the exchange offer, 97,249,766 Validus common shares are expected to be issued for all Transatlantic shares of common stock, shares of
common stock issued pursuant to option exercises, and shares of common stock issued following vesting of restricted shares, restricted share units and performance share units resulting in additional
share capital of $17,019 and additional paid-in capital of $2,319,893.
- (b)
- It
is expected that total transaction costs currently estimated at $55,035, the Allied World termination fee of $115,000, and expenses related to bank debt
of $4,375 will be incurred by the consolidated entity. Based on an expected investment return of 2.29% for Validus and 3.70% for Transatlantic per annum, pre-tax investment income of
$5,996 would have been foregone during the year end December 31, 2010 had these payments of $174,410 been made.
122
Table of Contents
Approximately
$6,500 of the estimated $55,035 total transaction costs have been incurred and expensed by Transatlantic in the six months ended June 30, 2011. These expenses have been eliminated
from the unaudited condensed consolidated pro forma results of operations for the six months ended June 30, 2011. In addition, an adjustment of $163,535 was made to retained earnings and $4,375
to other assets as deferred financing fees as at June 30, 2011 to reflect the remaining transaction costs, the Allied World termination fee, and the debt refinancing costs. Based on an expected
investment return of 1.90% for Validus and 3.60% for Transatlantic per annum, pre tax investment income of $2,748 would have been foregone during the six months ended June 30, 2011 had these
remaining payments of $167,910 been made.
- (c)
- Employees
of Transatlantic hold 2,024,855 options to purchase Transatlantic shares of common stock. The weighted average exercise price of these options is
$63.00. It is expected that no net shares would be issued upon exercise of these options.
On
June 30, 2011, the Compensation Committee of the Transatlantic board of directors approved the form of retention agreements that will be offered to certain executives of Transatlantic,
including Steven S. Skalicky, Paul A. Bonny, and Javier E. Vijil, each a named executive officer of Transatlantic. Each of the retention agreements has a term beginning on the date of execution and
ending on the earlier of December 31, 2013 or a mutually agreed upon termination date by the executive and Transatlantic. The retention agreements provide for a grant of restricted stock unit
awards or phantom stock awards immediately prior to the proposed Allied World acquisition (or at a date chosen by the Transatlantic board of directors in its discretion, if the closing of the proposed
Allied World acquisition does not occur), pursuant to Transatlantic's 2009 Long Term Equity Incentive Plan (but only in the case of the RSUs), consisting of that number of shares of Transatlantic
common stock equal in value to $1,500,000 for each of Messrs. Skalicky and Vijil and $2,000,000 for Mr. Bonny.
Validus
has estimated that these grants will result in approximately 100,000 Transatlantic share units being issued, or 155,640 Validus share units after adjusting for the exchange ratio of 1.5564.
This share issuance has been included in the calculation of pro forma diluted book value per share at June 30, 2011.
- (d)
- Elimination
of Transatlantic ordinary shares of common stock of $67,847, treasury shares of $244,722, additional paid-in capital of $322,925,
accumulated other comprehensive income of $234,984 and retained earnings of $3,852,898.
- (e)
- A
related party balance of $9,052 for the six months ended June 30, 2011 and $5,121 for the year ended December 31, 2010 representing
reinsurance ceded to Transatlantic by Validus was eliminated from gross premiums written and reinsurance ceded. Corresponding prepaid reinsurance premiums and unearned premiums of $2,922 and premiums
receivable and reinsurance balances payable of $2,527 have been eliminated from the pro forma balance sheet. Loss reserves recoverable and reserves for losses and loss expenses of $8,782 and paid
losses recoverable and reinsurance balances payable of $1,763 have also been eliminated from the pro forma balance sheet.
- (f)
- The
unaudited condensed consolidated pro forma financial statements have been prepared using Transatlantic's publicly available financial statements and
disclosures, without the benefit of inspection of Transatlantic books and records. Therefore, with the exception of note 3(g) below, the carrying value of assets and liabilities in
Transatlantic's financial statements are considered to be a proxy for fair value of those assets and liabilities, with the difference between the net assets and the total purchase price considered to
be negative goodwill. In addition, limited pro forma adjustments, such as recording fair value of assets and liabilities and adjustments for consistency of accounting policy, are reflected in these
unaudited condensed consolidated pro forma financial statements. Pursuant to Accounting Standards Codification Topic 805, "Business Combinations"
123
Table of Contents
("ASC
805"), a bargain purchase is defined as a business combination in which the total fair value of the identifiable net assets acquired on the date of acquisition exceeds the fair value of the
consideration transferred plus any noncontrolling interest in the acquiree, and it requires the acquirer to recognize that excess in earnings as a gain attributable to the acquirer. Negative goodwill
of $996,612 has been recorded as a credit to retained earnings as upon completion of the acquisition of Transatlantic shares of common stock negative goodwill will be treated as a gain in the
consolidated statement of operations.
- (g)
- Validus
is offering to exchange for each outstanding share of Transatlantic common stock that is validly tendered and not properly withdrawn prior to the
expiration time of the exchange offer, 1.5564 Validus common shares and $8.00 in cash (less applicable withholding taxes and without interest). This cash consideration is expected to total $500,000,
and will be funded through borrowings under the existing Validus credit facilities and a new facility. Based on an expected interest rate of 3.23% per annum, additional finance expenses of $16,250
would have been incurred during the year end December 31, 2010 had this credit facility been in place. Based on an expected interest rate of 3.25% per annum, additional finance expenses of
$8,125 would have been incurred during the six months ended June 30, 2011 had this credit facility been in place. The effect of a change in the expected interest rate of one-eighth
percent in preparation of these unaudited condensed consolidated pro forma financial statements would result in a change to finance expenses of $625 for the year ended December 31, 2010 and
$313 for the six months ended June 30, 2011.
- (h)
- The
unaudited condensed consolidated pro forma financial statements have been prepared using Transatlantic's publicly available financial statements and
disclosures, without the benefit of inspection of Transatlantic books and records. However, it is expected that an additional reserve of $500,000 will be required to recognize potential reserve
deficiencies on 2001 year and prior business. This adjustment to loss reserves will also result in a current and deferred tax benefit of $175,000, of which $46,178 is deferred and $128,822 is
current. The net charge to the balance sheet of $325,000 has been recorded as a debit to retained earnings.
- (i)
- Transatlantic
classifies its fixed maturities as either held to maturity or available for sale, with held to maturity securities carried at amortized cost
if Transatlantic has the positive intent and ability to hold each of these securities to maturity. Validus' investments in fixed maturities are classified as trading and carried at fair value, with
related net unrealized gains or losses included in earnings. It is expected that Transatlantic's securities will be reclassified as trading upon completion of this transaction. At June 30,
2011, securities with an amortized cost of $1,187,591 and fair market value $1,248,501 were classified as held to maturity. Reclassification of these as trading would result in an adjustment of
$60,910 to investments, a credit of $21,318 to other assets for deferred taxes, and a credit of $39,592 to retained earnings at June 30, 2011.
In
addition, Transatlantic reports unrealized gains and losses from fixed maturities available for sale, equities available for sale and other invested assets, as a separate component of AOCI, net of
deferred income taxes, in stockholders' equity. Reclassification of these securities as trading would result in these unrealized gains and losses being reported as components of the income statement.
Additional unrealized losses on investments of $55,537 with a corresponding tax benefit of $19,438 would have been reported on the income statement during the year ended December 31, 2010 had
this reclassification been in place. Additional unrealized gains on investments of $93,396 with a corresponding tax expense of $32,689 would have been reported on the income statement during the six
months ended June 30, 2011 had this reclassification been in place.
In
addition, other-than-temporary impairments charged to earnings of $7,972 and $3,139 in the year ended December 31, 2010 and six months ended June 30, 2011
would have been reallocated to unrealized gains and losses following a reclassification of the securities as trading.
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Table of Contents
- (j)
- The
unaudited condensed consolidated pro forma financial statements have been prepared using Transatlantic's publicly available financial statements and
disclosures, without the benefit of inspection of Transatlantic books and records. Transatlantic does not separately list share compensation expense on its income statement, however disclosure of the
amount recorded for the year ended December 31, 2010 was recorded in its notes to the financial statements. This amount of $35,300 was therefore reclassified as share compensation expense on
the income statement. Similar disclosure was not given for the six months ended June 30, 2011, but an estimate of $17,650 was calculated based on the amount recorded for the year ended
December 31, 2010, and was reclassified as share compensation expense on the income statement.
- (k)
- The
share prices of both Validus and Transatlantic used in preparing these unaudited condensed consolidated pro forma financial statements are based on the
closing share prices on August 10, 2011, and were $24.03 and $49.32, respectively. As of August 19, 2011, the closing share prices were $25.57 and $50.00, respectively. The effect of
using the August 19, 2011 closing share prices in preparation of these unaudited condensed consolidated pro forma financial statements would have resulted in an entry to additional paid in
capital of $149,765 reflecting additional purchase price and an offsetting entry to retained earnings of $149,765 reflecting reduced negative goodwill. Using August 19, 2011 share prices would
have had no effect on calculation of book value per share, diluted book value per share, basic earnings per share and diluted earnings per share.
4. Adjustments to Cash and Cash Equivalents
The acquisition of shares of Transatlantic common stock will result in the payment of cash and cash equivalents by Transatlantic of $142,035 and by Validus of
$32,375.
The
unaudited condensed consolidated pro forma statements of operations reflect the impact of these reductions in cash and cash equivalents. Actual transaction costs may vary from such
estimates which are based on the best information available at the time the unaudited condensed consolidated pro forma financial information was prepared.
For
purposes of presentation in the unaudited condensed consolidated pro forma financial information, the sources and uses of funds of the acquisition are as follows:
Sources of Funds
|
|
|
|
|
Transatlantic cash and cash equivalents |
|
$ |
142,035 |
|
Validus cash and cash equivalents |
|
|
32,375 |
|
Validus credit facility |
|
|
500,000 |
|
| |
|
|
|
Total |
|
$ |
674,410 |
|
| |
|
|
|
Uses of Funds
|
|
|
|
|
Cash consideration |
|
$ |
500,000 |
|
Validus transaction costs |
|
|
28,000 |
|
Transatlantic transaction costs |
|
|
27,035 |
|
Refinancing costs for existing Validus debt |
|
|
4,375 |
|
Allied World termination fee |
|
|
115,000 |
|
| |
|
|
|
Total |
|
$ |
674,410 |
|
| |
|
|
|
125
Table of Contents
5. Selected Ratios
Selected ratios of Validus, Transatlantic and pro forma combined are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2010 |
|
Six Months Ended
June 30, 2011 |
|
|
|
Validus |
|
Transatlantic |
|
Pro forma
combined |
|
Validus |
|
Transatlantic |
|
Pro forma
combined |
|
Losses and loss expense ratios |
|
|
56.1 |
% |
|
69.5 |
% |
|
65.2 |
% |
|
79.9 |
% |
|
96.8 |
% |
|
91.6 |
% |
Policy acquisition costs ratios |
|
|
16.6 |
|
|
24.1 |
|
|
21.8 |
|
|
18.2 |
|
|
22.9 |
|
|
21.4 |
|
General and administrative cost ratios |
|
|
13.5 |
|
|
5.4 |
|
|
8.0 |
|
|
15.1 |
|
|
5.0 |
|
|
7.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
86.2 |
% |
|
99.0 |
% |
|
95.0 |
% |
|
113.2 |
% |
|
124.7 |
% |
|
120.9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Factors
affecting the losses and loss expense ratio for the year ended December 31, 2010:
Validus'
losses and loss expense ratio, which is defined as losses and loss expenses divided by net premiums earned, for the year ended December 31, 2010 was 56.1%. The amount of recorded
reserves represents management's best estimate of expected losses and loss expenses on premiums earned. Favorable loss reserve development on prior years totaled $156.6 million. Of this
$70.6 million related to the Validus Re segment and $86.0 million related to the Talbot segment. This favorable loss reserve development benefited Validus' loss ratio by
8.9 percentage points for the year ended December 31, 2010. For the year ended December 31, 2010, Validus incurred $536.2 million of notable losses, excluding reserve for
potential development on 2010 notable loss events, which represented 30.4 percentage points of the loss ratio. Net of $21.1 million in reinstatement premiums, the effect of these events
on net income was $515.1 million. Validus' loss ratio, excluding prior year development and notable loss events for the year ended December 31, 2010 was 34.9%.
The
data in the following paragraph is taken from "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Transatlantic 10-K. The data has
been reproduced here as it was originally presented.
2010
includes pre-tax net catastrophe costs of $202.4 million, principally relating to the earthquake in Chile, the earthquake in New Zealand, storms and flooding in Australia and
the Deepwater Horizon explosion. Net catastrophe costs in the aggregate added (decreased) 5.2%, (0.1)%, 8.2% and 17.4% to the 2010 combined ratios for consolidated, Domestic, International-Europe and
International-Other, respectively. (See Note 10 for the amounts of net catastrophe costs by segment and the amounts of consolidated gross and ceded catastrophe losses incurred and reinstatement
premiums. See discussion in Catastrophe Exposure of the magnitude of TRH's catastrophe exposures.) While TRH believes that it has taken appropriate steps to manage its exposure to possible future
catastrophe losses, the occurrence of one or more natural or man-made catastrophic events of unanticipated frequency or severity, such as a terrorist attack, earthquake or hurricane, that
causes insured losses could have a material adverse effect on TRH's results of operations, liquidity or financial condition. Current techniques and models may not accurately predict the probability of
catastrophic events in the future and the extent of the resulting losses. Moreover, one or more catastrophe losses could weaken TRH's retrocessionnaires and result in an inability of TRH to collect
reinsurance recoverables. In addition, in 2010, TRH decreased its estimates of the ultimate amounts of net losses occurring in 2009 and prior years by $57.0 million. This net favorable
development was comprised of net favorable development of $216.9 million for losses occurring in 2002 to 2009, partially offset by net adverse development of $159.9 million relating to
losses occurring in 2001 and prior.
126
Table of Contents
(b) Factors
affecting the losses and loss expense ratio for the six months ended June 30, 2011:
Validus'
losses and loss expense ratio, which is defined as losses and loss expenses divided by net premiums earned, for the six months ended June 30, 2011 was 79.9%. For the six months ended
June 30, 2011, favorable loss reserve development on prior years totaled $52.2 million and benefited Validus' loss ratio by 6.1 percentage points. During the six months ended
June 30, 2011, Validus recorded losses of $43.8 million for the Cat 46 tornado, $31.5 million for the Cat 48 tornado, $15.0 million for the Jupiter 1 platform failure,
$169.0 million for the Tohoku earthquake, $52.4 million for the Gryphon Alpha mooring failure, $62.0 million for the Christchurch earthquake, $31.0 million for the Brisbane
floods and $19.5 million for the CNRL Horizon explosion. For the six months ended June 30, 2011, Validus incurred $424.4 million of notable losses, which represented
49.6 percentage points of the loss ratio. Validus' loss ratio, excluding prior year development and notable loss events for the six months ended June 30, 2011 was 36.4%
The
data in the following paragraph is taken from "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Transatlantic 10-Q. The data has
been reproduced here as it was originally presented.
The
second quarter of 2011 included pre-tax net catastrophe costs of $66.4 million, consisting principally of $61 million resulting from revised estimates of costs related to
the February 2011 earthquake in New Zealand and $34 million related to severe second quarter 2011 tornado activity in the U.S., partially offset by a ($23) million reduction in estimated costs
related to the March 2011 Tohoku earthquake and resulting tsunami in Japan. The first six months of 2011 included pre-tax net catastrophe costs of $611.8 million,
$342 million of which is related to the March 2011 Tohoku earthquake and resulting tsunami in Japan, $182 million of which is related to the February 2011 earthquake in New Zealand and
$55 million of which is related to first quarter 2011 flooding in Australia and Cyclone Yasi. Net catastrophe costs in the second quarter and first six months of 2011 include $2 million
and $6 million, respectively, of estimated net favorable loss reserve development related to catastrophe events occurring in prior years.
Transatlantic's
loss ratio, excluding prior year development and notable loss events for the six months ended June 30, 2011 was 66.2%
6. Earnings per Common Share
(a) Pro
forma earnings per common share for the year ended December 31, 2010 and the six months ended June 30, 2011 have been calculated based on the estimated
weighted average number of common shares outstanding on a pro forma basis, as described in 6(b) below. The historical weighted average number of common shares outstanding of Validus was 116,018,364
and 120,630,945 basic and diluted, respectively, for the year ended December 31, 2010 and 98,165,132 and 98,165,132 basic and diluted, respectively, for the six months ended June 30,
2011.
(b) The
pro forma weighted average number of common shares outstanding for the year ended December 31, 2010 and six months ended June 30, 2011, after giving
effect to the exchange of shares as if the exchange offer had been issued and outstanding for the whole year, is 213,255,252 and 219,172,096, basic and diluted, and 195,414,898 and 195,414,898, basic
and diluted, respectively.
(c) In
the basic earnings per share calculation, dividends and distributions declared on warrants are deducted from net income. In calculating diluted earnings per share, we
consider the application of the treasury stock method and the two-class method and whichever is more dilutive is included into the calculation of diluted earnings per share.
127
Table of Contents
The
following table sets forth the computation of basic and diluted earnings per share for the six months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
Historical
Validus
Holdings |
|
Pro Forma
Consolidated |
|
Net loss available to common shareholders |
|
$ |
(66,430 |
) |
$ |
(120,787 |
) |
| |
|
|
|
|
|
Weighted average shares—basic ordinary shares outstanding |
|
|
98,165,132 |
|
|
195,414,898 |
|
Share equivalents |
|
|
|
|
|
|
|
Warrants |
|
|
— |
|
|
— |
|
Restricted Shares |
|
|
— |
|
|
— |
|
Options |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
Weighted average shares—diluted |
|
|
98,165,132 |
|
|
195,414,898 |
|
Basic loss per share |
|
$ |
(0.68 |
) |
$ |
(0.62 |
) |
| |
|
|
|
|
|
Diluted loss per share |
|
$ |
(0.68 |
) |
$ |
(0.62 |
) |
| |
|
|
|
|
|
The
following table sets forth the computation of basic and diluted earnings per share for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
Historical
Validus
Holdings |
|
Pro Forma
Consolidated |
|
Net Income |
|
$ |
402,564 |
|
$ |
748,259 |
|
Net income available to common shareholders |
|
$ |
395,573 |
|
$ |
741,268 |
|
| |
|
|
|
|
|
Weighted average shares—basic ordinary shares outstanding |
|
|
116,018,364 |
|
|
213,255,252 |
|
Share equivalents |
|
|
|
|
|
|
|
Warrants |
|
|
2,657,258 |
|
|
2,657,258 |
|
Restricted Shares |
|
|
1,067,042 |
|
|
2,371,305 |
|
Options |
|
|
888,281 |
|
|
888,281 |
|
| |
|
|
|
|
|
Weighted average shares—diluted |
|
|
120,630,945 |
|
|
219,172,096 |
|
Basic earnings per share |
|
$ |
3.41 |
|
$ |
3.48 |
|
| |
|
|
|
|
|
Diluted earnings per share |
|
$ |
3.34 |
|
$ |
3.41 |
|
| |
|
|
|
|
|
7. Book Value per Share
Validus calculates diluted book value per share using the "as-if-converted" method, where all proceeds received upon exercise of warrants
and stock options would be retained by Validus and the resulting common shares from exercise remain outstanding. In its public records, Transatlantic calculates only book value per share and not
diluted book value per share. Accordingly, for the purposes of the Pro Forma Condensed Consolidated Financial Statements and notes thereto, Transatlantic's diluted book value per share has been
calculated based on the "as-if-converted" method to be consistent with Validus' calculation.
128
Table of Contents
The
following table sets forth the computation of book value and diluted book value per share adjusted for the exchange offer as of June 30, 2011:
|
|
|
|
|
|
|
|
|
|
Historical
Validus
Holdings |
|
Pro Forma
Consolidated |
|
Book value per common share calculation |
|
|
|
|
|
|
|
Total shareholders' equity |
|
$ |
3,408,317 |
|
$ |
6,693,306 |
|
Shares |
|
|
98,763,928 |
|
|
196,013,694 |
|
Book value per common share |
|
$ |
34.51 |
|
$ |
34.15 |
|
Diluted book value per common share calculation |
|
|
|
|
|
|
|
Total shareholders' equity |
|
$ |
3,408,317 |
|
$ |
6,693,306 |
|
Proceeds of assumed exercise of outstanding warrants |
|
$ |
137,992 |
|
$ |
137,992 |
|
Proceeds of assumed exercise of outstanding stock options |
|
$ |
45,604 |
|
$ |
173,170 |
|
Unvested restricted shares |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
$ |
3,591,913 |
|
$ |
7,004,468 |
|
Shares |
|
|
98,763,928 |
|
|
196,013,694 |
|
Warrants |
|
|
7,862,262 |
|
|
7,862,262 |
|
Options |
|
|
2,266,801 |
|
|
5,418,285 |
|
Unvested restricted shares |
|
|
3,670,942 |
|
|
6,633,948 |
|
| |
|
|
|
|
|
|
|
|
112,563,933 |
|
|
215,928,189 |
|
Diluted book value per common share |
|
$ |
31.91 |
|
$ |
32.44 |
|
8. Capitalization
The following table sets forth the computation of debt to total capitalization and debt (excluding debentures payable) to total capitalization at June 30,
2011, adjusted for the exchange offer and second-step merger:
|
|
|
|
|
|
|
|
|
|
Historical
Validus
Holdings |
|
Pro Forma
Consolidated |
|
Total debt |
|
|
|
|
|
|
|
Borrowings drawn under credit facility |
|
$ |
— |
|
$ |
500,000 |
|
Senior notes payable |
|
|
246,928 |
|
|
1,252,713 |
|
Debentures payable |
|
|
289,800 |
|
|
289,800 |
|
| |
|
|
|
|
|
Total debt |
|
$ |
536,728 |
|
$ |
2,042,513 |
|
| |
|
|
|
|
|
Total capitalization |
|
|
|
|
|
|
|
Total shareholders' equity |
|
$ |
3,408,317 |
|
$ |
6,693,306 |
|
Borrowings drawn under credit facility |
|
|
— |
|
|
500,000 |
|
Senior notes payable |
|
|
246,928 |
|
|
1,252,713 |
|
Debentures payable |
|
|
289,800 |
|
|
289,800 |
|
| |
|
|
|
|
|
Total capitalization |
|
$ |
3,945,045 |
|
$ |
8,735,819 |
|
| |
|
|
|
|
|
Total debt to total capitalization |
|
|
13.6 |
% |
|
23.4 |
% |
Debt (excluding debentures payable) to total capitalization |
|
|
6.3 |
% |
|
20.1 |
% |
129
Table of Contents
FORWARD-LOOKING STATEMENTS
This prospectus/offer to exchange and the accompanying letter of transmittal may include forward-looking statements, both with respect
to Validus and Validus' industry, that reflect Validus' current views with respect to future events and financial performance. Statements that include the words "expect," "intend," "plan," "believe,"
"project," "anticipate," "will," "may," "would," and similar statements of a future or forward-looking nature are often used to identify forward-looking statements. All forward-looking statements
address matters that involve risks and uncertainties, many of which are beyond Validus' control. Accordingly, there are or will be important factors that could cause actual results to differ
materially from those indicated in such statements and, therefore, you should not place undue reliance on any such statements. Validus believes that these factors include, but are not limited to, the
following: 1) uncertainty as to whether the conditions of the exchange offer will be met or whether the exchange offer and second-step merger will be consummated;
2) uncertainty as to the actual premium that will be realized by Transatlantic stockholders in connection with exchange offer and the second-step merger; 3) failure to
realize the anticipated benefits (including combination synergies) of the exchange offer and the second-step merger, including as a result of delay in completing the transaction or
integrating the businesses of Validus and Transatlantic; 4) uncertainty as to the long-term value of Validus common shares; 5) unpredictability and severity of catastrophic
events; 6) rating agency actions; 7) adequacy of Validus' or Transatlantic's risk management and loss limitation methods; 8) cyclicality of demand and pricing in the insurance and
reinsurance markets; 9) Validus' ability to implement its business strategy during "soft" as well as "hard" markets; 10) adequacy of Validus' or
Transatlantic's loss reserves; 11) continued availability of capital and financing; 12) retention of key personnel; 13) competition in the insurance and reinsurance markets;
14) potential loss of business from one or more major reinsurance or insurance brokers; 15) the credit risk Validus and Transatlantic assume through their dealings with insurance and
reinsurance brokers; 16) Validus' or Transatlantic's ability to implement, successfully and on a timely basis, complex infrastructure, distribution capabilities, systems, procedures and
internal controls, and to develop accurate actuarial data to support the business and regulatory and reporting requirements; 17) general economic and market conditions (including inflation,
volatility in the credit and capital markets, interest rates and foreign currency exchange rates); 18) the integration of businesses Validus may acquire or new business ventures Validus may
start; 19) the legal, regulatory and tax regimes under which Validus and Transatlantic operate; 20) the effect on Validus' or Transatlantic's investment portfolios of changing financial
market conditions, including inflation, interest rates, liquidity, the recent downgrade of U.S. securities by Standard & Poor's and the possible effect on the value of securities in
Validus' and Transatlantic's investment portfolios, as well as other factors; 21) acts of terrorism or outbreak of war or hostilities; 22) availability of reinsurance and retrocessional
coverage; and 23) the outcome of transaction related litigation, as well as management's response to any of the aforementioned factors.
The
foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and
elsewhere, including the Risk Factors included in the Validus 10-Q, the Validus 10-K, the Transatlantic 10-Q and the Transatlantic 10-K, each as filed
with the SEC. Any forward-looking statements made in this prospectus/offer to exchange and the accompanying letter of transmittal are qualified in their entirety by these cautionary statements, and
there can be no assurance that the actual results or developments anticipated by Validus will be realized or, even if substantially realized, that they will have the expected consequences to, or
effects on, Validus or Validus' business, operations or financial condition. Except to the extent required by applicable law, Validus undertakes no obligation to update publicly or revise any
forward-looking statement, whether as a result of new information, future developments or otherwise.
No
rating agency (A.M. Best, Moody's, or Standard & Poor's) has specifically approved or disapproved or otherwise taken definitive action on the Validus merger offer or the
exchange offer.
130
Table of Contents
LEGAL MATTERS
Appleby (Bermuda) Limited has provided an opinion regarding the validity of the Validus common shares to be issued pursuant to the
exchange offer, with respect to matters of Bermuda law.
EXPERTS
The financial statements and management's assessment of the effectiveness of internal control over financial reporting (which is
included in Management's Report on Internal Control over Financial Reporting) incorporated in this prospectus/offer to exchange by reference to Validus' Annual Report on Form 10-K
for the year ended December 31, 2010 have been so incorporated in reliance on the report of PricewaterhouseCoopers, an independent registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
The
consolidated financial statements of Transatlantic appearing in the Transatlantic 10-K (including schedules appearing therein), and Transatlantic's management's
assessment of the effectiveness of internal control over financial reporting as of December 31, 2010 included therein are incorporated herein by reference and have been audited by an
independent registered public accounting firm. Pursuant to Rule 436 under the Securities Act, Validus requires the consent of Transatlantic's independent auditors to incorporate by reference
their audit report to the Transatlantic 10-K in this prospectus/offer to exchange and, because such consent has not been received, such audit report is not incorporated herein by
reference. Validus has requested and has, as of the date of this prospectus/offer to exchange, not received such consent from Transatlantic's independent auditors. We have requested dispensation
pursuant to Rule 437 under the Securities Act from this requirement. If Validus receives this consent, Validus will promptly file it as an exhibit to Validus' registration statement of which
this prospectus/offer to exchange forms a part. Because Validus has not been able to obtain Transatlantic's auditors' consent, you may not be able to assert a claim against Transatlantic's
independent auditors under Section 11 of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Transatlantic's independent auditors or
any omissions to state a material fact required to be stated therein.
SOLICITATION OF PROXIES
As discussed in this prospectus/offer to exchange, Validus has filed a preliminary proxy statement in connection with the solicitation
of proxies from Transatlantic stockholders to vote against the adoption of the Allied World acquisition agreement and vote against other proposals brought before the Transatlantic special stockholder
meeting as discussed in more detail in such preliminary proxy statement. If the Allied World acquisition agreement is not adopted by Transatlantic stockholders after a vote thereon, the Transatlantic
board of directors will be able to terminate the Allied World acquisition agreement and enter into a merger agreement with Validus. In such case, Validus believes the merger contemplated by the
Validus merger offer could be completed in the fourth quarter of 2011, which is consistent with the publicly announced timing of the proposed Allied World acquisition (subject to the satisfaction or
waiver of the conditions to the exchange offer).
Transatlantic
stockholders may obtain a free copy of the proxy statement described above and other documents that Validus files with the SEC at its website at http://www.sec.gov. In
addition, the proxy statement may be obtained free of charge from Validus by contacting the information agent as directed on the back cover of this prospectus/offer to exchange.
131
Table of Contents
ADDITIONAL NOTE REGARDING THE EXCHANGE OFFER
The exchange offer is being made solely by this prospectus/offer to exchange and the accompanying letter of transmittal and is being
made to holders of shares of Transatlantic common stock. Validus is not aware of any jurisdiction where the making of the exchange offer or the tender of shares of Transatlantic common stock in
connection therewith would not be in compliance with the laws of such jurisdiction. If Validus becomes aware of any jurisdiction in which the making of the exchange offer or the tender of shares of
Transatlantic common stock in connection therewith would not be in compliance with applicable law, Validus will make a good faith effort to comply with any such law. If, after such good faith effort,
Validus cannot comply with any such law, the exchange offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of shares of Transatlantic common stock in such
jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the exchange offer to be made by a licensed broker or dealer, the exchange offer shall be deemed to be made on
behalf of Validus by the dealer manager or by one or more registered brokers or dealers licensed under the laws of such jurisdiction.
Unless
otherwise specifically noted herein, all references to "dollars" and "$" shall refer to U.S. dollars.
WHERE YOU CAN FIND MORE INFORMATION
Validus and Transatlantic file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read
and copy any of this information filed with the SEC at the SEC's public reference room:
Public
Reference Room
100 F Street NE
Room 1580
Washington, D.C. 20549
For
information regarding the operation of the Public Reference Room, you may call the SEC at 1-800-SEC-0330. These filings made with the SEC are also
available to the public through the website maintained by the SEC at http://www.sec.gov or from commercial document retrieval services.
Validus
has filed a registration statement on Form S-4 to register with the SEC the offering and sale of Validus common shares to be issued in the exchange offer and
the second-step merger. This prospectus/offer to exchange is a part of that registration statement. We may also file additional amendments to the registration statement. In addition,
Validus filed with the SEC a Tender Offer Statement on Schedule TO under the Exchange Act, together with exhibits, to furnish certain information about the exchange offer, and we may also file
amendments to the Schedule TO. You may obtain copies of the Form S-4 and Schedule TO (and any amendments to those documents) by contacting the information agent as
directed on the back cover of this prospectus/offer to exchange.
Some
of the documents previously filed with the SEC may have been sent to you, but you can also obtain any of them through Validus, the SEC or the SEC's website as described above.
Documents filed with the SEC are available from Validus without charge, excluding all exhibits, except that, if Validus has specifically incorporated by reference an exhibit in this prospectus/offer
to exchange, the exhibit will also be provided without charge.
You
may obtain documents filed with the SEC by requesting them in writing or by telephone from Validus at the following addresses:
Validus
Holdings, Ltd.
29 Richmond Road, Pembroke
Bermuda HM 08
(441) 278-9000
Attention: Jon Levenson
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If
you would like to request documents, in order to ensure timely delivery, you must do so at least five business days before the expiration time of the exchange offer. This means you
must request this information no later than September 23, 2011. Validus will mail properly requested documents to requesting stockholders by first class mail, or another equally prompt means,
within one business day after receipt of such request.
You
can also get more information by visiting Validus' website at http://www.validusholdings.com and Transatlantic's website at http://www.transre.com.
Materials
from these websites and other websites mentioned in this prospectus/offer to exchange and the accompanying letter of transmittal are not incorporated by reference in this
prospectus/offer to exchange. If you are viewing this prospectus/offer to exchange in electronic format, each of the URLs mentioned in this prospectus/offer to exchange is an active textual reference
only.
The
SEC allows Validus to incorporate information into this prospectus/offer to exchange "by reference," which means that Validus can disclose important information to you by referring
you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus/offer to exchange, except for any information superseded by
information contained directly in this prospectus/offer to exchange. This prospectus/offer to exchange incorporates by reference the documents set forth below that Validus and Transatlantic have
previously filed with the SEC. These documents contain important information about Validus and Transatlantic and their financial condition, business and results.
|
|
|
Validus Filings (Commission File No. 001-33606):
|
|
Period |
| Annual Report on Form 10-K |
|
For fiscal year ended December 31, 2010 |
Quarterly Reports on Form 10-Q |
|
For the three months ended March 31, 2011 and the six months ended June 30, 2011 |
Current Reports on Form 8-K |
|
Filed on February 25, 2011, February 28, 2011, March 17, 2011, April 5, 2011, May 5, 2011, May 5, 2011, May 9, 2011, May 10, 2011, May 23, 2011, June 1, 2011,
June 23, 2011, July 13, 2011, August 3, 2011, August 8, 2011, and August 8, 2011 (other than any portion of any documents not deemed to be filed) |
The description of Validus common shares contained in its registration statement on Form S-3, including any amendment or report filed for the purpose of updating the description. |
|
Filed on August 7, 2008 |
Proxy Statement on Schedule 14A |
|
Filed on March 23, 2011 |
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|
|
|
Transatlantic Filings (Commission File No. 000-27662):
|
|
Period |
| Annual Report on Form 10-K (except for the reports of Transatlantic's independent public accountants contained therein which are not incorporated herein by reference because the consent of Transatlantic's independent
public accountants has not yet been obtained) |
|
For fiscal year ended December 31, 2010 |
Quarterly Reports on Form 10-Q |
|
For the three months ended March 31, 2011 and the six months ended June 30, 2011 |
Current Reports on Form 8-K |
|
Filed on March 11, 2011, March 29, 2011, April 5, 2011, April 26, 2011, May 20, 2011, June 1, 2011, June 13, 2011, June 13, 2011, June 15, 2011, July 6, 2011,
July 7, 2011, July 13, 2011, July 13, 2011, July 20, 2010, July 25, 2011, July 27, 2011, July 28, 2011, July 29, 2011, August 8, 2011, August 9, 2011, August 12, 2011, and August 19, 2011
(other than any portions of any documents not deemed to be filed) |
Validus also hereby incorporates by reference any additional documents that it or Transatlantic may file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act from the date of this prospectus/offer to exchange to the termination of the exchange offering. Nothing in this prospectus shall be deemed to incorporate information furnished but not filed with
the SEC.
Validus
shareholders and Transatlantic stockholders may obtain any of these documents without charge upon written or oral request to the information agent at Innisfree M&A Inc.,
501 Madison Avenue, 20th Floor, New York, New York 10022, banks and brokerage firms please call (212) 750-5833, all others call toll-free at
(877) 717-3929, or from the SEC at the SEC's website at http://www.sec.gov.
IF
YOU WOULD LIKE TO REQUEST DOCUMENTS FROM VALIDUS, PLEASE CONTACT THE INFORMATION AGENT NO LATER THAN SEPTEMBER 23, 2011, OR FIVE BUSINESS DAYS BEFORE THE EXPIRATION TIME OF THE
EXCHANGE OFFER, WHICHEVER IS LATER, TO RECEIVE THEM BEFORE THE EXPIRATION TIME OF THE EXCHANGE OFFER. If you request any incorporated documents, the information agent will mail them to you by
first-class mail, or other equally prompt means, within one business day of receipt of your request.
YOU
SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS/OFFER TO EXCHANGE IN MAKING YOUR DECISION WHETHER TO TENDER YOUR SHARES OF TRANSATLANTIC
COMMON STOCK INTO THE EXCHANGE OFFER. VALIDUS HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT DIFFERS FROM THAT CONTAINED IN THIS PROSPECTUS/OFFER TO EXCHANGE. THIS PROSPECTUS/OFFER TO
EXCHANGE IS DATED AUGUST 19, 2011. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS/OFFER TO EXCHANGE IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE
MAILING OF THIS PROSPECTUS/OFFER TO EXCHANGE TO STOCKHOLDERS NOR THE ISSUANCE OF VALIDUS COMMON SHARES IN THE EXCHANGE OFFER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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NOTE ON TRANSATLANTIC INFORMATION
All information concerning Transatlantic, its business, management and operations presented or incorporated by reference in this
prospectus/offer to exchange is taken from publicly available information. This information may be examined and copies may be obtained at the places and in the manner set forth in the section of this
prospectus/offer to exchange titled "Where You Can Find More Information." Validus is not affiliated with Transatlantic, and Transatlantic has not permitted Validus to have access to their books and
records. Therefore, non-public information concerning Transatlantic was not available to Validus for the purpose of preparing this prospectus/offer to exchange. Although Validus has no
knowledge that would indicate that statements relating to Transatlantic contained or incorporated by reference in this prospectus/offer to exchange are inaccurate or incomplete, Validus was not
involved in the preparation of those statements and cannot verify them.
Pursuant
to Rule 409 under the Securities Act and Rule 12b-21 under the Exchange Act, Validus has requested that Transatlantic provide Validus with information
required for complete disclosure regarding the businesses, operations, financial condition and management of Transatlantic. Validus will amend or supplement this prospectus/offer to exchange to
provide any and all information Validus receives from Transatlantic, if Validus receives the information before the expiration time of the exchange offer and Validus considers it to be material,
reliable and appropriate.
An
auditor's report was issued on Transatlantic's financial statements and included in Transatlantic's filings with the SEC. Pursuant to Rule 436 under the Securities Act, Validus
requires the consent of Transatlantic's independent auditors to incorporate by reference their audit report to the Transatlantic 10-K into this prospectus/offer to exchange. Validus has
requested and has, as of the date of this prospectus/offer to exchange, not received such consent from Transatlantic's independent auditors. The SEC has granted to Validus dispensation pursuant to
Rule 437 under the Securities Act from this requirement. If Validus receives the consent of Transatlantic's independent auditors, Validus will promptly file it as an exhibit to Validus'
registration statement of which this prospectus/offer to exchange forms a part. Because Validus has not been able to obtain Transatlantic's independent auditors' consent, you may not be able to
assert a claim against Transatlantic's independent auditors under Section 11 of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by
Transatlantic's independent auditors or any omissions to state a material fact required to be stated therein.
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF VALIDUS
The
name, current principal occupation or employment and material occupations, positions, offices or employment for the past five years, of each director and executive officer of Validus
are set forth below. References in this Schedule I to "Validus" mean Validus Holdings, Ltd. Unless otherwise indicated below, the current business address of each director and executive
officer is c/o Validus Holdings, Ltd., 29 Richmond Road, Pembroke, Bermuda HM 08, Bermuda. Unless otherwise indicated below, the current business telephone of each director
and executive officer is (441) 278-9000. Where no date is shown, the individual has occupied the position indicated for the past five years. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with Validus. Except as described in this Schedule I, none of the directors and executive officers of Validus listed
below has, during the past five years, (1) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (2) been a party to any judicial or
administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state
securities laws, or a finding of any violation of federal or state securities laws. Other than Mr. Nessi, who is a citizen of France, Mr. Dill, who is a citizen of Bermuda, and
Mr. Carpenter and Ms. Ross, who is each a citizen of the United Kingdom, each of the directors and executive officers of Validus is a citizen of the United States of America.
DIRECTORS
|
|
|
Name and Current Business Address
|
|
Present Principal Occupation or Employment, Material Positions Held
During the Past Five Years and Business Address Thereof |
| Edward J. Noonan |
|
Mr. Noonan has been Chairman of the Board and the Chief Executive Officer of Validus since its formation. He has 30 years of experience in the insurance and reinsurance industry, serving most recently as the
acting chief executive officer of United America Indemnity Ltd. from February 2005 through October 2005 and as a member of the board of directors from December 2003 to May 2007. Mr. Noonan served as president and chief executive officer of
American Re-Insurance Company from 1997 to 2002, having joined American Re in 1983. Mr. Noonan also served as chairman of Inter-Ocean Reinsurance Holdings of Hamilton, Bermuda from 1997 to 2002. Mr. Noonan is also a director of Central
Mutual Insurance Company and All American Insurance Company, both of which are property and casualty companies based in Ohio. |
Michael E.A. Carpenter |
|
Mr. Carpenter has been a Director of Validus since August, 2011. Mr. Carpenter joined the Talbot Group in June of 2001 as the Chief Executive Officer. Following the sale of Talbot to the Company on
July 2, 2007, Mr. Carpenter was appointed as Chairman of Talbot and continues to serve in that position. |
Matthew J. Grayson |
|
Mr. Grayson, has been a Director of Validus since its formation. Since January of 2011, Mr. Grayson has served as a principal of Welder Energy, an oil and gas asset management firm based in San Antonio,
Texas. From 2006 through 2010, Mr. Grayson served as a senior principal of Aquiline. Mr. Grayson has 27 years experience in the financial services industry. In 1998, following a career in investment banking, corporate finance and
capital markets, Mr. Grayson co-founded Venturion Capital, a private equity firm |
S-1
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|
|
|
Name and Current Business Address
|
|
Present Principal Occupation or Employment, Material Positions Held
During the Past Five Years and Business Address Thereof |
| |
|
that specialized in global financial services companies. In 2005, Venturion Capital's professionals joined with Jeffrey W. Greenberg, along with others, to form Aquiline. Mr. Grayson serves on the board of Structured
Credit Holdings Plc. |
Jeffrey W. Greenberg |
|
Mr. Greenberg has been a Director of Validus since its formation. He also serves as the managing principal of Aquiline, which he founded in 2005. Mr. Greenberg served as chairman and chief executive officer
of Marsh & McLennan Companies, Inc. from 2000 to 2004. From 1996 to 2004, Mr. Greenberg was the chairman of MMC Capital, the manager of the Trident Funds. He previously served as a director of Ace, Inc. Previously, he served
as a senior executive of AIG, where he was employed from 1978 to 1995. Mr. Greenberg is also Chairman of Group Ark Insurance Holdings Ltd., a Bermuda-based underwriter of insurance and reinsurance risks in the Lloyd's market. |
John J. Hendrickson |
|
Mr. Hendrickson has been a director of Validus since its formation. Mr. Hendrickson is the Founder and Managing Partner of SFRi LLC, an independent investment and advisory firm (formed in 2004)
specializing in the insurance industry. From 1995 to 2004, Mr. Hendrickson held various positions with Swiss Re, including as Member of the Executive Board, Head of Capital Partners (Swiss Re's Merchant Banking Division), and
Co-Founding Partner of Securitas Capital. From 1985 to 1995, Mr. Hendrickson was with Smith Barney, the U.S. investment banking firm, where he focused on serving the capital and strategic needs of (re)insurance clients and private
equity investors active in the insurance sector. Mr. Hendrickson has served as a director for several insurance and financial services companies, and, in addition to the Company, currently serves on the board of Tawa PLC, Conning
Holdings Corp and American European Insurance Group. |
Sander M. Levy |
|
Mr. Levy has been a Director of Validus since its formation. He also serves as a Managing Director of Vestar Capital Partners, a private equity investment firm based in New York which manages over
$7.0 billion of equity capital, and was a founding partner of Vestar Capital Partners at its inception in 1988. Mr. Levy is currently a member of the board of directors of Symetra Financial Corporation, Wilton Re Holdings Limited,
Duff & Phelps, LLC and Triton Container International Limited. |
Jean-Marie Nessi |
|
Mr. Nessi has been a Director of Validus since its formation. He has also served as a director of Matmut Enterprises since 2007. Mr. Nessi also has served as the head of Aon Global Risk Consulting at Aon
France since October 2007. Mr. Nessi served as Chairman and CEO of NessPa Holding from January 2006 to September 2007 and as the head of the property and casualty business unit for PartnerRe Global, a subsidiary of PartnerRe SA, from
February 2003 to February 2006. He was appointed Chairman of PartnerRe SA in June of 2003. Prior to PartnerRe, Mr. Nessi led |
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|
|
|
Name and Current Business Address
|
|
Present Principal Occupation or Employment, Material Positions Held
During the Past Five Years and Business Address Thereof |
| |
|
AXA Corporate Solutions, the successor company to AXA Ré and AXA Global Risk. |
Mandakini Puri |
|
Ms. Puri has been a Director of Validus since its formation. She joined BlackRock in May 2011 and is Managing Director and co-head of BlackRock's Global Private Equity Group. She also served as a consultant to
Bank of America/Merrill Lynch Global Private Equity until December 2010. From 1994 through 2009, Ms. Puri served as a senior vice president with Bank of America/Merrill Lynch Global Private Equity, where she was the Chief Investment Officer.
Ms. Puri had been part of Merrill Lynch's private equity business since 1994, prior to which she was a Director in the High Yield Finance & Restructuring Group at Merrill. Ms. Puri joined Merrill Lynch in 1986. Ms. Puri was a
member of the board of directors of PSi Technologies Holdings, Inc. until December 2010. |
Alok Singh |
|
Mr. Singh has been a Director of Validus since its formation. He also serves as a Managing Director of New Mountain Capital, a private equity investment firm based in New York which manages over $7 billion
of equity capital. Prior to joining New Mountain Capital in 2002, Mr. Singh served as a Partner and Managing Director of Bankers Trust from 1978 to 2001. In 2001 he established the Corporate Financial Advisory Group for the Americas for Barclays
Capital, and led the group until 2002. Mr. Singh is non-executive chairman of Overland Solutions, Inc. and RedPrairie, lead director of Deltek, Inc., Camber Corporation, Ikaria Holdings, Inc. and Stroz Friedberg LLC and a
director of Avantor Performance Materials and EverBank Financial Corp. |
Christopher E. Watson |
|
Mr. Watson has been a Director of Validus since its formation. He also serves as a senior principal of Aquiline, which he joined in 2006. Mr. Watson has more than 35 years of experience in the financial
services industry. From 1987 to 2004, Mr. Watson served in a variety of executive roles within the property & casualty insurance businesses of Citigroup and its predecessor entities. From 1995 to 2004, Mr. Watson was president and
chief executive officer of Gulf Insurance Group, one of the largest surplus lines insurance companies in the world. Mr. Watson served as a senior executive of AIG from 1974 to 1987. Mr. Watson is also a director of Group Ark Insurance
Holdings Ltd., a Bermuda-based underwriter of insurance and reinsurance risks in the Lloyd's market. |
EXECUTIVE OFFICERS
|
|
|
Name and Current Business Address
|
|
Present Principal Occupation or Employment, Material Positions Held
During the Past Five Years and Business Address Thereof |
| Edward J. Noonan |
|
Mr. Noonan has been Chairman of the Board and the Chief Executive Officer of Validus since its formation. He has 30 years of experience in the insurance and reinsurance industry, serving most recently as the
acting chief executive officer of United America |
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|
|
|
Name and Current Business Address
|
|
Present Principal Occupation or Employment, Material Positions Held
During the Past Five Years and Business Address Thereof |
| |
|
Indemnity Ltd. from February 2005 through October 2005 and as a member of the board of directors from December 2003 to May 2007. Mr. Noonan served as president and chief executive officer of American
Re-Insurance Company from 1997 to 2002, having joined American Re in 1983. Mr. Noonan also served as chairman of Inter-Ocean Reinsurance Holdings of Hamilton, Bermuda from 1997 to 2002. Mr. Noonan is also a director of Central Mutual
Insurance Company and All American Insurance Company, both of which are property and casualty companies based in Ohio. |
Joseph E. (Jeff) Consolino |
|
Mr. Consolino has been President of Validus since November 15, 2010 and Chief Financial Officer of Validus since March 2006. Prior to joining the Validus, Mr. Consolino served as a managing director in
Merrill Lynch's investment banking division. He serves as a Director of National Interstate Corporation, a property and casualty company based in Ohio and of AmWINS Group, Inc., a wholesale insurance broker based in North Carolina. |
C. Jerome Dill |
|
Mr. Dill's principal occupation is executive vice president and general counsel of Validus. Prior to joining Validus, Mr. Dill was a partner with the law firm of Appleby Hunter Bailhache, which he joined in
1986. |
Stuart W. Mercer |
|
Mr. Mercer's principal occupation is executive vice president and chief risk officer of Validus. Mr. Mercer has over 18 years of experience in the financial industry focusing on structured derivatives,
energy finance and reinsurance. Previously, Mr. Mercer was a senior advisor to DTE Energy Trading. |
Julian G. Ross |
|
Ms. Ross's principal occupation is Executive Vice President & Chief Risk Officer of Validus. Previously, Mr. Ross held a number of senior positions within the Risk and Actuarial functions of Talbot.
Most recently, Mr. Ross was Talbot's Chief Risk Officer following twelve years as Talbot's Chief Actuary, from 1997 to 2009. Mr. Ross is a Fellow of the Institute of Actuaries and has over 20 years of actuarial and risk management
experience |
Conan M. Ward |
|
Mr. Ward's principal occupation is executive vice president of Validus and chief executive officer of Validus Re, on of the primary operating subsidiaries of Validus. Mr. Ward served as Executive Vice
President and Chief Underwriting Officer of the Company from January 2006 until July of 2009. Mr. Ward has over 16 years of insurance industry experience. Mr. Ward was executive vice president of the Global Reinsurance division of Axis
Capital Holdings, Ltd. from November 2001 until November 2005, where he oversaw the division's worldwide property catastrophe, property per risk, property pro rata portfolios. He is one of the founders of Axis Specialty, Ltd and was a
member of the Operating Board and Senior Management Committee of Axis Capital. From July 2000 to November 2001, Mr. Ward was a senior vice president at Guy Carpenter & Co. |
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SCHEDULE II
STOCK TRANSACTIONS IN THE PAST 60 DAYS
Other than the acquisition by Validus of 200 shares of Transatlantic common stock from Joseph E. (Jeff) Consolino, Validus'
President & Chief Financial Officer on July 11, 2011 in a privately negotiated transaction at a price of $55.66 per share in exchange for an issuance to Mr. Consolino of 363
Validus common shares (at an issuance price of $30.62 per share), none of Validus or, after due inquiry and to the best of our knowledge and belief, any of the persons identified on Schedule I
(or any of their respective associates or majority-owned subsidiaries) has engaged in any transaction involving shares of Transatlantic common stock in the past 60 days.
S-5
Manually signed facsimile copies of the letter of transmittal will be accepted. The letter of transmittal and certificates for shares of Transatlantic common stock and any other required
documents should be sent to the exchange agent at one of the addresses set forth below:
The exchange agent for the exchange offer is:
|
|
|
| By Mail: |
|
By Overnight Courier or By Hand: |
BNY Mellon Shareowner Services
Attn: Corporate Actions., 27th Floor
P.O. Box 3301
South Hackensack, New Jersey 07606 |
|
BNY Mellon Shareowner Services
Attn: Corporate Actions, 27th Floor
480 Washington Boulevard
Jersey City, New Jersey 07310 |
By Facsimile:
(For Eligible Institutions Only)
(201) 680-4626
Confirm Facsimile Transmission:
(201) 680-4860
Any
questions or requests for assistance may be directed to the information agent or the dealer manager at their respective addresses or telephone numbers set forth below. Additional
copies of this prospectus/offer to exchange, the letter of transmittal and the notice of guaranteed delivery may be obtained from the information agent at its address and telephone numbers set forth
below. Holders of shares of Transatlantic common stock may also contact their broker, dealer, commercial bank or trust company or other nominee for assistance concerning the exchange offer.
The information agent for the exchange offer is:
501 Madison Avenue, 20th Floor
New York, New York 10022
Banks
and Brokerage Firms, Please Call: (212) 750-5833
All
Others Call Toll-Free: at (877) 717-3929
The dealer manager for the exchange offer is:
Greenhill & Co., LLC
300
Park Avenue
New
York, New York 10022
Call
Toll-Free: (888) 504-7336
Until
the expiration time of the exchange offer, or any subsequent offering period, all dealers that effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus/offer to exchange.