(Updates with claim in complaint in second paragraph.)
Nov. 18 (Bloomberg) -- Transatlantic Holdings Inc., the target of a hostile takeover bid by Validus Holdings Ltd., sued Validus claiming an effort to replace its board members violates the law.
Validus said Nov. 3 that it would try to replace the board with three independent directors after Transatlantic didn’t accept its increased cash-and-stock bid of as much as $3.46 billion. Such a move violates Delaware law and the company’s charter, lawyers for Transatlantic said today in a complaint in Delaware Chancery Court.
Validus’s actions, if not stopped by a judge, “will cause severe disruptions to Transatlantic’s business by creating great uncertainty over the size and composition of Transatlantic’s board,” the company said in the complaint.
Validus wants Transatlantic shareholders to vote on several proposals including amending the bylaws to allow stockholders to set the size of the board, removing each of Transatlantic’s seven incumbent directors and electing the three nominees put forth by Validus.
“We believe that this lawsuit is yet another attempt by Transatlantic to frustrate the ability of its stockholders to accept Validus’s compelling offer,” Stan Neve, a spokesman for Validus, said today in a phone interview.
The proposal followed a lawsuit filed by Validus in August in the same Delaware court seeking to force merger talks with Transatlantic.
Transatlantic’s charter provides that only the company’s board of directors, not the shareholders, may set the number of directors to serve on the board, the company said in the complaint. Delaware law also prohibits bylaws that are “inconsistent with law or with the certificate of incorporation,” according to the complaint.
Transatlantic shareholders are now considering Validus’s proposals and are “at risk for greater confusion” if they vote on proposals that if approved would result in the election of directors incapable of taking action, according to the complaint.
Transatlantic is seeking a court order declaring the proposals invalid and void under Delaware law.
The acquisition would allow Validus to become the world’s sixth-largest reinsurer, the company said in July. New York- based Transatlantic has spurned an offer from Warren Buffett’s Berkshire Hathaway Inc. and terminated an earlier deal to merge with Allied World Assurance Company Holdings AG.
With operations on six continents, Transatlantic sells reinsurance, or coverage for primary carriers to protect against the costliest property and casualty claims. The reinsurer was previously majority owned by bailed-out insurer American International Group Inc., which sold its stake in public offerings in 2009 and 2010.
The case is Transatlantic Holdings Inc. v. Validus Holdings Ltd., CA7054, Delaware Chancery Court (Wilmington).
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