On
August 27, 2010, we recommended that investors consider the purchase of Transatlantic Holdings (TRH). In our assessment of TRH, we felt that the stock had a good chance of rising to $67 within 3 years. On the extreme end of overvaluation, we felt that Transatlantic Holdings (TRH) could be worth between $84 and $162. In the same article we said the following:
“…our investment strategy requires that if we get a 10% gain in less than a year in a tax-deferred account then we’re considering the next best investment alternative.”
Our aversion to excessive gains had paid off. On
November 2, 2010 we recommended that holders of Transatlantic Holdings (TRH) sell their shares with a gain of 10.78% in approximately 68 days. As demonstrated in the chart below, such a recommendation came within two days of the high for the last year. After our recommendation to sell, TRH fell from $53.52 to $44.00 in the following 7 months.
Now, Transatlantic Holdings (TRH) is in the cross hairs of Allied World Holdings (AWH). With TRH selling comfortably below book value and AWH’s takeover offer also coming in below book value there is serious opportunity for TRH to move considerably higher. TRH sports a book value that is estimated between $66 and $79 per share depending on the source you chose. With the battle for the company that is expected to come over TRH, we can expect that if a merger or takeover does occur it should start at the $66 level which is in stark contrast to Allied World Holdings' offer of $51.50.
As soon as the deal was announced, Transatlantic’s largest shareholder, Davis Selected Advisors LP, indicated that they might oppose the deal because they believe that the $51.50 offer is too low (
Bloomberg article here). Not far behind Davis Advisors, Tweedy Browne Co. has said that they’re also against a merger that prices TRH below book value (
Bloomberg article here).
Our most recent Dividend Watch List (
June 12, 2011) made specific reference to Transatlantic Holdings as a potential investment opportunity. We believe that as the market goes through its corrective phase, purchases of TRH, a company that has increased the dividend for over 20 years in a row, would be reasonably rewarded.
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