Buffett unit offers $3.2 billion for Transatlantic (Reuters)

NEW YORK (Reuters) – A unit of Warren Buffett's Berkshire Hathaway Inc made a $3.24 billion buyout offer for Transatlantic Holdings Inc, topping two existing rival bids for the reinsurer.

Transatlantic's board said on Sunday it would "carefully consider and evaluate" the $52-per-share offer by Berkshire unit National Indemnity Co.

Berkshire has given the reinsurer time until the close of business on Monday, August 8, to make a formal response to the offer.

The news came just days after Berkshire reported a larger second-quarter profit. On Friday, one analyst said the conglomerate had to find ways to start spending its $47.89 billion cash pile in order to grow.

Buffett, often called the "Oracle of Omaha," has talked about his desire to make more insurance acquisitions if he could find strong companies with competitive advantages.

"It would appear that given depressed markets they see an opportunity here," said Michael Yoshikami, president of YCMNET Advisers, a California wealth manager and Berkshire shareholder.

"Given the short time frame, Transatlantic has been given to respond, they are looking to press this on a short time frame; I don't sense a bidding war here," Yoshikami said.

Buffett's bid tops two rival offers already put before Transatlantic.

Transatlantic has an agreement to be bought by Allied World Assurance Company Holdings Ltd in a deal currently worth $44.22 per share, or $2.75 billion.

Validus Holdings Ltd, meanwhile, has launched a hostile bid for Transatlantic, with a proposal currently worth $46.36 per share, or $2.89 billion.

Buffett's bid values Transatlantic's shares at $52 apiece, a 15 percent premium to Friday's closing price of $45.24 on the New York Stock Exchange.

On Sunday, Transatlantic's board backed its recommendation of the agreement with Allied World and advised shareholders to await the board's decision regarding the Buffett proposal before taking any action.

Goldman, Sachs & Co and Moelis & Co LLC are acting as financial advisers and Gibson, Dunn & Crutcher LLP is acting as legal counsel to Transatlantic.

THE FIGHT IS ON

Allied World and Validus have been canvassing shareholders to drum up support for their proposals.

Allied World has been making the case that its deal with Transatlantic would save money and create a company with a better risk profile, two sources told Reuters last month.

It says Transatlantic shareholders also would get a specialty insurance business with their plan, while the company would double down on reinsurance in the rival offer.

Validus has argued that its offer was still worth more than Allied World's, a third source told Reuters in July.

It was also raising questions about the industrial logic of the rival deal, arguing that Allied World's specialty insurance business competes with many reinsurance clients of Transatlantic, according to the source.

Validus is digging in for a long battle, as it did two years ago when it won a months-long bidding war for Bermuda reinsurance rival IPC, the source said.

(Reporting by Dhanya Skariachan, Paritosh Bansal, Ben Berkowitz and Tom Hals; Editing by Maureen Bavdek and Gunna Dickson)

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Debt deal offers only small blessings for economy (Reuters)

WASHINGTON (Reuters) – The tentative deal to avoid a crushing debt default is at best a mild relief for the U.S. economy that nearly stalled in the first half of the year and has yet to show signs of any realistic pickup.

The plan for $2.4 trillion in spending cuts over a decade, if backed by lawmakers, would help lift some of the uncertainty that has weighed on investors, businesses and consumers unsettled by talk about a possible new and deep U.S. financial meltdown.

Still, it does not decisively remove the threat that the nation's AAA credit rating could be downgraded, an action that would raise borrowing costs across the board, and the prospect of further cuts ahead will cut short any celebrating.

"This will have minimal impact on the economy. The cuts are not there for the first couple of years, which really makes you wonder if they're really going to happen at all," said Peter Morici, an economics professor at the University of Maryland.

The prospect of spending cuts is the last thing the U.S. economy needs right now, many commentators say.

Economists were stunned on Friday when data showed the U.S. economy grew just 0.4 percent in the first three months of this year -- perilously close to contraction -- and picked up unimpressively to 1.3 percent in the second quarter.

Against the backdrop of the weak economic recovery, the divided political parties in Congress appear to have agreed on one thing early on in their dispute over how to raise the U.S. debt ceiling: that spending cuts to narrow the deficit should be phased in slowly. They will be phased in from 2013.

President Barack Obama told reporters on Sunday that the initial discretionary cuts, expected to be about $917 billion, "wouldn't happen so abruptly that they'd be a drag on a fragile economy." He added that "job-creating" investments in education and research would be preserved.

But the bulk of the austerity has yet to be defined.

About $1.5 trillion of the planned savings will be decided by a bipartisan congressional commission, leaving unanswered the question as to whether the United States has the political will to tame the country's growing debt pile once and for all.

Troy Davig, U.S. economist at Barclays Capital, estimated that the deal would only cut $25-30 billion from government spending in the first year, which could shave about a tenth of a percentage point off economic growth.

"It's not a major drag on growth but when the economy is only growing a point and a half, a lot of economists feel that this is not the right time to be finding fiscal restraint. We will be shifting from massive stimulus to massive restraint."

Steeper and faster spending cuts could have dealt a knockout blow to an economy reeling from high fuel prices, bad weather, Japan's earthquake and a depressed housing market, plus a labor market that shows few signs of recovery.

LITTLE SCOPE FOR STIMULUS

Proposals discussed just a week ago included possible new fiscal stimulus measures, such as extending payroll tax cuts for employees and offering them to employers as well.

There appeared to be no room for them in Sunday's preliminary deal which is expected to be voted on in the Senate on Monday and sent to the House of Representatives for approval. The bipartisan panel, which must draft more cuts by November, could revisit the issue.

There could be some relief among U.S. employers and consumers that taxes won't rise under the new, hard-fought deal and that the worst-case scenario has been avoided.

The talks have been punctuated by warnings from the Obama administration that financial chaos would ensue if the $14.3 trillion federal borrowing limit is not raised by Tuesday.

That angst has added to a pile of worries slowing consumer spending decisions such as car purchases, according to Detroit executives. Existing home sales in June fell sharply due a big jump in canceled sales contracts.

Obama, too, said he has been concerned about the debt limit battle's impact on consumer and business confidence. He said he hoped Sunday's deal "will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy."

Any relief, however, is likely to be short-lived. U.S. jobs data on Friday will probably prove another reminder of the weak U.S. economy. Unemployment is expected to remain at 9.2 percent, according to a Reuters poll.

The budget deal "does nothing to restore household and corporate confidence," said Mohammed El-Erian, chief executive of bond fund investment giant PIMCO.

"So unemployment will be higher than it would have been otherwise, growth will be lower than it would be otherwise, and inequality will be worse than it would be otherwise," El-Erian told ABC's This Week with Christiane Amanpour.

Just as Washington's political leaders have run out of money to throw at the U.S. economy, the Federal Reserve looks lacking in ammunition too.

The U.S. central bank waged an massive experiment in monetary policy over the last few years to prevent the 2007-2009 recession from spiraling into a depression, slashing interest rates to zero and pumping $2.3 trillion into the ailing economy by buying debt,

The Federal Reserve is not expected to rush in to make up for the loss of any stimulus to boost growth.

Atlanta Federal Reserve President Dennis Lockhart said on Friday there would be a "very high bar" for more stimulus.

At least the deal taking shape in Washington would push the scary prospect of a U.S. debt default out until after the 2012 presidential election. But investors worldwide will still worry about the ability of the United States to avoid future downgrades of its debt, a move that would probably push up borrowing costs and act as yet another drag on the economy.

"Talk about kicking the can down the road, this is probably the biggest can that's ever been kicked -- appointing another commission to do the heavy lifting another day," Yale University economist Stephen Roach told Reuters Insider.

(Reporting by David Lawder; Editing by Anthony Boadle)

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