Flagstone shareholders will get $2.00 in cash as well as 0.1935 shares of Validus for each share of Flagstone.

“We believe this transaction offers a significant premium and immediate value for our shareholders, and provides a more stable capital base with which to underwrite over the long-term,” says David Brown, CEO of Flagstone, in a statement.

Validus lost out on Transatlantic last year when Alleghany Corp. stepped in to buy the company for about $3.4 billion.

Validus had made an unsolicited offer for Transatlantic after it reached a merger agreement with Allied World. That deal also fell apart under pressure from shareholders.

While Validus was in pursuit of Transatlantic, Luxembourg-based Flagstone was announcing a plan to realign its business to focus on lines with the highest return on equity—property, property catastrophe and highest-margin short-tail specialty reinsurance—and would sell its Lloyd's of London and Island Heritage operations.

During a conference call with financial analysts today, Joseph E. Consolino, president and chief financial officer for Validus, says the company faces a number of regulatory approvals including Luxembourg, where Flagstone is based, Bermuda, the United States and a few in other European countries. However, he adds that the companies are not expecting any regulatory issues preventing the merger.

Touching on the integration of the two companies, Noonan says Brown will be stepping down as part of the deal, and that it is anticipated a number of Flagstone's existing offices will be close. While no figure was given, management indicated that job cuts would be coming, and it would be “done quickly so employees know where they stand going forward,” says Noonan. More than 200 Flagstone Re employees could be affected.

Should the acquisition not go through, there is a $24.2 million break-up fee that would be paid to Flagstone. However, management said there were no reasons seen for that to occur.

Validus says after completing the transaction, it will increase its position to become the largest property catastrophe reinsurer with total premiums of more than $1.19 billion. Validus nearest competitor will be Renaissance Re with $1.18 billion in premium.

Rating agency Standard & Poor's creadit analyst Jason Porter says of the deal, ”Upon completion of the transaction, Validus expects to strengthen Flagstone's reserves by $76 million, take $59 million of other charges, and record a $58 million bargain purchase gain.

“It will discontinue Flagstone's noncatastrophe portfolio and migrate the property catastrophe book to, and optimized with, Validus's Bermuda business. The acquisition will boost Validus's capital base by almost $800 million with additional shareholder equity and Flagstones junior subordinated debt. Although Validus could potentially have the largest property catastrophe book in Bermuda, the overall business mix shift will be modest.”