Reinsurer Validus Holdings Ltd on Sunday urged target Transatlantic Holdings Inc to enter into discussions over its proposed takeover and said its offer is superior to one from Allied World Assurance Co .

Validus offered to buy Transatlantic earlier in July in a cash-and-stock deal worth about $3.5 billion at the time, trumping an all-stock bid by Allied World. While both bids are at a discount to Transatlantic's stock price, the Validus discount is smaller.

At one point, Transatlantic said Validus's offer could lead to a superior proposal, but the sides were unable to come to terms on a confidentiality agreement and Validus took its offer to shareholders.

Ultimately there will be a vote on the Allied World deal and it seems pretty clear at this point that the Transatlantic shareholders - at least in my view - are going to vote that down, Validus chairman and chief executive Ed Noonan told Reuters.

The Transatlantic shareholders don't like the idea that the board is throwing up obstacles.

Transatlantic was not immediately available for comment.

Validus said on Sunday it delivered a letter to Transatlantic's board to reiterate the superiority of its proposal.

MONDAY CONFERENCE CALL

It urged Transatlantic's directors to enter into discussions with Validus and said it would hold a conference call for stockholders and directors on Monday.

We feel very good with the feedback we've got from Transatlantic's major shareholders, said Noonan. There's a general view that: 'The company is being sold, there was never a sales process, why wouldn't we want to talk to Validus if they have a superior offer.'

Transatlantic said last week that it had sued Validus in federal court in Delaware, alleging that it made false and misleading statements to shareholders.

Validus at the time called the lawsuit meritless, saying the action was expected and that it would pursue its tender offer.

Validus offered 1.5564 shares and a special dividend of $8 in cash for every Transatlantic share. Allied World offered 0.88 share of Allied World for each Transatlantic share.

Transatlantic's shares closed at $51.21 on Friday, Validus ended at $26.59 and Allied World finished at $54.45.

At those prices, Validus' offer is about $3.1 billion and Allied World's is roughly $3 billion, according to Reuters calculations.

Noonan said Validus' deal was at a higher price to Allied World's and would also be a non-taxable transaction with the exception of the $8 a share dividend.

The bigger picture is that... merging with Transatlantic would create one of the dominant reinsurers in the world, said Noonan. We're a leader in the catastrophe business, in the energy reinsurance business, in the terrorism reinsurance business. The scale that the combined company would have in that business would be considerable. (Editing by Dale Hudson and Muralikumar Anantharaman)