Transatlantic Re’s biggest shareholder said it may oppose the proposed merger with Allied World Assurance (AWAC), citing “serious concerns” about the transaction.

In a regulatory filing, investment advisory firm Davis Selected Advisers, which owns 23.8% of Transatlantic’s stock, also said it may encourage Transatlantic to explore other strategic options to the AWAC merger to maximise shareholder value.

It added that it may have additional conversations with Transatlantic or third parties to achieve this goal.

Davis was not specific about the nature of its concerns in the filing. However, it said its investment strategy is to acquire stakes in what it deems to be undervalued companies on behalf of clients. In certain situations, the company said it engages in discussions with the target company’s management or third parties about possible ways to grow intrinsic value or allow the company to reach its true economic value.

This suggests Davis may be concerned about the value ascribed to Transatlantic in the proposed merger.

Under the deal, Transatlantic shareholders will receive 0.88 AWAC shares for each Transatlantic share they hold. A research note from stockbroker Keefe, Bruyette & Woods (KBW) said the deal equates to $51.10 per Transatlantic share, a 16.1% premium to its closing price on 10 June. However, it added that the amount is 0.79 times Transatlantic’s Q1 2011 book value per share.

“While the discount to book value may be somewhat disappointing, we would stress that the shares have traded at a steep discount to book for a prolonged period,” the KBW research note said.