With a Dec. 3 shareholder vote approaching on the sale of The Fortegra Group Inc., three proxy advisory firms offered differing views on the deal.
South Korea-based DB Insurance Co. Ltd. agreed in September to buy the Jacksonville-based specialty insurance firm for $1.65 billion from majority owner Tiptree Inc.
Fortegra is the largest holding of publicly traded investment firm Tiptree, which acquired Fortegra in 2014 and continues to own 78.9% of the company.
Veradace Partners L.P., which holds 5.1% of Tiptree’s stock, is urging stockholders to vote against the deal at the special shareholders meeting and in a Nov. 24 news release, it touted two reports from proxy advisory firms recommending a no vote.
“The recommendations from Glass Lewis and Egan-Jones make clear that the Board’s process has failed Tiptree shareholders and that the proposed sale would destroy long-term value,” Veradace said in the release.
However, Institutional Shareholder Services recommends stockholders vote yes.
“We are pleased that ISS recognizes the compelling value of the Fortegra transaction for our stockholders,” Tiptree Executive Chairman Michael Barnes said in a Nov. 24 news release.
Glass Lewis’ report on the transaction noted that market reaction to the agreement was “sharply negative.”
“Tiptree’s share price declined immediately following the deal and has remained well below pre-announcement levels, indicating investor skepticism regarding the transaction’s merits,” it said.
Tiptree has said it will seek new investment opportunities after completing the sale of Fortegra but it has not specified any potential deals.
“While we do not question the diligence or intent of the board and management, we believe the lack of a more concrete post-transaction strategy limits shareholders’ ability to assess whether this transaction will translate into long-term value creation,” Glass Lewis said.
“Taking these considerations into account, and acknowledging investor concerns about the absence of a direct or near-term path to value realization, we are not persuaded that the transaction, as currently structured, is aligned with the best interests of unaffiliated shareholders,” it said in recommending Tiptree shareholders vote against the deal.
According to Veradace, Egan-Jones said “given Tiptree’s strong financial performance and the central role Fortegra has played in driving growth, the decision to sell Fortegra is striking. In this scenario, divesting a high-performing asset raises questions about the strategic direction of the Company.”
ISS said Tiptree’s “thorough and competitive” process for reaching the sale agreement is a reason for shareholders to support it.
“There is insufficient evidence to conclude that the transaction itself is not aligned with the best interests of shareholders, considering the strategic rationale for pursuing a transaction at this point, the risks inherent in pursuing alternatives, and the thorough sale process,” ISS said.
“Moreover, the market may have reacted negatively to the deal, but the leadership team has a positive long term track record. As such, support for the transaction is warranted,” it said.
Veradace faces an uphill battle to gain support for opposing the deal at the Dec. 3 meeting, Tiptree has commitments from shareholders holding 37% of the stock to vote in favor, including Barnes, the largest shareholder with 27% of the stock.
Regardless of the impact on Tiptree shareholders, Glass Lewis said the deal will be good for Fortegra, which will continue to operate independently as part of DB’s specialty insurance business.
“DB Insurance, a well-capitalized strategic buyer, brings significant scale and an established global insurance platform, suggesting that the business will continue to operate under a stable long-term owner with the capacity to support future growth,” Glass Lewis said.