May 23, 2018
Activist investor Carl Icahn has made an appeal to AmTrust’s minority shareholders to vote against a deal to take the company private, criticising the transaction for being an “opportunistic ploy” to squeeze them out.
AmTrust’s founding family and private equity firm, Stone Point Capital are attempting to take the US insurer private in a deal valued at $2.7bn or $13.50 a share.
However, in an open letter to the firm’s board on 17 May, in which Icahn revealed a 9.4 percent holding in the company, he voiced his opposition to the deal, accusing the Karfunkel-Zyskind families of “blatantly taking advantage of AmTrust’s minority shareholders.”
“Going-private transactions are rarely without controversy, but the law is clear: Non-controlling shareholders must be treated fairly, both in terms of process and price,” he said. “The Zyskind/Karfunkel squeeze-out transaction completely fails to satisfy these criteria.”
Icahn said the board created a voting process for the deal that was “stealthily set” without telling shareholders or the market.
Four days later, Icahn filed a lawsuit against AmTrust and the Karfunkel-Zyskind families, alleging that the $13.50 a share offer price “undervalues the Company and is happening at the wrong price and at the wrong time”.
In the complaint, which was filed in the Delaware Chancery Court, he labelled the transaction as “an opportunistic attempt to take control of a company at historic lows, right before a period of expected recovery and possible earnings growth”.
He also accused the company of manipulating the date of record deadline for shareholders at the time to be permitted to vote on the deal, which could result in a shareholder vote that “severely tilts the playing field” to advantage the owners and to the disadvantage of public investors.
Icahn also took aim directly at the Karfunkel-Zyskind family, lambasting them for dealing their public shareholders a “final insult” after what he said had been “many many years” of AmTrust being run for their own benefit.
“Excessive executive compensation and questionable dividend policies, as well as a web of related party transactions involving family-owned reinsurance companies, office towers and discounted private jet usage, has advantaged the families over the public shareholders for far too long,” he said.
He concluded saying that “we are very optimistic that the Delaware courts will not allow the Zyskind/Karfunkel families to continue their heavy-handed domination and control of AmTrust”.
The proxy battle intensified on 23 May when he described the transaction as an “opportunistic ploy” by Karfunkel-Zyskind families take out minority shareholders at an “extremely cheap price ahead of a period of earnings recovery” in a presentation aimed at his fellow minority shareholders filed with the SEC.
He argued the shares were undervalued by investors who had shunned the company over management’s “historical disregard” for public markets.
However, he said despite this dynamic the take-private offer price still represented a significant discount to the company’s true value.
He noted that with “truly independent oversight management would be held accountable and replaced, and we believe the stock would trade much closer to its peer group, resulting in a long-term price from $20 to $35 per share”.
Icahn cited research by Deutsche Bank which suggested that AmTrust should trade at a multiple of 1.8x to 2.2x book value were this the case, which implies a price of between $26.06 and $31.86, while the Stone Point deal represents a multiple of just 0.93x.
“After shoring up almost $1.7bn in capital through a private placement and several divestitures, the company is at an inflection point where the stock is deeply discounted its true value,” he said.
“Seeing this as an opportunity, the controlling family and board decided to pursue strategic alternatives in November 2017. A rushed ‘process’ resulted in the Karfunkel/Zyskind family teaming up with private equity fund Stone Point to make an offer to take the company private.”
This comes after AmTrust released its counter arguments in a 22 May presentation, citing what it said had been a “thorough process” which led to a deal which “delivers the highest value for AmTrust stockholders”.
The company said that the deal represented the “highest price available” following a two month process in which Stone Point had opened with an offer of $12.25 when the stock was trading around $10.15 back in January.
It said that “in addition to providing immediate liquidity at a significant premium, the transaction provides certain value to unaffiliated stockholders and shifts the business risk and uncertainties faced by the company to the buyer group.”
AmTrust has faced significant headwinds since 2015 after public filings were delayed, financial statements were restated, losses increased across several lines of business and AM Best placed the company’s credit rating under review.