By Liz Hoffman
An influential shareholder adviser has criticized the
controversial proposed takeover of a small Ohio insurance company,
further lengthening the deal's odds of getting done.
Institutional Shareholder Services Inc. said in a Wednesday
report that the actions of American Financial Group Inc., which is
seeking to buy the 48% of commercial-truck insurer National
Interstate Corp. it doesn't already own, "raised every red flag in
the semaphore."
While stopping short of telling shareholders whether to sell
their shares or not, ISS said the actions of six National
Interstate directors with ties to American Financial "raise the
question whether they are competent stewards of shareholder
value."
The directors--four current American Financial executives, one
former executive and National Interstate's own CEO--didn't recuse
themselves from deal talks, according to regulatory filings.
Instead, National Interstate's chairman, who is also the finance
chief of American Financial, spearheaded National Interstate's
response and overruled efforts by four independent directors to
form a special committee to evaluate the bid, according to
regulatory filings. Such committees are often used to mitigate
potential conflicts of interest in takeovers by large
stockholders.
ISS said "it is difficult to consider the offer compelling" in
light of flaws in the sales process. Many institutional investors
subscribe to ISS reports and use them to shape their decisions on
mergers. ISS doesn't typically make formal recommendations on
tender offers, which don't require a shareholder vote.
The board said last week it would officially remain neutral on
whether shareholders should accept American Financial's offer,
which expires March 6.
Alan Spachman, National Interstate's founder and now one of its
independent directors, has released his own separate regulatory
filing, detailing what he called a "brazen attempt by a majority
shareholder to force minority shareholders...to sell their shares
at a price that is unfairly low."
Duff & Phelps LLC, retained to evaluate an initial
$28-a-share bid, said the offer was too low, according to National
Interstate's regulatory filings. After seeing Duff & Phelps's
opinion, American Financial's CFO, a National Interstate director,
offered to raise the bid to $30 a share in exchange for the board
remaining neutral on the tender offer, according to regulatory
filings. Duff & Phelps then resigned, Mr. Spachman has
said.
ISS's comments come a day after T. Rowe Price Group Inc.,
National Interstate's largest outside shareholder, said it was
"appalled" by the sales process and wouldn't sell into the
offer.
American Financial, which owns 52% of National Interstate
shares, needs two-thirds of shares outstanding to close the deal,
which values the company at about $590 million. Together, T. Rowe
and Mr. Spachman control about 20%, which means American Financial
needs more than half of the remaining 28% shares to sell into its
offer.
Write to Liz Hoffman at liz.hoffman@wsj.com
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