AmTrust go-private deal gets support from Glass Lewis

Independent proxy advisory firm Glass Lewis has recommended that AmTrust Financial Services stockholders vote “FOR" the company's merger agreement at the special meeting of stockholders on June 4, 2018, according to a May 25 AmTrust statement.

Stone Point Capital, the Karfunkel Family, and AmTrust CEO Barry Zyskind are in the process of acquiring AmTrust equity for $13.50 per share in a transaction valued at approximately $2.7 billion with a view of taking AmTrust private. Evergreen Parent, an entity formed by private equity funds managed by Stone Point Capital will acquire the approximately 45 percent of the company's issued and outstanding common shares that the Karfunkel-Zyskind family and certain of its affiliates and related parties do not presently own or control.

Activist investor Icahn has filed a lawsuit against AmTrust and the family that controls the company, accusing them of trying to take the insurer private at the wrong time and at the wrong price. Icahn reportedly argued that the going-private deal unfairly benefits the controlling Karfunkel family at the expense of public stockholders.

Icahn says that the deal to take AmTrust private is an “opportunistic ploy to take out the minority shareholders at an extremely cheap price ahead of a period of earnings recovery”.

Icahn is therefore seeking support among shareholders to vote against the going private transaction at the “rock bottom price of $13.50 per share” at the squeeze-out shareholder meeting scheduled for June 4, 2018.

Glass Lewis acknowledged that the value achieved in the going-private transaction represents the highest and most certain value available for public stockholders its May 24, 2018 report, according to AmTrust.

"Given the rigor of these negotiations and the need to offer Stone Point concessions to accept the deal at $13.50 per share, as well as the absence of any increased offer since Icahn's public involvement in the stock, it does not appear likely that the special committee could extract a higher price," AmTrust quotes the report as saying.

"The purchase price falls above or within the valuation ranges derived in the advisor's comparable companies, precedent transactions and dividend discount analyses. The exit price also represents what is, in our view, an attractive premium to the unaffected trading price of AmTrust shares and falls well above the average closing share price over the one-month and three-month periods trailing announcement of the initial offer."

Taking into consideration a Deutsche Bank valuation of AmTrust Financial Services, the insurer’s shares should be worth between $26.06 and $31.86, and not the $13.50 that is being offered to take the company private, billionaire investor Carl Icahn argued in a May 23 presentation.

But the Glass Lewis report highlights the continued business risk facing the company and the transfer of these risks to the buyer group as a result of this transaction, according to AmTrust.

"As it stands, we do not believe Icahn has proposed a clear or credible plan to achieve the valuation range indicated in its presentation to shareholders and we note that this valuation reflects the long-term view of the company's potential without discounting for the risks and uncertainties associated with achieving that potential," AmTrust quotes the report.

"On the other hand, the special committee case projections also do not capture the potential downside associated with a possible ratings downgrade. We see that the proposed consideration falls well above the fair value range derived in a version of the dividend discount analysis prepared by the advisor for reference purposes only that utilizes a downside case prepared by management that is intended to reflect the negative consequences of a ratings downgrade to the company's insurance business ($5.19 to $7.10)."

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.

The firm, which specializes in coverage for small businesses, reported a net loss of $348.9 million for  2017 after a net profit of $430.4 million in 2016.

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