AmTrust worth more than double the offer price, says Icahn

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.

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.

But 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.

In the presentation, 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”.

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.

The stock price dropped from a high of $35.54 in 2015 to a low of $8.80 in the fourth quarter of 2017, according to the presentation. After shoring up almost $1.7 billion in capital through a private placement and several divestitures, Icahn argues that AmTrust is now at an inflection point where the stock is deeply discounted to its true value. A number of negative developments came to light over the 12 months preceding the offer, putting heavy pressure on the stock, he says.

But despite these recent challenges, AmTrust has historically led the industry in loss ratio, combined ratio and premium growth, Icahn notes. The activist investor believes that the current low valuation is due to the fact that investors haven’t wanted to own the company believing that a transaction like the proposed going private could occur, particularly given the “historical disregard the Karfunkel/Zyskind’s have demonstrated toward public shareholders”.

Icahn believes that with “truly independent board oversight management would be held accountable and replaced,” and the stock would trade much closer to its peer group resulting in a long-term price between $20 to $35 per share.

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.

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