HCI CEO seeks acquisition targets after $257m FedNat deal fails

Homeowners' re/insurer HCI has proposed to acquire Federated National Holding Company (FedNat) for $257 million which was not accepted by the Federated National board and HCI CEO Paresh Patel is now looking for similar takeover targets.

On Dec. 21, 2017, HCI sent a confidential letter to FedNat exploring a merger between the two companies. In the letter, HCI said that “such a combination would create the premier Florida-based insurance company mutually benefitting the companies, their shareholders and their employees”.

HCI offered as merger consideration one-half share of HCI common stock for each outstanding share of Federated National common stock. If the consideration value at closing was less than $16.50 per Federated common share, then HCI would make up the difference with cash consideration. In summary Federated National shareholders would receive value of at least $16.50 per share, with participation in any appreciation of HCI stock before closing and any upside that results from the merger.

The $16.50 minimum offer represented a 19 percent premium to the 30-day moving average price of Federated’s shares at that time, according to an official document.

However, on January 1, 2018, Patel received a letter from FedNat saying that the “proposal is not in the best interests of the company’s shareholders”.

On April 18, 2018, HCI expressed its continued interest in exploring a merger between HCI and FedNat and that it was prepared to increase the floor price from $16.50 to $18.00 per share. An implied offer price of $19.55 per share would represent a total consideration of $257 million.

But again, on April 30, 2018, HCI received a letter from FedNat saying that the offer was “not in the best interests of Federated National’s shareholders”.

The combined companies would have done fantastic together, Patel said during the insurer's first quarter results conference call. After the FedNat board declined the offer, Patel is now looking for a similar takeover target.

“There are still plenty more fish in the ocean, similar to Fednat and we'll find somebody to do this with,” he said.

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