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Activist shareholder withdraws tender offer for Donegal Group, then extends new one

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The Florida investor who announced Thursday he would not extend a deadline to buy almost a million Class B shares of Donegal Group Inc. changed course Friday in a new attempt to obtain the stock.

According to an SEC filing Friday, Gregory M. Shepard delivered a letter to Lancaster County-based Donegal Group Inc. on Friday offering to buy 3,300,000 Class B Shares for $22 a share.

Originally, he had made a tender offer to buy 962,636 Class B shares at $30 per share. He said he is reducing the price because Donegal Group President Donald H. Nikolaus “apparently believes I am overpaying for the Class B shares at $30 per share.”

In his letter, Shepard states that, upon successful acquisition of these Class B shares, he would own 53.5 percent of the total voting power of Donegal Group’s equity and 28.5 percent of the total stock.

The SEC filing states that when Shepard sent notifications Thursday to six insurance departments in states in which Donegal does business, the notifications did not withdraw any offer but instead amended it. The notifications asked to delete references to the tender offer and instead approve in the open market or through private transactions the purchase of the Class B shares.

Shepard has been openly critical of the group’s management and had been pushing for it to be sold or merged into another company. Donegal has sent letters to its stockholders, the last on May 31, asking them not to sell their shares to Shepard, calling his offer “illusory.”

“Again, I ask the DGI and Donegal Mutual Boards of Directors to do their fiduciary duty, and not let DGI and Donegal Mutual continue as a Nikolaus family fiefdom,” Shepard wrote in his Friday letter to Donegal.

Jeffrey D. Miller, senior vice president and CFO at Donegal Group, said the company’s comments on the proposal are limited to SEC filings and news releases. As of Friday morning, the company had issued no release on the new proposal.

On Thursday, Shepard said he would not extend the deadline for a fourth time for Donegal shareholders to sell Class B shares to him through a tender offer.

The offer was contingent on his receiving 925,000 shares. As of the most recent July 31 deadline, he had been tendered only 394,215 shares, he said, with about another 2,000 submitted by guaranteed delivery.

That was up from the 383,540 he had by May 20 but still far from the minimum.

Donegal Group is a downstream holding company formed by Donegal Mutual Insurance Co.


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