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Activist shareholder tries new tactic against Donegal Group

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Disgruntled Donegal Group Inc. stockholder Gregory M. Shepard is trying a different approach in his sparring match with the company's board of directors.

The Bradenton, Fla., resident filed paperwork with the Securities and Exchange Commission to adopt a recapitalization plan at the Lancaster County company that would allow all of the group’s stock to have one vote per share.

Currently, Class A common stock at the company has one-tenth of a vote per share, while Class B common stock has one vote per share. Shepard owns 3,602,900 of the company’s 20,681,588 outstanding shares of Class A stock, and 397,100 of the company’s 5,576,775 outstanding shares of Class B stock, according to the filing.

“By allowing certain stock to have more voting power than other stock, DGI takes our public shareholder money but does not let us have an equal voice in DGI’s management,” he said in the filing. “Without a voice, shareholders cannot hold management accountable.”

Shepard said in the filing that Donegal Mutual, a DGI subsidiary, controls 65 percent of DGI’s voting power despite holding less than a majority of the outstanding stock, allowing Donegal Mutual to shoot down proposals that he said would benefit DGI’s other shareholders. He cited the October dismissal of yet another proposal Shepard made to buy out a majority of the Class B shares not owned by him or Donegal Mutual.

Shepard asked the board of directors to take up the proposal at its 2014 annual shareholders meeting.

It was the latest in a string of offers — always turned down by the Donegal Group — Shepard has made this year to buy more stock in the company and gain more voting control.

The October offer detailed a plan in which Shepard and another mutual property and casualty insurance company would negotiate a price between $33 and $37 for the 957,000-plus Class B shares not owned by Donegal Mutual or Shepard.

DGI’s board of directors unanimously rejected the offer Oct. 17.

Donegal Group is an insurance holding company, with the company’s Class A stock trading on the Nasdaq under the ticker symbols DGICA and DGICB.

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