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Gregory Shepard drops Donegal stock bid, bashes company's board

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Donegal Group Inc. activist shareholder Gregory Shepard, who has been trying to increase his stock ownership in the company for almost a year, said he has dropped his applications to buy more stock.

But he promised he isn’t going away, calling Donegal’s board of directors “one of the worst” in corporate America.

Shepard announced Monday he has withdrawn his Form A applications filed with insurance departments in six different states that sought approval to buy enough stock to raise his Donegal voting power from 9.9 percent to 22.7 percent, according to a Securities and Exchange Commission filing from December.

Shepard, who has been consistently critical of the leadership on Donegal’s board of directors, said even though he’s dropping his bid to increase his stock ownership and voting power, this doesn’t mean he’s done trying to bring change to Donegal’s corporate structure.

“I will continue to fight for shareholder value and to call out, in my opinion, the egregious compensation and stock option grants, and overall lack of performance of Don Nikolaus, Donegal’s CEO and chairman,” he said in a news release.

In March 2013, Shepard made his first attempt to buy more company stock, revised his offer in May, then again in December. In between those times, he made a number of offers that would have increased his ownership stake, with each one of them being roundly rejected by Donegal Group’s board.

In his filings, he has often criticized Nikolaus for mismanagement. In Monday’s release, he cited a loss of Donegal Class A stock value of more than 21 percent since 2007 as an example. Shepard also cited a December SEC filing showing Nikolaus was given 175,000 shares of company Class A stock at the end of 2013, “apparently as his reward for Donegal’s miserable stock price performance,” according to the release.

However, from Dec. 31, 2012, to Dec. 23, 2013, when the company made the stock award, the Class A stock value increased 13.8 percent, according to historical prices on Yahoo Finance.

“My intent now is to hold discussions with property and casualty mutual insurance companies, professional activists, hedge funds, and others to determine ways to persuade Nikolaus’ cronies on the Donegal board of directors to do the right thing and maximize value for the shareholders, not just for Don Nikolaus and other insiders,” Shepard said. “In my opinion, Donegal’s board of directors has failed miserably to meet its fiduciary duties. ... I intend to hold them to account.”

Jeffrey D. Miller, senior vice president and chief financial officer for Donegal Insurance Group, said the company limits “comments regarding this matter to our news releases and SEC filings.” As of Tuesday, the company had not made any comments on Shepard’s decision.

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