Activist shareholder Gregory Shepard believes he has found a mutually beneficial solution to his long fight with the leadership at Lancaster County-based Donegal Group Inc.
The Florida resident, who has made numerous offers to either increase his company ownership stake or force the board to change leadership, has now said he wants an “amicable” resolution to his fight.
Shepard wrote the company's board of directors and offered a two-pronged solution:
• He would purchase 3,971,000 Class A shares of Donegal Group stock through market purchases, private acquisitions or a tender offer.
• He would sell his 397,100 Class B shares to a third party or to Donegal Mutual Insurance Co. — which already owns 76 percent of Donegal Group Class B stock and, since 2004, has increased its ownership of the Class B shares from 61.5 percent, according to Shepard.
Donegal Mutual is a subsidiary of Donegal Group.
“I believe that this proposed transaction is consistent with Donegal Mutual’s strategy over the years,” he wrote in a filing with the Securities and Exchange Commission.
Class B stock carries voting right of one per share, while Class A votes have only 1/10 of a vote.
Shepard owns 17.54 percent of outstanding shares of Class A stock and 7.12 percent of the outstanding shares of Class B stock. If his latest proposal were to go through, he said, his ownership would increase, but not to more than 10 percent of the combined shares.
If the deal were to go through, Shepard said, he also would want to speak with the company about him or his representatives having a seat on the board of directors of both Donegal Group and Donegal Mutual.
“This proposal would be in the best interests of both (Donegal Group) and Donegal Mutual, their policyholders, and their other constituencies, as it would give Donegal Mutual what it wants — namely, more Class B shares — and it would also give the Class A shareholders what they want, which is liquidity and the opportunity to sell their shares at a premium over the then-prevailing market price,” he wrote in a news release.
Shepard has been locked in a dispute with Donegal since he filed a tender offer in March 2013 to buy more than 962,000 Class B shares at a 42 percent premium. That offer was extended twice but expired in August with Shepard not getting the set minimum of 900,000 shares.
He has come up with other proposals — including an October takeover offer by a larger mutual company — and all have been rejected by the company’s board.
He has been critical of the company’s board and its management, especially Donegal Group President and CEO Donald Nikolaus. In the SEC filing, he recapped all the offers that brought him to this point, and took another pointed shot at the company’s leader.
“... Don Nikolaus doesn’t remotely want to consider giving up running the companies as his fiefdom rather than as a democracy,” he wrote. “An antiquated business plan based upon other mutuals entering into affiliation agreements with Donegal Mutual for no consideration, followed by reorganizations, isn’t benefiting (Donegal Group's) shareholders.”
Donegal Group does not comment on Shepard’s actions unless it is through a news release. The company had filed no release as of Wednesday morning.