‘Potential Conflicts of Interest’ Cited : Big Investor in 1st Executive Questions Sale of N.Y. Unit
A major investor in First Executive Corp. expressed concern Wednesday about “potential conflicts of interest” in the Los Angeles-based firm’s recent agreement to sell its New York insurance subsidiary for $460 million.
Rosewood Financial Partners, leader of a Dallas group that controls 9.3% of First Executive, also questioned an “apparent inadequacy” of the price and said it might make a competing bid.
Rosewood, a private investment concern, manages oil heiress Caroline Rose Hunt’s nearly $1-billion fortune. Since last fall, Rosewood has been considered a potential suitor for First Executive, an insurance holding company.
Its questions about the New York sale may foreshadow a lively annual meeting for First Executive on June 30.
In a letter delivered to First Executive’s board, Rosewood said the relationship between First Executive and Medco Containment Services and their chief executives presented the potential conflict of interest.
While the letter did not detail the relationship, public records show that First Executive owns 17% of Medco, whose chief executive is Martin J. Wygod, one the two buyers of New Executive Life Insurance Co. of New York.
Wygod’s partner in the purchase, is Leo M. Walsh Jr., former chief operating officer of Equitable Life Assurance Society of the United States.
Fred Carr, chief executive of the parent First Executive, commented Wednesday that the sale agreement announced May 3 contains a provision that allows for higher bids. He said Rosewood or anyone else is “welcome” to buy the New York firm at a higher price.
May 30 Deadline
Asked about the conflict-of-interest question, Carr said his firm’s Medco holding is a matter of public record. He said the investment in Medco “turned out to be terrific” for First Executive. Asked if he knows Wygod well, Carr replied: “Yes, I do.” He did not comment further on the Rosewood letter.
Rosewood’s letter noted that the New York sale agreement allows First Executive to terminate it if the company’s board fails to approve it by May 30. Rosewood urged the board not to approve the transaction without obtaining a fairness opinion as to the price and other terms, conducting “a full and fair auction” for the property and “investigating fully any possible conflict of interest to make certain that all special relationships are fully disclosed.”
Rosewood said after reviewing the company’s public report to the Securities and Exchange Commission on the sale, it does not believe that the company has disclosed all information needed to understand the proposed transaction. Rosewood asked for additional documentation.
The letter asked a number of specific questions, including whether there were other bidders. In view of the significant amount of financing being provided to the buyers by First Executive, the letter asked if any consideration was given to an all-cash sale.
Rosewood also said it believed that the proposed sale would be an appropriate matter for review by a stockholder committee that would be established under a stockholder’s proposal. It is to be voted on at the June 30 meeting.
First Executive is listed among the top 15 U.S. life insurance firms, with $17.7 billion in assets. It has been the subject of controversy because of its large investment in high-risk “junk” bonds obtained through Drexel Burnham Lambert, which has pleaded guilty to criminal violations of federal securities laws.
