First Executive Is Offered Merger Deal : Insurance: The friendly offer from shareholder Rosewood Financial specifies that Chairman and Chief Executive Fred Carr would have to resign and give up his seat on the board.
First Executive Corp.’s second-largest shareholder, Rosewood Financial, made an offer Friday to create a group to buy the life insurance holding company.
Rosewood said it would pay $6 a share in cash for up to half of First Executive’s common stock outstanding, while holders of the rest would get one share of common stock in the post-merger company for each current First Executive share.
But the “friendly” offer, proposed to First Executive’s board, specified that Chairman and Chief Executive Fred Carr would have to resign from the company and give up his seat on the board. Rosewood, which controls nearly 10% of First Executive’s stock, is part of a holding company set up under a trust that benefits oil heiress Caroline Rose Hunt.
The offer follows a spate of bad news from Los Angeles-based First Executive, which has erased more than 60% of the value of the company’s stock since the end of December. Most of the bad news related to the plummeting value of its junk bond holdings, which make up 45% of the company’s invested assets.
On Thursday, First Executive’s board canceled a “standstill agreement” with the company’s largest shareholder, the insurance concern ICH Corp., thus permitting ICH to try to put together a group of investors to make an offer for First Executive. The First Executive action would allow an ICH group to make an all-cash offer by July. But it hasn’t been clear whether ICH will be able to put together an offer, and ICH officials have declined to comment.
The $6-a-share price represents a premium of nearly 50% above what the stock was trading at much of this week. Rosewood said the transaction would be in the form of a merger with a new company that Rosewood would create to acquire First Executive.
The stock market clearly didn’t take the Rosewood offer seriously and seemed pessimistic that a higher offer would emerge. First Executive’s stock ended the day down 12.50 cents, at $3.50 a share, on the over-the-counter market. Trading was exceptionally heavy, however, with 2.9 million First Executive shares changing hands, even though trading in the stock was halted for part of the day. It was the fourth most actively traded OTC stock.
Securities analysts said the offer was unattractive because only half of it was in cash. They noted that the offer also required holders of several issues of First Executive preferred stock to agree to convert their shares into varying amounts of common stock in the new company, something that many undoubtedly will be reluctant to do. Analysts said they expected First Executive’s board to reject the offer as inadequate, and several speculated that both Rosewood and ICH were hoping to smoke out higher bidders in an effort to bolster the value of their own investment in First Executive.
The prospects for a higher offer to emerge remained unclear. Thomas G. Richter, an analyst at the brokerage firm Robinson Humphrey Co. in Atlanta, said a further deterioration in the junk bond market in coming weeks “could make even a $6 price a pie in the sky.”
In a brief written statement, First Executive said its board would consider the Rosewood offer “in due course.” The statement didn’t express any view on the merits of the offer, and First Executive officials declined to discuss it.
ICH, based in Louisville, Ky., holds slightly more than 20% of the company’s stock and therefore would have to approve the offer. First Executive is incorporated in Delaware, and under that state’s law, a minimum of 80% of a company’s shares must be voted in favor of a merger if it is to pass.
Rosewood set a deadline of Feb. 7 for the offer to be approved, after which it would be “automatically withdrawn” if an agreement isn’t reached.
In a letter to First Executive’s board, Mark W. Hobbs, president of Rosewood Financial, referred to the recent events that have driven down the company’s stock price, including word last week that the company would take a $515-million charge against 1989 fourth-quarter earnings to write down part of the decline in the value of its junk bond portfolio. Hobbs stated that Carr must leave the company because “we believe that fundamental changes in the leadership and management of First Executive Corp. are necessary to restore confidence and value.”
Hobbs was not available for comment on Friday. But an outside spokesman for Rosewood said the firm is considering candidates as possible successors to Carr.
State insurance regulators, concerned with protecting policyholders, easily could erect barriers to a merger or takeover proposal. In an apparent effort to make its offer appealing to the California Insurance Department, Rosewood said that if its offer is approved, it will “seek to arrange” financing to provide a $500-million infusion of capital for the company’s largest subsidiary, Executive Life Insurance Co. of California.
It wasn’t clear whether Rosewood would consider a hostile bid if First Executive’s board rejects its offer. The outside spokesman said: “I just wouldn’t want to comment on that.”
However, Ray Dirks, an analyst at the regional brokerage firm Baird, Patrick & Co., noted that a majority of First Executive’s stock is owned by just a few big investors, most of whom would have to approve any bid.
In October, Rosewood had said it wanted to acquire up to 20% of First Executive’s stock. But it was prevented from doing so by terms of the company’s standstill agreement with ICH.
First Executive received additional bad news Friday when A. M. Best Co. lowered its ratings of First Executive and its two main subsidiaries. A. M. Best was the third ratings agency this week to lower its assessment of First Executive’s financial condition. A. M. Best lowered its ratings only a single notch, however, to A (excellent) from A-plus (superior).
