US Facilities Investors Expected to Back Firm’s Sale : Insurance: Biggest shareholder decides to support proposals by hostile suitor Fidelity National in vote today.
The fighting words that have spewed forth in news releases and letters to shareholders of US Facilities Corp. during a monthlong hostile takeover bid should end today, with investors expected to back a proposal to put the company up for sale.
The biggest shareholder, money manager SC Fundamental Inc. in New York, decided Tuesday to throw its 9.8% stake behind two proposals sponsored by hostile suitor Fidelity National Financial Inc. in Irvine, which owns 9.6%.
Fidelity, the nation’s fifth-largest title insurer, is asking shareholders of US Facilities to vote at the annual meeting today to put the company on the market to the highest bidder and to put two Fidelity nominees on the Costa Mesa insurance company’s board.
While the vote appears to be going Fidelity’s way on the sale issue, it is a much closer call on whether Fidelity’s candidates will be elected as directors, according to large shareholders and sources keeping track of shareholder votes so far.
Fidelity has offered $79 million for the company, though a sale to Fidelity at that price isn’t before the shareholders yet. The bidder’s hope is that consistent earnings of US Facilities will help to level out the cyclical nature of its real estate-related business.
“We would win the shareholder vote if SC Fundamental votes with us,” William P. Foley II, Fidelity’s chairman, said in a brief interview Tuesday.
Fidelity is believed to have about 2.4 million shares, or about 41% of the shares outstanding, committed to its sale proposal. Management is believed to have about 1.7 million shares committed to its effort to derail Fidelity’s march toward a takeover.
Those among the 2,850 shareholders who have signed over proxies--the right to vote their shares--still can revoke them and turn the votes over to the other side or appear in person to vote their shares. But only the shares present at the meeting can vote, and as much as 25% of the shares may not be voted.
The decision by SC Fundamental to give its proxy to Fidelity was a blow to US Facilities’ management.
SC Fundamental is voting to put Fidelity’s two nominees on the board to “ensure” that US Facilities will act in the best interests of its shareholders, partner Gary N. Siegler said. Of Fidelity, he said, “We think that their offer is serious.”
Foley charges that George Kadonada, US Facilities’ chairman, is simply trying to save his job by urging a vote against Fidelity’s proposals. Kadonada denies it, contending that Fidelity hasn’t made a firm offer.
Kadonada, who has urged slow going but refused to delay the annual meeting for any negotiations, would not comment Tuesday.
US Facilities has a basic value of about $11 a share, according to major stockholders. But they think the firm’s potential growth could send the sale price as high as $20 a share. Fidelity is offering $15 a share, still above the $13 to $13.75 closing stock prices of the past month.
The stock closed Tuesday at $13.50 a share, up 43.75 cents, in Nasdaq trading.
After only one meeting between Foley and Kadonada early this year, Fidelity caught the Costa Mesa firm off guard April 26 with a strongly worded proposal to buy the company. If directors didn’t act by the end of that week, Foley said in a long letter, Fidelity would begin to solicit votes from shareholders.
“That was a surprise to me,” Kadonada said in an interview earlier this month. Directors of US Facilities met that Friday but delayed any action until mid-May, opening the door to Fidelity’s effort to win over shareholders.
In the opening salvo May 3, Foley wrote to shareholders that turning down Fidelity’s bid would leave them with “an under-performing company and an under-performing stock” that reflect “chronically lackluster performance.”
Kadonada lashed back in a letter that questioned the credibility of the proposal, which technically had expired, and the financial ability of Fidelity to pay for the acquisition.
“Make no mistake,” he wrote, “Mr. Foley’s sole motivation is to exploit your company to advance his own interests and those of other Fidelity National shareholders.”
Foley responded by saying his company had “reiterated” the offer and pointed out that it had picked up $104 million in a recent public debt offering to pay for the purchase. He said the slow procedures set up by Kadonada to review the offer were a “sham” designed to create a temporary illusion that US Facilities directors were truly evaluating the proposal.
In the past two weeks, the rhetoric intensified as news releases and letters sometimes came out twice a day.
Late Friday, a research firm that advises large institutional companies involved in proxy fights recommended that shareholders support Fidelity’s sale proposal and its director nominees.
Institutional Shareholder Services in Bethesda, Md., also charged that Kadonada had misled shareholders about Fidelity’s actions by grabbing at straws to discredit the effort.
US Facilities responded by saying that Fidelity was “on a fishing expedition” and had made no firm offer to buy the company.
Major shareholders, though, appear to be backing Fidelity, at least on the sale proposal. And they think that a vote to put the company on the market is essentially a vote to sell it to Fidelity if the price is right.
“If Fidelity loses, the stock price will go down,” said one money manager who controls about 2% of the stock. “I don’t understand (US Facilities’) case.”
Some shareholders say Kadonada has made some mistakes that have cost them money. Among those are the acquisition of a company that reviews medical bills and the move to increase business in the risky property and casualty insurance area when the company had been doing so well selling less risky medical stop-loss coverage.
“US Facilities is a well positioned company with a lot of potential,” said Michael Halpern of Dorchester Advisors in Los Angeles, which controls about 1% of the stock. “Only some of the potential is reflected in their recent income statements.”
He wants the company to be sold to the highest bidder, and he thinks it could fetch as much as $20 a share.
A number of shareholders are splitting their votes, favoring the sale proposal but backing management’s director candidates. Siegler at SC Fundamental thinks that’s unwise.
“While we don’t have reason to believe that (the company’s slate) won’t act in the best interests of shareholders,” he said, “voting for Fidelity’s resolutions will ensure that that process ensues.”
