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Protective Life deal could be challenged

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It seems that no big insurance company deal goes without challenge these days.  Case in point: As soon as news broke this week that the large Tokyo-based Dai-ichi Life Insurance Company, Ltd., had agreed to buy Birmingham, Ala.-based Protective Life Corp. for roughly $5.7 billion, class action law firms in the United States got busy.

For example, the big class action firm of Pomerantz LLP, headquartered in New York, announced it is investigating claims on behalf of investors of Protective Life concerning whether the company’s board directors is breaching its fiduciary duties. This area of inquiry has to do with failure “to adequately shop the Company and maximize shareholder value,” the firm said in a statement.

Under the merger agreement, each share of Protective will be exchanged for $70 in cash, Pomerantz noted. “However, the Price to Revenue, EBIT, and Total Assets multiples are below comparable transactions’ averages.”

Boutique class action firms announced they are launching investigations too, each for slightly different reasons.

Andrews & Springer LLC, a firm from Wilmington, Del., said it is investigating potential breach of fiduciary claims against Protective’s board for “failure to maximize shareholder value.” The investigation so far “has revealed highly suspicious trading activity” the day before the merger announcement on June 2, the firm said in a statement, noting that more than 5.8 million Protective shares were traded that day. In addition, the firm said that “while the Company touts that the merger reflects a 34% premium to Protective Life’s closing price as of May 30, 2014, the $70.00 per share price only represents a 19.6% premium to Protective Life’s closing price on June 2nd.”

Another class action law firm — Kahn Swick & Foti, LLC of New Orleans — said it is looking into whether the $70 per share consideration and the process that led to it are “adequate,” or whether the consideration “undervalues the Company.”

Brodsky & Smith, LLC, a Bala Cynwd, Pa., litigation law firm with a national class action practice, said it is investigating “possible breaches of fiduciary duty and other violations of state law” by Protective’s board. “The transaction may undervalue Protective and appears to be an attempt to take advantage of the discounted valuations in the life sector,” firm added.

That these four class action law firms announced their “investigations” on the very same day could be coincidental; if so, it’s a coincidence with significance. Clearly, the firms are chomping at the bit, and making obvious overtures for possible legal tussles.

The fact that the deal involves two big companies no doubt plays a role in this. Dai-ichi is one of the top 20 global life insurers, and once combined, the company will be the 13th largest global insurer, with total assets of $424 billion, said Protective (which by the way had $68.8 billion in assets at year-end 2013). Think deep pockets, global implications, many headlines.

All insurance mergers and acquisitions are open to challenge, of course. They are subject to shareholder and regulatory approval, for instance, and outsiders might push back, too.

But in this case, the circling of the class action crowd takes the deal-making deep into the Land of the Uncertainty. That will make it difficult for certain customers, employees, business partners, vendors and others with vested interests (including investors) to make forward financial commitments. This is when it really pays to have an exit clause.

Amazingly, the transaction will include a pre-vote “market check,” according to Protective. That essentially enables other bidders to jump in. The merger agreement even says the company can solicit competing proposals and that, if Protective accepts a competing proposal, the “break-up fee” would be $140 million. That’s a flexible, and probably very realistic, approach to deal-making (other moneyed suitors do swoop in sometimes), but it also creates another opening for uncertainty.

The companies say they want to close by year-end 2014 or early 2015. That sounds fairly certain. But let’s wait and see on that.

 

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Connect with Linda →

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