Employers Mutual Casualty Company (“EMCC”) and EMC Insurance Group Inc. (“EMCI”) have entered into a definitive merger agreement pursuant to which EMCC, which currently owns approximately 55 percent of EMCI's outstanding shares, will acquire all of the remaining shares of EMCI for $36.00 per share in cash.
EMCC said in a statement that the transaction has an equity value of approximately $356 million based solely on the outstanding shares of EMCI not owned by EMCC.
To effect the transaction, EMCC formed a new wholly-owned subsidiary to be merged into EMCI.
The $36.00 per share purchase price represents an approximate 50 percent premium to the $23.99 closing market price of EMCI's common stock on November 15, 2018, the last trading day prior to the public announcement of EMCC's original proposal to acquire 100 percent ownership of EMCI. It also represents a 27 percent premium to EMCI's $28.44 book value per share as of March 31, 2019, a 16 percent premium to EMCI's 52-week closing high prior to the public announcement of EMCC's original proposal, and an increase of 20 percent over EMCC's originally proposed purchase price of $30.00 per share.
In response to EMCC's original proposal, the EMCI board of directors formed a special committee comprised of independent directors. Bruce G. Kelley, president, chief executive officer, and a director of both EMCI and EMCC, recused himself from all of EMCI's and EMCC's discussions, considerations, recommendations, and votes with respect to the proposed transaction.
According to EMCC, the special committee reviewed EMCC's proposal and considered other options available to EMCI. The special committee was advised by independent financial and legal advisors, and the special committee received an opinion from its financial advisor that the $36.00 per share cash purchase price was fair, from a financial point of view, to EMCI's minority shareholders.
The special committee ultimately determined that EMCC's proposed transaction was in the best interests of EMCI and its minority shareholders and unanimously recommended the transaction to EMCI's board, which approved the transaction (with Mr. Kelley recusing himself).
Stephen A. Crane, chairperson of EMCI's special committee and chairperson of EMCI, said, “We are pleased to reach this agreement, which provides our minority shareholders with immediate and substantial cash value, as well as a significant premium to our unaffected stock price. The special committee and its advisors conducted a thorough and independent process to carefully review EMCC's proposal and consider other options available to the company. We believe that EMCC's $36.00 per share cash proposal represents the best available outcome for our minority shareholders. We encourage our minority shareholders to support the proposed transaction.”
David J.W. Proctor, chairperson of the board of directors of EMCC, stated, “We believe this transaction will drive enhanced value for our organization and our policyholders. The resulting simplified ownership structure will eliminate the divergent corporate financial and operational expectations of multiple stakeholders and allow us to focus solely on serving the best interests of our policyholders. The transaction will also eliminate the costs and regulatory burdens of maintaining a publicly-traded company and provide us with increased financial flexibility to more effectively deliver enhanced value for our policyholders.”
The transaction requires the receipt of “majority of the minority” shareholder approval of the transaction and provides an opportunity for EMCI's shareholders to exercise their appraisal rights in connection with the proposed transaction. The transaction does not provide for any termination or “break-up” fees. EMCI will file a Form 8-K with the Securities and Exchange Commission that will more fully describe the terms and conditions of the merger agreement and the proposed transaction.
EMCC said that it anticipated that the transaction would close in the second half of 2019, subject to satisfaction or waiver of customary closing conditions, including the approval of the transaction by the holders of a majority of the outstanding shares of EMCI common stock not owned by EMCC, its affiliates and the executive officers and directors of EMCI, EMCC and their respective subsidiaries. The transaction is not subject to a financing condition. As a result of the proposed transaction, EMCI has agreed to postpone its 2019 annual shareholders meeting.
Sandler O'Neill & Partners, L.P., is serving as financial advisor to EMCI's special committee. Boenning & Scattergood, Inc., provided financial advice to EMCC's board of directors.
Willkie Farr & Gallagher LLP is acting as legal counsel to EMCI's special committee. Foley & Lardner LLP is acting as legal counsel to EMCC.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].