Advisory Firms Divided on Icahn's Push to Halt AmTrust Deal

(Bloomberg) -- Two prominent shareholder advisory firms are divided on whether shareholders in AmTrust Financial Services Inc. should support Carl Icahn’s efforts to prevent the company from going private.

Institutional Shareholder Services Inc. said investors should vote against the New York-based insurer’s plan to go private as it would be better off as a standalone company. ISS said the transaction, which values AmTrust at about $2.7 billion, isn’t comparable to where its peers trade and where AmTrust itself may trade over the long term.

“The controlling shareholder’s stated unwillingness to sell its shares has substantially reduced the possibility that a competing bidder will emerge, even if unaffiliated shareholders reject the proposed transaction,” ISS said Friday in its report, adding that a full sale process would likely yield the best outcome for investors.

Icahn said in a statement that he was pleased with ISS’s conclusion and urged shareholders to vote against the deal, without mentioning the recommendation by the second advisory firm, Glass Lewis & Co., to support the transaction.

“The Zyskind/Karfunkel family is doing everything they can to push through their low-priced going-private transaction,” Icahn said. “It’s time that we -- the public owners of AmTrust -- do something to stop it by voting against this transaction.”

Glass Lewis said in its report Thursday that AmTrust took “reasonable steps” to protect minority shareholders, including forming a special committee and requiring approval from a “majority of of the minority.” Glass Lewis said it had some concerns about the timing of the offer and the lack of a sales process or market check.

‘Turnaround Opportunity’

“While we believe there could be considerable turnaround opportunity at the company on a standalone basis, we believe shareholders are being fairly compensated at this time relative to the ongoing risks and uncertainties of the standalone -- and still-controlled -- alternative,” Glass Lewis said in its report.

AmTrust said Friday in a statement that it was pleased Glass Lewis recognized “the significant, certain cash value” that will be delivered to public stockholders as a result of the transaction. “We strongly believe that ISS reached the wrong conclusion in failing to recommend that AmTrust stockholders vote for the proposed merger,” the insurer said.

Icahn, who owns 9.4 percent of the insurer, has sued directors of AmTrust, Chief Executive Officer Barry Zyskind and the family that controls the insurer. The billionaire investor has said the plan to take the company private unfairly benefits the controlling Karfunkel family at the expense of public stockholders.

He also claims AmTrust failed to adequately disclose the April 5 record date for shareholders to vote on the transaction. Icahn’s stake was purchased after that date, according to a regulatory filing, meaning he cannot vote on the deal himself unless it is changed.

ISS diverged from Icahn on that point. It said the company’s claim that it followed the letter of the law seems correct. Icahn could have found out the date of record with a “simple phone call,” it said.

Transparency Concern

The fact that the record date was set more than three weeks before the preliminary proxy was published, but not clearly disclosed in that material “raises some concern regarding a lack of transparency, and suggests that the company may have anticipated opposition to the proposed terms,” ISS said.

The takeover offer came after a wave of problems for AmTrust, including a restatement of earnings, finding accounting-control problems and learning the U.S. Securities and Exchange Commission opened an investigation. The families of Zyskind and Director George Karfunkel agreed last year to inject $300 million into the firm in a private-placement deal.

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