Shares of commercial insurer AmTrust (NASDAQ:AFSI) were scheduled to open Jul. 3 at $14.60 per share, despite having been approved for sale to private equity at $14.75 per share.
AmTrust is a property and casualty insurance company specializing in small businesses and workers’ compensation.
Shareholders including Carl Icahn approved a sweetened bid for the company last month. Icahn had bought 9.4% of the shares after the record date on an earlier offer of $13.50 per share from Stone Point Capital and its controlling shareholders, the Karfunkel family.
Sweetening the offer to $14.75 got Icahn on board, but it failed to please Arca Capital, a private equity group based in Prague, which demanded a court evaluate the deal on Jun. 20.
Arca thinks that “fair value” for the company is $22 per share.
A Good Deal?
For small investors, it looks like a no-lose deal. Get in at $14.60, wait a while, and either get $14.75 or get more. Arca still holds 2.4% of the company and believes a long-term price target for AmTrust should be $25-31, but it is willing to settle for $22 after a negotiation.
Icahn had said in a May court statement the deal “will transfer huge amounts of value belonging to the company’s public stockholders to the controlling family — which has already used its control of the company to engage in self-dealing on a massive scale.”
The buyout is being led by the family of CEO Barry Zyskind, the Karfunkels, ultra-orthodox Jews from Hungary who got their start in the stock transfer business. Zyskind’s father-in-law, Michael, died in 2016. Michael’s brother George survived the 1976 raid on Entebbe, Uganda, after a plane he was on was hijacked.
Should the buyout be successful, it would put a public end to a long-running saga that began with a 2014 report in Barron’s claiming AmTrust’s stated profits resulted from sharp accounting, rather than good management.
Later the same year, the Southern Investigative Reporting Foundation published a report, titled
The Mitzvah Factory, claiming the Karfunkels were using their private foundations like public entities, taking on risk and large stakes in publicly traded companies, often with claimed prices much higher than those in the public market.
AmTrust was selling at over $26 per share as recently as January 2017, falling to a low of about $10 per share by November after The Wall Street Journal reported the company was being investigated by regulators, and accusations it retaliated by hiring an Israeli private investigator.
Then came the buyout offer, with Zyskind’s family holding 43% of the common, backed by Stone Point, headed by former New York Fed chairman Stephen Friedman.
What Comes Next for AmTrust
State regulators still must approve the deal to take AFSI private.
They’re concerned about a previous Karfunkel family purchase, Tower Holdings, whose business deteriorated after they bought it. Tower became insolvent, and the family was obliged to inject hundreds of millions of dollars in the process of winding it up.
Family members also control two other publicly traded entities, property and casualty insurer National General Holdings (NASDAQ:NGHC), based in New York, and reinsurer Maiden Holdings (NASDAQ:MHLD), based in Bermuda. NGHC stock has been rising, while AmTrust was falling, and it now has a market cap of $2.84 billion, against $2.87 billion for AFSI.
It’s all very confusing, and perhaps that is the point. Or it could be simple. If you think the Karfunkels are hiding value that regulators or the Czechs can ferret out for you, buy it. If you think Icahn has gotten you the best price, just wait for your 15-cent-per-share profit.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance, The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this article.
