Protective Insurance rejects investment group’s offer but will explore alternatives

The Carmel-based insurer was known as Baldwin & Lyons until a 2018 name change.

Protective Insurance Corp.’s board late Friday rejected an offer from two finance-industry veterans who want to buy control of the Carmel insurer, providing no reason for passing on the deal beyond stating the terms “are not in the best interests of Protective and its stakeholders.”

However, the insurer—known as Baldwin & Lyons until a 2018 name change—also announced that it is exploring “strategic alternatives”—a phrase that often means a firm is putting itself up for sale.

The investment group seeking control is led by V.J. Dowling, founder of the Connecticut investment firm Dowling Capital Partners and an established thought leader in the insurance industry, and David Delaney, CEO of Long Beach, New York-based Lancer Insurance, which competes with Protective in the trucking insurance market.

The Delaney/Dowling group owns 7% of Protective’s voting stock and on April 23 had proposed buying the remainder for $18.30 a share, or a total of more than $44 million.

The Delaney/Dowling group lined up a key ally in its quest for control—the Shapiro family of suburban Chicago, the company’s largest Class A shareholder. The family, which has been among the company’s largest shareholders for more than three decades, agreed this spring to sell the investment group nearly 1 million Class A shares—35% of the total—for $18.30 apiece.

An attorney for the Delaney/Dowling group did not immediately respond to a request for comment Monday morning. But the group had said in April that if Protective rejected its offer, the Shapiro family would seek to use its clout to call a special meeting of shareholders, at which the family would pursue a vote to replace the entire board with a new slate backing the transaction. The family holds two of the 11 board seats.

It’s also not clear whether the investment group intended to maintain the 500-employee Protective Insurance as an independent public company.

The Delaney/Dowling investment group so far has pursued only the 2.6 million so-called Class A shares, which have voting rights. The company also has 11.6 million publicly traded Class B shares, which have no voting power. The two classes together give Protective a market value of $201 million.

The investment group swooped at a time Protective is retrenching after an expansion launched following the departure of longtime executives resulted in losses.

As rating agency A.M. Best noted in an August 2019 report, “In the past two years, the group’s emphasis was on growth rather than profitability in its attempt to strategically expand within its fleet trucking niche. The current management team is in the process of reunderwriting its business and has taken a number of remedial actions to restore profitability.”

Protective’s challenges—some suffered industrywide and some self-inflicted—have weighed down its stock price. The $18.30 per share that the Delaney/Dowling group is offering represents a 36% premium to where the shares traded the day its offer was made public. But the price is 29% below where the stock traded in September 2016.

This isn’t the first time that Protective has signaled it might be for sale. It announced in November 2018 that it was pursuing “potential strategic partnerships or transactions,” but no deal resulted.

The Delaney/Dowling group had asked Protective to smooth the way for its purchase of control by waiving certain aspects of the Indiana Business Combinations Act and Control Shares Acquisition statute. But in its press release Friday, Protective said it declined to do so.

Protective also said in Friday’s news release that it wanted to buy back shares held by the Delaney/Dowling group, a move that would reduce its clout. Without providing details, Protective said “it expects to take the necessary actions to redeem all or certain of the Class A shares of Protective” purchased by the investment group.

The release said a special committee of the board is leading the effort to explore strategic alternatives. Piper Sandler is serving as financial adviser to the committee while Skadden Arps Slate Meagher & Flom is serving as legal adviser.