Delphi Financial Group Inc. (DFG), which sells worker’s compensation and group life insurance, said it agreed to settle a shareholder lawsuit over its $2.7 billion buyout by Tokio Marine Holdings Inc. (8766) for $49 million.
Investors sued in January in Delaware Chancery Court in Wilmington to block the sale, saying the deal’s structure unfairly enriched company insiders.
Delphi shareholders “will receive their pro rata portion of a payment equal to $49 million less plaintiffs’ counsel fees and expenses,” subject to approval by Judge Sam Glasscock, Delphi said today in a statement. Court documents on the settlement weren’t immediately available.
Tokio Marine, Japan’s second-largest casualty insurer, agreed in December to pay $44.88 a share for Delphi’s Class A public shares and $52.88 apiece for its Class B shares. The proposed sale would be the second time in three years the Japanese insurer bought a U.S. rival. Tokio Marine purchased Philadelphia Insurance Cos. for $4.4 billion in 2008.
Last month, Glasscock rejected shareholders’ bid to block the buyout from going forward because it provided more compensation for Robert Rosenkranz, the company’s founder and chief executive officer, than other investors.
Delphi shareholders argued Rosenkranz structured the deal to give himself more per share for his Class B shares than Class A shareholders will get, even though “such disparate consideration” is prohibited by the company’s charter.
Stuart Grant, a lawyer for Delphi shareholders, said the settlement was a fair resolution of investors’ claims over the buyout.
“We got back almost all the extra compensation that Mr. Rosenkranz was taking as part of the deal and that’s what we wanted,” Grant said. “We always thought Tokio Marine’s offer was a good one and now that the split is fair, we’re happy to see it go through.”
While he denied investors’ request to block the deal, Glasscock said Delphi shareholders may be entitled to recover damages from Rosenkranz over his actions in negotiating the buyout.
Rosenkranz, Delphi’s controlling shareholder, acted as lead negotiator in talks to sell the company while also serving as a Delphi contractor through his businesses that provided financial advice to the insurer, the judge said.
While those conflicts may not have tainted the buyout negotiations, Glasscock concluded Rosenkranz’s push to receive more than other Delphi shareholders for his stake in the company may run afoul of his legal obligations to other investors.
The judge said that it was within his power to order “disgorgement” of any improper consideration Rosenkranz reaped through the Tokio Marine buyout.
The case is In re Delphi Financial Group Shareholder Litigation, CA 7144, Delaware Chancery Court (Wilmington).
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