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Delphi Investors Can’t Block Tokio Marine Offer, Judge Rules

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March 7 (Bloomberg) -- Delphi Financial Group Inc. investors lost a bid to block a $2.7 billion buyout by rival insurer Tokio Marine Holdings Inc. as a judge rejected arguments that the deal was flawed because it unfairly enriches the company’s top executive.

Delaware Chancery Court Judge Sam Glasscock ruled yesterday that questions about the compensation that Robert Rosenkranz, Delphi’s chief executive officer, would receive in the buyout didn’t justify stopping a shareholder vote on the proposed deal.

“I cannot find the balance of equities favors an injunction over letting stockholders” vote on the deal, Glasscock said in his 56-page ruling.

Delphi, based in Wilmington, Delaware, sells workers’ compensation and group life insurance. Delphi officials contend in court papers that the all-cash offer provides a 73 percent premium to its shareholders.

Bernard J. Kilkelly, a Delphi spokesman, didn’t respond to phone and e-mail messages seeking comment on the judge’s ruling. Naotake Hamada, a spokesman for Tokyo-based Tokio Marine, said the company was pleased that Glasscock’s decision clears the way for the buyout to proceed.

Closing Deal

“We continue to work on closing the acquisition of Delphi in accordance with the merger agreement,” Hamada said in an e-mailed statement. The company anticipates closing the deal in the second quarter, he said.

Tokio Marine fell 52 yen, or 2.4 percent, to 2100 yen in Tokyo. Delphi’s shares rose 23 cents to $44.83 today in New Stock Exchange composite trading.

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.

“We are pleased the court recognized Mr. Rosenkranz’s overreaching and has unequivocally told him that damages await,” Stuart Grant, a lawyer for pension funds who sought to block the buyout, said yesterday in an e-mailed statement.

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 insurer bought a U.S. rival. Tokio Marine purchased Philadelphia Insurance Cos. for $4.4 billion in 2008.

‘Disparate Consideration’

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, lawyers for the pension funds said in court filings.

The funds’ lawyers also said Rosenkranz sought to negotiate a side deal as part of the buyout that required Tokio Marine to maintain contracts with two firms Rosenkranz owns that do business with Delphi.

Delphi’s lawyers countered that Rosenkranz only discussed a sale of the firms with Tokio Marine officials and didn’t reach any formal agreement. The side-deal allegations also don’t provide the basis for enjoining the deal, they told Glasscock.

They also argued the charter provision barring disparate compensation for shareholders was subject to amendment and that would allow Rosenkranz to receive more for his shares.

Glasscock noted that Rosenkranz, a New York investor who founded Delphi in 1987, had conflicting roles while negotiating with Tokio Marine over the buyout offer.

Controlling Shareholder

While he was the lead negotiator in talks aimed at getting the highest price for Delphi’s shares, Rosenkranz also was Delphi’s controlling shareholder and served as a Delphi contractor through his businesses that provide financial advice to the insurer, the judge noted.

“Rosenkranz knew that he would also be negotiating the futures of those contracts” with Tokio Marine, the judge said.

While those conflicts may not have tainted the buyout negotiations, Glasscock said Rosenkranz’s push to receive more than other Delphi shareholders for his stake in the company may have run afoul of his legal obligations to other investors.

The judge found the pension funds “are reasonably likely to be able to demonstrate at trial that in negotiating for disparate consideration and only agreeing to support the merger if he received it, Rosenkranz violated duties to stockholders.”

Glasscock said that while the funds’ questions about Rosenkranz’s dealings weren’t enough to warrant blocking a shareholder vote over the deal, disgruntled investors can seek monetary damages in the case.

“Much of the alleged misconduct of which the plaintiffs complain is remediable by readily ascertainable damages,” the judge wrote. Glasscock added he could order “disgorgement” of any improper consideration Rosenkranz reaped from the deal.

The case is In RE Delphi Financial Group Shareholder Litigation, CA No. 7144, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Steven Church in Wilmington, Delaware, at; Jef Feeley in Wilmington, Delaware, at

To contact the editors responsible for this story: John Pickering at; Michael Hytha at

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