Fremont Michigan Board Continues To Look Out For Themselves, Ignore Owners

At the risk of this blog devolving into a single stock focus, we once again write today about the long saga of Biglari Holdings'(BH) pursuit of Fremont Michigan Insuracorp(FMMH).  Having run out, apparently, of tips on safe driving to issue press releases about, Fremont’s special committee finally got around to issuing a press release acknowledging that it had received Biglari’s revised $31 per share offer last year.  Mind you, the committee hasn’t made any decision on it.  Accepting an offer far above any price the company has ever traded at is not a decision to be taken lightly, and the company made clear that

Neither Fremont nor the special committee has set a definitive timetable for completion of its evaluation and there can be no assurances that the process will result in any transaction being announced or being completed.  Fremont does not intend to disclose developments regarding this process unless and until the Board of Directors has approved a specific transaction

No need to rush to any conclusion here for this Board. After all, there are tons of other options they have.  Why, there are so many, that they’ve

retained Philo Smith Capital Corporation as its financial advisor to explore a broad range of strategic alternatives to enhance shareholder value. These alternatives include, but are not limited to, a revised business plan, operating partnerships, joint ventures, strategic alliances, acquisitions, exchange listing applications, a recapitalization, and the sale or merger of Fremont.

As a shareholder, I’m thrilled by this process. The exciting prospect of  a magical revised business plan which will increase the company’s value overnight, without risk, is clearly superior to an all-cash offer well above its historical trading range.

Clearly, the Board knows it has no obligation to shareholders, nor is there any need to meet with large shareholders. That is why the Board refused to meet with  9% holder Loeb Capital Management, as disclosed in Loeb’s recent letter to the Board.

Loeb has the audacity in its letter to expect the Board to be responsive to shareholders and to create shareholder value, rather than protect their own jobs.  Loeb President Gideon King writes

What does all of this even mean? A “revised business plan?” Should this lead us to believe that the current business plan is flawed and that conjuring up a new business plan with all of the risks involved is better for owners than a sale to the highest bidder? Should we be further led to believe that your newfound interest in endeavors such as “joint ventures,” “operating partnerships,” “acquisitions” and other mechanisms of avoidance are superior for shareholders to a sale to the highest bidder? Should we take the opinion that your avoidance of dialogue with representatives from Biglari, as outlined in the October 11, 2010 letter from Sardar Biglari to the Board of Directors of FMMH, is good for shareholders? Is it good for shareholders that the management team and Board of FMMH have helped to disenfranchise shareholders by helping to cement the application of Michigan Public Act 61 Section 1311(2) to its shareholders? Your actions as they relate to Biglari’s offer indicate to us that the leadership at FMMH does not take its fiduciary duties seriously. What is perhaps most frightening to us is your depiction of the value-enhancement process (which we feel should be a value-maximization process and not a value-enhancement process) as a process without a timetable. We believe that any well-organized value-enhancement process should be governed by a strict timetable if possible; a sophisticated dealmaker should know that deals tend to ripen and then rot if not consummated in a timely and organized fashion. Frankly, we feel that the management and Board of FMMH, in light of the issued press release, wish for the one value-enhancing event that has occurred in recent history to simply vanish with time and attrition of buyer interest.

As King points out, if the Fremont Board just waits long enough, Biglari will move on to another target, and given that the 100% increase in stock price has occurred as a direct result of the offer, despite declining combined ratios and other fundamentals, there will be a huge decline in value for owners. But don’t worry, the secret special committee will still have jobs.

Disclosure: The author owns shares in both BH and FMMH