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Fremont Taking a Look at BH Offer


Parsad
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They take their fiduciary duty seriously.

 

Let me think about this.  I own a stock worth $20.  Next day it is worth $29.  I can choose the $20 or the $29, but I need to think about it.

 

We know if they reject the stock is going down.  Maybe not to $20, but going down big.

 

Maybe if they reject, the stock can go back to $30 on its own, lets say in 2 - 5 years.  That's a lot to think about.

 

 

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They take their fiduciary duty seriously.

 

Let me think about this.  I own a stock worth $20.  Next day it is worth $29.  I can choose the $20 or the $29, but I need to think about it.

 

We know if they reject the stock is going down.  Maybe not to $20, but going down big.

 

Maybe if they reject, the stock can go back to $30 on its own, lets say in 2 - 5 years.  That's a lot to think about.

 

 

 

lol

 

They are obviously also thinking, 'If we accept this offer, we are out of a job.' and since none of us own any shares, that really isn't in our ... I mean the shareholders...best interest. 

 

note: I have no idea if the executive own a lot of shares or if the BOD does...but I doubt my guess is far off.  They make for off of their income and board fees than they do off dividends and share appreciation.

 

Of topic : Why do we shareholders allow non-shareholders to be directors?  Dumb.

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Of topic : Why do we shareholders allow non-shareholders to be directors?  Dumb.

 

Excellent question but what can we as outside passive minority investors do about it in the way things are currently setup?

 

because the BOD is nominated by the management and not by shareholders what can shareholders do about it without a big proxy fight?

 

Smallcap

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Again, I want to get my facts straight.  The board is deciding this matter.  The CEO will lose his job if the takeover goes through (according to Biglari, him and no one else). 

 

The leader of the board is the CEO.  I am sure he will remain unbiased, and has no conflict of interest here.

 

 

Perhaps this joker CEO can get MI congress to create CEO tenure in the event of a takeover.

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Let me think about this.  I own a stock worth $20.  Next day it is worth $29.  I can choose the $20 or the $29, but I need to think about it.

 

 

 

Bronco,

You keep using the word "worth" as if the current share price equals worth.  FMMH's worth didn't change after the offer.  The share price did.  They are NOT the same.  I own a number of stocks that I would not sell just be cause they rose in price. 

 

Tim 

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Tim, I'm not getting into a pissing match, but damn I hope you are pulling my leg.

 

One day people were willing to give shareholders $20 for their shares.

 

The next day people were willing to give shareholders $29 for their shares.

 

Perhaps you are smoking the same doobage that Jerry Yang was smoking.  I've never done drugs, so good luck with that.  Maybe you're a California citizen and its all good. 

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Parsad - I think Tim realizes we are talking about 2 different things as do I.

 

But I can't wait to tell my wife how rich we are tonight - our net worth just doubled because I think Loews is worth twice what it trades for!

 

(OK...I'll be nice moving forward starting right now!)

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FMMH is now trading at 25.80 the market is really discounting the possibility that this offer goes through. What are your thoughts? is it so improbable that the BOD will accept/negotiate/get another offer and they will be able to go back to business as usual.

 

I wasn't terribly surprised that the last offer failed to go through but at $29 this is a significant premium that will be difficult to pass up.

 

SmallCap

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I'm not sure what there is to think about.  Honestly. 

 

$29 cash and stock is one thing, but this is all cash.  I am not a s/h but if I was I would be toasting with harry and taking the money.

 

I guess my definition of fidiciary is different than the BOD's.  But we'll see.

 

The dynamic of Big Holdings with an insurance company is too interesting not to root for.  Maybe Biglari will try to hire the guy from Overstock to keep the Buffett comparisons eerily similar.

 

 

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Loeb Capital Management released a 13D after the close disclosing a 9.08% stake in FMMH. 

 

Here is the text of the letter they sent to the board:

 

 

October 18, 2010

 

 

Board of Directors (“Board”)

Fremont Michigan InsuraCorp, Inc.

933 East Main Street

Fremont, Michigan 49412

 

 

To the Board of Directors:

 

 

Loeb Arbitrage Management LP and Loeb Offshore Management LP, together doing business as Loeb Capital Management, and affiliated entities (collectively, “Loeb”) have management discretion over 160,600 shares of Fremont Michigan InsuraCorp, Inc. common stock (OTC: FMMH) (“Fremont”), or approximately 9% of the company. The recently-revised offer from Biglari Holdings Inc. (New York: BH) (“Biglari”) compels the Board to engage in a sincere process to maximize shareholder value; more to the point, Loeb thinks it is incumbent upon the Board, in keeping with its fiduciary duties to shareholders, to sell the company to the highest bidder.

 

 

Fremont, an illiquid stock, has scarcely traded at or above its tangible book value per share during its capital market history. Fremont is substantially dependant on one state for its profits. With an A- rating from A.M. Best Company (“A.M. Best”) and a premiums-to-surplus ratio of roughly 1.4x, prospects for growth, and therefore multiple expansion, are limited. The management of Fremont has put forth a strategic plan to achieve USD 100 million of direct premiums by 2013. It is not clear that the company can reach this level of premium production without an equity financing or loss of its current A.M. Best rating. Assuming everything goes according to management’s plan (a potentially unreasonable leap of faith) and assuming a 95% combined ratio, Loeb estimates that this premium level could produce operating earnings per share of $3.00. The offer from Biglari represents a P/E multiple of nearly 10x prospective 2013 earnings. Considering the earnings multiples of comparable regional insurers, Loeb thinks it unlikely that the company on its own merits would trade at a valuation of 10x P/E in the marketplace.

 

 

As a significant shareholder of Fremont, Loeb is not in favor of further tactics that put off potential buyers of the company. It is time to put aside mechanisms and campaigns such as a poison pill with a low trigger, a staggered Board and a concerted effort to secure legislation limiting shareholder rights. Again, the Board owes shareholders a fiduciary duty to maximize the value of the company, particularly in light of the current circumstances. A path has been provided for the Board to maximize value for the owners of an illiquid equity in the near term. Please note that this letter should not create the understanding that Loeb would accept an offer of $29.00 per share; rather, Loeb is simply of the opinion that Biglari’s offer is credible and that the valuation is high enough to be a springboard for a value maximization process. Loeb reserves its rights as a shareholder to take such actions to secure value maximization. Further, we hereby request a meeting with the CEO and Chairman of the Board of Fremont as soon as is practicable but in any event no later than October 29, 2010. Please contact Alexander H. McMillan, General Counsel at (212) 483-7069 to arrange such a meeting. Additionally, we request that Fremont raise the ownership threshold which triggers its poison pill, thereby allowing Loeb to increase its holdings (notwithstanding the necessary approvals from the Michigan Office of Financial and Insurance Services). Finally, please note that Loeb reserves the right to buy or sell stock.

 

 

 

Thank you for your immediate attention to our request.

 

 

Sincerely,

 

 

/s/ Gideon J. King

Gideon King

President, Chief Investment Officer

 

 

/s/ Blaine Marder

Blaine Marder

Vice

 

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The carpetbaggers have arrived! Proxy fight! Will the people pushing for the sale have enough votes? (remember, they need 66% to approve a takeover)

 

People for the takeover

Biglari has 9.8%

Frank Kavanaugh has 6.7%

Loeb now have 9.1%

 

People against the takeover

Dunning + Board has 15.2%

 

Mitchell Partners, L.P. have 10% - but their intentions haven't been stated - has anyone called to find out? I'm guessing they would vote for the sale.

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The carpetbaggers have arrived! Proxy fight! Will the people pushing for the sale have enough votes? (remember, they need 66% to approve a takeover)

 

People for the takeover

Biglari has 9.8%

Frank Kavanaugh has 6.7%

Loeb now have 9.1%

 

People against the takeover

Dunning + Board has 15.2%

 

Mitchell Partners, L.P. have 10% - but their intentions haven't been stated - has anyone called to find out? I'm guessing they would vote for the sale.

 

Would Biglari's shares get to vote?  It would seem like you're overcounting if not.

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Guest HarryLong

The big picture here is that it's probably brighter to find the next Fremont that gets taken over. I'll let someone else squeeze the last 8%-10% out of a stock.

 

I posed on RLI on the idea board. That's the best underwriter in the U.S. right now which has a totally wide open shareholder structure. Unfortunately, NATL and SUR have corporate parents which are majority owners.

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Why accept a 40%+ premium.  That is ridiculous.  How is a 40% premium in cash good for shareholders?

 

FMMH is much better off running their own business and maintaining a $20 stock price.

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