Daniel Loeb fights investors over plan to convert London vehicle into Cayman insurer
Tussle is a test of new UK governance rules on related-party transactions
Billionaire activist Daniel Loeb is battling with shareholders to turn his London-listed company into a Cayman Islands-based reinsurer, testing new UK governance rules in a bid to manage money for American retirees.
In May, Loeb’s London-listed investment company Third Point Investors Limited (TPIL) announced plans to buy Malibu Life Reinsurance (Malibu Re) in a reverse takeover that would transform the investment vehicle into a reinsurer focused on the fast-growing US market for fixed annuities.
The London vehicle was set up as a feeder fund giving investors access to the strategies of Loeb’s New York hedge fund Third Point, which separately created and capitalised Malibu Re.
The proposed takeover has met a backlash from a group of TPIL investors, even after a July offer sweetened the deal.
“Dissenting shareholders have been trapped in this vehicle, against their will, to fund Third Point’s ambitions in reinsurance,” Tom Treanor of Asset Value Investors, which is part of the investor group opposed to the takeover, told the Financial Times.
Cayman vehicles are contentious because they are more lightly regulated and required to hold less capital to meet their obligations, compared with insurers based in Bermuda, a much larger offshore reinsurance destination.
The investor group, which includes Staude Capital and Metage Capital alongside AVI, said it was not satisfied even after Third Point raised its offer.
TPIL originally offered to acquire Malibu Re in an all-share deal that valued the reinsurer at about $68mn. It also proposed a potential tender offer for up to $75mn of TPIL shares, priced at a 12.5 per cent discount to net asset value.
In July, it replaced the tender offer with a redemption offer in which TPIL proposed to allow up to $136mn of shares to be redeemed at a narrower discount of about 5 per cent, although not all the payment would be upfront.
But the investor group complained that the deal was risky and that much of the upside could end up flowing to Loeb’s New York hedge fund, which manages assets for Malibu Re.
“Every alternative asset manager now has some sort of reinsurance or insurance client,” Treanor said. Deals to manage insurance inflows could be “incredibly lucrative” for asset managers, he said, but details on the plan for the combined business were scarce.
The results of a shareholder vote on the Malibu Re takeover are expected to be announced following a meeting on Thursday. Under the Financial Conduct Authority’s new rules for related-party transactions, which came into force last year, Loeb will be permitted to vote his 25 per cent stake in TPIL.
TPIL’s board said last month that it had irrevocable support from shareholders holding 45 per cent of the company’s voting rights — including Third Point itself — to back the deal.
One person involved in the deal said negative media coverage of the fight had become a cautionary tale against listing in London. “Do you think a company like this is now sitting here saying, ‘thank God we’re on the London Stock Exchange?’” they said.
Dimitri Goulandris, chair of the TPIL strategy committee, said: “The transaction offers a clear path to long-term shareholder value and represents a rare opportunity to bring a high-quality reinsurance platform to the London market.”
The board’s “fully independent strategy committee”, which included a representative of the investor group, had “reviewed a wide range of business and structural options” before making its recommendation, Goulandris said, describing the group’s claims of “poor governance and undisclosed conflicts of interest” as “fantastical”.
“The board’s duty is not to placate or prioritise the interests of one group of shareholders, but to act honestly and in good faith in what it believes to be the best interests of the company,” he added.
Under the new FCA rules, larger related-party deals require a sponsor of the transaction to give an opinion that the transaction is “fair and reasonable”. That view was given by Jefferies, the investment bank.
The dissenting investor group pointed to “the close personal and commercial relationships” between Jefferies and Third Point, and said it had raised ties between the groups to FCA regulators as a conflict of interest. Jefferies chief executive Rich Handler hired Loeb to work in the investment bank’s office in the 1990s.
Jefferies and Handler declined to comment.