Investment Banking - Donegal Group, Inc.
Transactions | Insurance
Client: Donegal Group, Inc.
Transaction Type: Strategic Advisory
Role: Financial Advisor
- Donegal Group, Inc. (NASDAQ:DGIC.A) (“Donegal”) is a downstream holding company formed in August 1986 as a subsidiary of Donegal Mutual Insurance Company (”Donegal Mutual”). In November of 1986, Donegal Mutual sold 21.5% of its ownership to the general market.
- In response to capital needs to fund acquisitions to fuel growth, gain economies of scale, and diversify risk, Donegal created a dual-class of stock with split voting rights, without diluting any voting rights of the shareholders at the time of the split. Class A shares have one vote while Class B shares have 10 votes.
- As of December 31, 2013, Donegal Mutual owned 38.7% of the Class A and 75.6% of the Class B Shares, resulting in 65.3% of the overall voting power.
- Activist shareholder Gregory Shepard initiated a proxy proposal to recapitalize Donegal that would provide all outstanding stock to have one vote per share. In order to respond to the shareholder proposal, Donegal formed an independent special committee of the Board of Directors. Boenning & Scattergood, Inc. (“Boenning”) was asked to analyze the proxy proposal and assist the independent special committee in its evaluation, from a financial point of view, of the shareholder’s proposal.
- Boenning’s analysis determined that Donegal’s use of the dual-class structure enables Donegal and Donegal Mutual to unlock benefits as a “cohesive whole” that would be unachievable on a standalone basis. In addition, Boenning determined that Donegal appears to capitalize on the benefits of a dual-class structure while mitigating the detriments typically associated with the structure.