Bloomberg News

Harleysville Rejected Offer With $250 Million Customer Payout

December 28, 2011

Dec. 24 (Bloomberg) -- Harleysville Mutual Insurance Co. rejected a takeover offer in September from an unidentified bidder that included a payout of $250 million to the Pennsylvania-based company’s customers.

The bidder estimated the payout would be worth about $1,244 for each Harleysville policy, according to a regulatory filing yesterday. Harleysville Mutual, owned by its customers, instead agreed in September to a sale to Nationwide Mutual Insurance Co. that includes no payout to policyholders.

The disclosure may fuel claims by customers that Harleysville executives and directors boosted their personal payout by diverting the takeover premium away from policyholders and toward a Nasdaq-listed subsidiary. Four policyholders have brought suits in state courts in Pennsylvania to challenge the deal, according to yesterday’s filing, including Roger Brown, a former general counsel of the company.

The alternative offer was made by a firm identified in Harleysville’s filing only as “Company B.” It included $42 for each share of the subsidiary, Harleysville Group Inc., owned by outsiders, for a total price of more than $800 million. In the Nationwide agreement, the outside shareholders get $60 a share.

Robert Kauffman, general counsel for the Harleysville companies, didn’t immediately return a phone message for comment.

In the filing, Harleysville Group said the offer from Company B was “complex” and might have taken as long as two years to consummate. It said that customers would benefit from the Nationwide merger by becoming members of a larger mutual company with a higher financial-strength rating.

Michael Browne, chief executive officer of the Harleysville companies, stands to collect about $14.8 million for the value of his Harleysville Group stock options based on the $60-a-share price, according to yesterday’s filing. He’ll get another $2.6 million from accelerated vesting of restricted stock, and $5.8 million for a gain on stock he already owned, the filing shows.

--Editors: Dan Reichl, Elizabeth Wollman

To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net;

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.


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