A Harleysville Mutual Insurance Co. shareholder vote on its $840 million buyout by Nationwide Mutual Insurance Co. won a go-ahead from a judge who rejected a request from some policyholders to temporarily bar the deal.
State court judge Patricia McInerney in Philadelphia ruled yesterday that plaintiffs in the case hadn’t met their burden for a preliminary injunction. She took under advisement a request to establish a constructive trust with money from directors’ share of the deal, pending the outcome of litigation over the proposed transaction.
“I’m basically making a finding that there is not irreparable harm,” McInerney said.
Nationwide announced in September that it would pay $60 a share to acquire Nasdaq-listed Harleysville Group Inc. (HGIC:US) and merge with its majority shareholder Harleysville Mutual Insurance Co. for no cash consideration.
Three policyholders sued over claims company directors doubled their personal payout in the planned sale at the expense of customers who own the parent company. Under the deal, directors would get about $39 million from their personal holdings in the Harleysville subsidiary, which would receive the entire $435 million merger premium, while the majority owner and its members get nothing.
Policyholders Aren’t Owners
Chief Executive Officer Michael Browne, a former insurance commissioner who would get about $28 million from the sale, testified yesterday that policyholders aren’t entitled to a distribution because they don’t own the company.
“Policyholders are not owners in the sense of shareholders,” Browne said. “They have member rights but they’re not owners with control over the surplus.”
Harleysville Mutual and its subsidiary share the same directors. Most of the executives own stock in the publicly traded unit, while none has an economic interest in the parent beyond that of a policyholder. Harleysville Mutual has a 54 percent interest in the unit.
Shareholders of Harleysville Group are scheduled to vote on the transaction on April 24.
The case is Brown v. Brown, 111203220, Court of Common Pleas, Philadelphia County (Philadelphia)
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