Alfa Corporation
(NDAQ:ALFA) shares rose $3.19, or 20.99%, to $18.39 today after it made
an offer to take the company private at $17.60 per share in cash. The
company subsequently announced that it has formed a special committee
of the board to evaluate the offer and make an official recommendation.
Shareholders are clearly banking on an increased buyout offer as shares
are trading well above the buyout premium.
Alfa Corporation
proposed this going private transaction in order to better compete in
the personal lines insurance industry over the long-term by increasing
their investment in technology and accelerating the development of
their distribution channels. These objectives are best accomplished
through a private, more nimble corporate structure. Finally, they
believe that their current offer represents an attractive price in an
increasingly uncertain environment.
Alfa Corporation has been
struggling recently after its credit rating was downgraded to "A+" and
earnings failed to impress. As a result, Alfa stock was trading near
its 52-week low of $14.99 - and well off its 52-week high of $19.95 -
before today's buyout offer. This put many current shareholders
underwater in their investment, even at $17.60, which could explain why
they appear to be looking for more.
It is uncertain as to
whether or not the company will consider raising the buyout offer.
Unfortunately, the board is likely to approve the transaction despite
the somewhat low price which will make it difficult to seek a higher
offer. More, the buyout entity disclosed a 43% stake in the company and
indicated that they would not sell their shares to any other entity.
This makes the possibility of other bidders making offers highly
unlikely. In the end, unless the board finds that they offer is too low
or unless a shareholder rights group gets involved, it is unlikely that
a higher offer will be realized. However, this is definitely a
situation
worth watching.
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