National Atlantic Holdings Corporation (NDAQ:NAHC) revealed on Friday that 8.2% holder, The Commerce Group, Inc. (NYSE:CGI), may be interseted in more than just an investment. According to the 13D filing:

"The purpose of this statement is to report that Commerce is in the process of evaluating a potential transaction with the Issuer, including the possibility of entering into a business combination or other strategic transaction with the Issuer such as an acquisition.

Whether Commerce decides to pursue any action as described above will depend on its continuing assessment of pertinent factors, including without limitation the following:  the results of its due diligence review of the Issuer; the Issuer's and Commerce's business and prospects; the outcome of discussions and negotiations between Commerce and the Issuer concerning the terms and conditions on which any potential transaction described above would take place, including, without limitation, the purchase price for the Issuer's common stock; other business and investment opportunities available to Commerce; general economic conditions; stock market and money market conditions; the attitude and actions of the management and Board of Directors of Commerce or the Issuer; the availability and nature of opportunities to dispose of Commerce's interest; and other plans and requirements of Commerce."

The stock is up over 5% today on the news to $11 - a continuing recovery from its $8.50 lows in late June. The stock has a forward P/E of just over 7 along with over $2.90 per share in cash with no debt - making it a decent acquisition target. However, it is worth noting that the current enterprise value of the stock sits at only $7.29 per share, which reduces the likelihood of any large premium over the current price in the event of a merger or buyout. Despite this, the stock is definitely worth watching as this story unfolds.

Related Companies
Mercury General Corporation (MCY)
The Allstate Corporation (ALL)
The Chubb Corporation (CB)