Stewart Information Services Corp. is being targeted by activist Phil Goldstein, who is urging a sale of the property-title insurer and seeking control of its board.
Goldstein's Bulldog Investors has amassed more than 5% of Stewart’s common stock and notified the company in a Feb. 12 letter that it intends to seek five of nine board seats at the upcoming annual meeting. The letter sets the stage for a proxy fight that could oust all the directors who aren't protected by minority Class B shareholders — a governance structure Bulldog is also seeking to dismantle.
The new campaign comes just a year after the third-largest U.S. title insurer settled a separate activist battle with hedge funds Foundation Asset Management and Engine Capital. To resolve that situation, it agreed to add two directors, embark on a $70 million share buyback, deliver $25 million in annual cost cuts and begin holding earnings calls. Title insurance is typically required to finalize mortgages and property transactions.
In a statement Thursday, Stewart confirmed that it had received a notice of nomination for five director candidates to stand for election at the company’s 2015 annual shareholders meeting.
"Creating value for all stockholders remains the highest priority at Stewart, and we welcome input toward achieving this goal," the company said in the statement. "We will seek to continue the dialogue."
The stock gained 1.5% from the Feb. 13, 2014, settlement announcement through Wednesday, to close at $36.80, giving the company a market value of $887 million. Houston-based Stewart boosted its annual dividend to $1 from $0.10 on Wednesday — a move that investors largely shrugged off, adding only $0.25 to the share price.
The dividend hike is "too little, too late," Goldstein said in an interview.
"We've had some discussions with them, and concluded the company needs to be sold," Goldstein said. "This management lack a sense of urgency for getting the stock up sooner rather than later."
Stewart Information will deliver stronger returns under more aggressive management, and would appeal to buyers across finance, real estate and private equity, Goldstein said. He has "reason to believe" potential buyers would bid more than $50 a share, while declining to identify any interested parties.
Goldstein intends to nominate himself, his Bulldog partner Andrew Dakos, as well as James Chadwick, Gerald Hellerman and Richard Latto to the company’s board, according to the Feb. 12 letter, which was required under the company's advance-notice bylaws. That implies Bulldog is seeking to replace the two directors installed in the last activist campaign — Glenn C. Christenson, managing director of Velstand Investments, and Arnaud Ajdler, managing partner of Engine Capital.
Under Stewart Information's dual-class share structure, four directors are elected by the B holders, including members of the company's founding family. Class B shareholders don't receive dividends — a factor Goldstein said has likely kept such returns to shareholders lower than he and other investors would like. His ballot fight will include a proposal to eliminate the different share classes, he said.
"The only reason for it is it keeps them in control of this company without having too much skin in the game," Goldstein said. "If you want to be private, stay private. If you're public, you've got to treat all the shareholders equally."
Goldstein has said he named his activist hedge-fund firm, based in Saddle Brook, N.J., Bulldog to characterize tenacity. The firm, which manages about $600 million, has run more than 40 proxy fights and typically targets funds that trade at a discount to net asset value, as well as real estate and insurance-related companies.
