SCPIE Holdings: Proxy Battle Over Merger Rages On

Last month, I posted on a merger arbitrage play- SCPIE Holdings (SKP). There has been a battle going on between management and activist shareholder Joseph Stilwell, who owns about 10% of SKP shares. I have been mailed over 10 proxy notices in total- at least five from each side. The US Postal Service has definitely benefited from this proxy battle.

Management wants shareholders to accept the $28 cash offer from The Doctors Company [TDC]. Shareholders are scheduled to vote on March 26.

Here are some of the reasons why Stilwell opposes the merger-

1. He also owns about 10% of ACAP which made an opposing stock offer for SKP that was turned down by management back in October. The ACAP offer of 0.7 shares ACAP is currently off the table, but Stilwell still wants shareholders to reject the merger with TDC because he feels SKP is undervalued at $28 and another higher offer would be received later.
2. Stilwell is appealing to California physicians. He says they will have less choice if SKP merges with TDC and their insurance cost for malpractice would go up. Some of the physicians received SKP shares in exchange for membership in an old reciprocal, and will be liable for state and federal taxes with the cash offer (with a stock offer, the capital gain is deferred).
3. Stilwell has accused CEO Donald Zuk of pushing for a sale of the company in order to receive a seven-figure change-of-control payout. Mr. Zuk is in his early 70's. Stilwell believes he should retire gracefully and not push for the sale of the company.

Stilwell's main arguments do not apply to me, since I own SKP in an IRA which is tax deferred, and I am not a physician. I am currently planning to vote to accept the $28 cash offer, but would consider changing at the last minute if ACAP made a higher firm offer. When SKP was offered $28 cash back in October, the Dow was over 1500, so the stock could easily drop if the merger is rejected.

I recently started using a new web site, Mad Mergers, to research merger arbitrage situations and would recommend it to anyone with an interest in this investment style.

Full Disclosure: I am long SKP shares.