Ides Capital Delivers Letter Commenting on Recent Changes at Safety Insurance Group
Ides Capital Management has engaged with Safety Insurance Group to enhance corporate governance and promote shareholder value. Following their recommendations, Safety has made significant changes, including adding independent directors and implementing a share repurchase plan of $50 million. Since Ides' intervention, Safety's stock has risen by 14.6%, surpassing peers and indices. However, Ides expresses disappointment over the board's reluctance to fully declassify and improve governance and operational practices, indicating ongoing oversight and potential future actions to boost shareholder outcomes.
- Safety's stock has returned +14.6% since Ides' engagement, outperforming KIE by 8.5%, IWM by 22.7%, and the Nasdaq Composite by 23.1%.
- Appointment of two independent directors, John Farina and Deborah Gray, enhances board diversity.
- Implementation of $50 million share repurchase plan, the first since November 2013.
- Disappointment with the board's decision not to declassify itself, which could have improved governance.
- Material restrictions placed on new shareholder rights, reflecting a pattern of minimal compliance.
- Ongoing concerns about the lack of directors with insurance industry operational experience.
Notes that Company Has Made Significant Changes as a Result of Ides’ Engagement and Announces Withdrawal of Director Nominees
Urges New Directors
Highlights Need for Additional ESG, Operational and Strategic Improvements at the Company
Ides Will Continue to Monitor Safety’s Progress and Will Not Hesitate to Consider Any and All Steps to Improve Shareholder Value Going Forward
The full text of the letter is below:
To the Board of Directors of
We are writing today to inform you that, in light of the numerous actions undertaken by Safety’s Board in response to Ides’ engagement and in alignment with many of our suggested improvements, we have made the decision to withdraw our two highly qualified nominees,
We are nevertheless gratified that Ides’ engagement with Safety has driven substantial improvement to a wide range of policies and practices and we are pleased to see what we view as recognition of these important changes through the recent increase in the Company’s market valuation. In fact, since Ides’
Ides’ Proposed Enhancements |
Safety’s Implemented Responses |
Board Refreshment |
|
Racial, Ethnic and Multicultural Diversity |
|
Gender Diversity |
|
Optimized Capital Allocation |
|
Improved Board Structure |
|
Enhanced Shareholder Rights |
|
With respect to the Company’s recently announced proposals to amend Safety’s Certificate of Incorporation and Bylaws to permit shareholders to act by written consent and call special meetings of shareholders, while we agree these are important governance enhancements, we are disappointed with the Board’s decision to place material restrictions on these rights and believe it reflects the Board’s troubling pattern of window-dressing and doing the bare minimum in an attempt to appease the status quo. We also remain deeply concerned that the Company chose not to declassify the Board as part of these governance enhancements, which would have materially improved the Company’s corporate governance profile.
Further, we note that, notwithstanding the above improvements in response to Ides’ engagement with Safety, the Board has yet to take action on several other pressing areas of concern and opportunities for improvement previously highlighted by Ides, including:
- the necessity that Safety begins to behave as a public company through the implementation of quarterly and annual earnings calls, the participation in investment industry conferences and the development of relationships with the sell side analysts;
- the need to provide shareholders with direct email contact information for at least one and preferably several of Safety’s independent directors such that shareholders are not forced to communicate with the Board through management intermediaries;
- the declassification of the Board;
- the initiation of sustainability reporting;
- the creation of a Board committee to review Safety’s elevated expense structure as well as strategic execution and opportunities;
-
the addition of directors with insurance industry operating experience as we remain deeply concerned that the only directors with industry operational experience are current CEO and Director
George Murphy and former CEO and current ChairDavid Brussard ; and - the addition of directors and executives with meaningful insurance industry operational experience in digital transformation.
We look forward to Safety’s Board continuing down its newly-found path of ESG, operational, capital allocation and strategic enhancement that improves Safety stakeholder outcomes and shareholder returns, as our nominees were prepared to implement broad-based change that we believe would unlock shareholder value in excess of +
We believe it is incumbent upon the new Safety directors,
Finally, we remind Safety that Ides is a long-term shareholder and we will be watching the necessary forthcoming developments and improvements unfold (or fail to unfold) with great interest. We underscore that the Board has opted to not work constructively with Ides and we are therefore not subject to any arrangements nor standstill agreements. Should the Board fall short and decline to undertake additional and sorely-needed change to reverse Safety’s underperformance, Ides will consider any and all steps to improve stakeholder outcomes and long-term shareholder value. Importantly, Ides notes that the two directors we believe to be most answerable for Safety’s underperformance and, in their leadership positions, most accountable for its correction - Chair
Regards,
Managing Member, Cofounder and Chief Investment Officer
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