NEW YORK--(BUSINESS WIRE)--Investment funds advised by Owl Creek Asset Management, L.P. (“Owl Creek”), an event-driven and fundamental value long/short investment advisory firm based in New York, are shareholders of Old Republic International Corporation (“Old Republic” or “the Company”) (NYSE: ORI) and beneficially own over 2% of the Company’s outstanding common equity. Owl Creek today announced that it has delivered the below letter to Old Republic’s Board of Directors (“the Board”) following failed attempts to constructively and privately engage with the Company.
Owl Creek believes that Old Republic’s shares continue to be materially undervalued in the market and, if the firm’s suggestions are implemented, the Company has the opportunity to create more than 50% in incremental shareholder value. Among other topics, the letter proposes three clear, constructive pathways to unlock Old Republic’s full potential and drive long-term shareholder value.
Specifically, Owl Creek urges Old Republic to:
- initiate a review of strategic alternatives for its title business, including a potential spin-off, sale, or Reverse Morris Trust transaction;
- conduct a thorough review of its classified Board structure and current Board composition, as well as adopt best-in-class corporate governance practices; and
- authorize a disciplined and valuation-based share repurchase program.
Owl Creek strongly believes that these three initiatives will drive significant long-term value creation.
The full text of the letter can be found below.
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Old Republic International Corporation
307 North Michigan Avenue
Chicago, IL 60601
April 6, 2021
Dear Board of Directors,
As you are aware, investment funds advised by Owl Creek Asset Management, L.P. (“Owl Creek” or “we”) are shareholders of Old Republic International Corporation (“Old Republic” or the “Company”) and beneficially own over 2% of the Company’s outstanding common equity. We have shared with you in the past our view that Old Republic’s shares are significantly undervalued and, over the last few quarters, have engaged privately in what we hoped would be constructive dialogue regarding pathways to unlock significantly more value for all of Old Republic’s stakeholders.
Despite our efforts, however, Old Republic has continued to display a disappointing unwillingness to explore new and independent proposals brought forth by Owl Creek, a shareholder invested in the long-term success of the business. We believe the Company’s continued refusal to address legitimate shareholder concerns with its organizational framework, entrenched Board structure and severe lack of Board diversity, among other topics, to be unacceptable and indicative of its historically weak and, frankly, evasive shareholder communications practices. Most recently, despite ongoing and repeated requests from a number of shareholders, Old Republic has once again failed to address any material concerns in its latest proxy filing aside from announcing the retirement of one Director well over the Company's retirement age threshold. We understand that other shareholders have similar concerns and have brought up a number of these points before on public conference calls only to be completely disregarded by management. As such, we believe this is a good time to publicly share our views with other shareholders, and we hope this letter serves to encourage productive discussions.
While the Company is poised to benefit from an improving industry backdrop across both of its business segments, we believe significant barriers still exist to Old Republic unlocking its full potential, and that Old Republic’s shares remain materially undervalued in the market. For example, a standalone valuation of just the general insurance segment would be in excess of the entire consolidated market capitalization, implying negative value for the #3 title insurer in the nation, the run-off business and any other capital.
Further, we believe that if our suggestions are implemented and Old Republic unlocks the value of its overshadowed title business, the Board has the opportunity to create more than 50% in incremental shareholder value. Specifically, we believe that the Board could potentially realize additional shareholder value by:
- Initiating a review of strategic alternatives for the title business, including a potential spin-off, sale, or Reverse Morris Trust transaction;
- Conducting a thorough review of the composition of the Board of Directors and adopting best-in-class corporate governance practices; and
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Authorizing a disciplined and valuation-based share repurchase program.
1. Rationale for a Review of Strategic Alternatives for the Title Business |
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Old Republic is Significantly Undervalued on a Sum-of-the-Parts Basis |
Old Republic’s shares appear to be materially undervalued on both a “consolidated” and “sum-of-the-parts” basis.
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General Insurance and Title are Different Business Models |
Old Republic’s title and general insurance segments operate fundamentally different business models that have distinct strengths but share no clear benefit from being operated under the same corporate umbrella.
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Spin-off Would Improve Management Focus and Incentives |
We believe that separating the title business would sharpen the focus of management, allow for increased investment, and improve management team incentives. At the same time, Old Republic’s general insurance management could be more directly incentivized for, and focused on, the performance of the general insurance business.
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Spin-off has Minimal Incremental Costs and Business Disruption |
Our conversations with both management and prior employees have highlighted the lack of integration between both businesses.
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2. Rationale for Board and Corporate Governance Refreshment |
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Corporate Governance Reform Must be Accelerated |
Old Republic’s Board and past management, in our view, have a concerning track record of poor communications with shareholders and a general unwillingness to cooperate with shareholders.
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Board Structure and Corporate Governance Practices are Harmfully Outdated |
Old Republic’s Board structure and corporate governance practices are severely outdated – at the expense of shareholders and long-term value creation.
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Corporate Governance Reform is Needed to Protect and Bolster Investor Support |
We believe Old Republic must conduct a thorough review of its current corporate governance practices and adopt best practices, and we encourage the Company to address these items by:
Additionally, we believe continued advances in investor relations initiatives are needed to protect and grow Old Republic’s active institutional investor base, given rapidly increasing shareholder demands for corporate transparency. |
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3. Rationale for a Disciplined and Valuation-Based Share Repurchase Program |
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Opportunity to Capitalize on Current Share Price and Debt Levels |
To act in the benefit of long-term shareholders, we believe the Board should immediately authorize a sizeable share repurchase program – not at any price, but through a disciplined and valuation-based approach.
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Inefficient Allocation of Capital |
In the current low-rate environment, and with a commitment to substantial and increasing dividends, reinvesting any excess capital into an investment portfolio may not be an efficient allocation of capital.
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1 Commercial lines TBV multiple in line with peers without meaningful business interruption insurance overhang or idiosyncratic concerns. Selected peer set includes Chubb (CB), Markel (MKL), Travelers (TRV) and W.R. Berkeley (WRB) |
Additionally, we believe it is important to highlight what we believe is the misleading nature of Old Republic’s total shareholder return over several decades. Although the Company has generated strong returns over the long-term, we believe much of that compounding has been forcibly forfeited by investors due to the unnecessary tax leakage on Old Republic’s dividend-heavy returns, compared with peers whose returns are driven by tax-deferred share price appreciation. On a tax-adjusted basis, total shareholder returns paint a very different story versus peers, and we believe these taxes are an unnecessary form of leakage for long-term shareholders. We believe that a share repurchase program, as outlined above, would help reduce this unnecessary tax leakage on Old Republic’s returns, helping to improve long-term value creation for shareholders and ultimately creating a more investor friendly and attractive company.
To summarize, we believe that Old Republic has tremendous value and, in order to reach its full potential for the benefit of long-term shareholders, the Company should initiate a strategic review of its title business, immediately adopt best-in-class corporate governance practices and authorize a valuation-based share repurchase program.
We hope that this letter helps you and other shareholders better understand our thought process. While we are strong believers in Old Republic’s long-term story, we believe there is more to do to unlock untapped potential.
Regards,
Jeffrey Altman
Managing Partner
Owl Creek Asset Management, L.P.
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About Owl Creek
Owl Creek Asset Management, L.P. is an investment advisory firm based in New York. It primarily employs an event-driven and fundamental value long/short investment strategy in equity and debt markets across the globe. The firm was founded in 2001 and is registered as an investment adviser with the U.S. Securities and Exchange Commission.