Sometime-activist Owl Creek Asset Management LP on Tuesday, April 6, launched a campaign urging Old Republic International Corp. (ORI) — an insurer with five directors over the age of 80, three who have served more than 40 years and only one woman board member — to review strategic alternatives.
Specifically, the fund, which owns a 2.1% stake, wants the Chicago-based property and liability and mortgage insurance company to consider a sale or spinoff of its title insurance unit.
At the same time, it also wants Old Republic to declassify its staggered director elections, review its board composition and authorize a share buyback program.
It is unclear how Owl Creek can drive change if the insurer, which did not return a request for comment, is reticent to respond. The deadline to nominate directors has passed for Old Republic’s 2021 annual meeting, scheduled for May 28.
In addition, the company’s shares are up 21.1% in 2021, giving it a $6.7 billion market capitalization, and 60.5% and 16.1% over one and three years, respectively.
Owl Creek, which is based in New York, also doesn’t have much of a track record nominating director candidates. According to FactSet Research Systems Inc., Owl Creek has launched 10 campaigns, issued two publicly disclosed letters, and sought board representation at only one company, Anterix Inc. (ATEX). Last year, Anterix added two new directors with specialized PE backgrounds that were supported by Owl Creek, a 31% stakeholder in the company.
At Old Republic, the fund pointed out there is a “severe lack” of diversity on the company’s 14-person board, which has one woman.
Old Republic, which was founded in 1923, also has a number of apparently overtenured directors that are older than the company’s mandatory retirement age of 75. (Eight directors are 75 or older.)
According to relationship mapping service BoardEx, a sister company to The Deal, six directors have served for almost 18 years or more, while three have been on the board for over 40 years and five are over 80 years of age.
Board chairman and ex-CEO Aldo Zucaro, 83, and independent directors Jimmy Dew, 81; Arnold Steiner, 84; and Harrington Bischof, 87, have served 45, 41, 47 and 24 years, respectively, on the board.
Zucaro served as CEO between 1990 and 2019 and had been a lower-level executive at the company since 1976. Current CEO Craig Smiddy, 57, was installed as chief executive in October 2019.
In addition, Old Republic’s shareholders clearly aren’t happy with some of the company’s directors — a situation that could bolster Owl Creek’s campaign.
A majority of shares voted against lead independent director Steiner last year in an uncontested election and against directors Dew, John Dixon, 82, and Glenn Reed, 68, in 2019. Dixon and Reed have served on Old Republic’s board for 18 and four years, respectively.
The activist fund said it believes Old Republic’s general insurance business, which consists of property and liability insurance, is worth more than the value attributed to the entire business, adding the “market is ascribing negative value to the third-largest title business in the country.” The activist argued the two insurance units “share no benefit from being operated” in the same company.
“We believe that separating the title business would sharpen the focus of management, allow for increased investment and improve management team incentives,” Owl Creek said.
The company’s investor base isn’t overly concentrated, though the three biggest U.S. index fund managers own over 24% cumulatively. The Old Republic Employee Stock Ownership Plan owns about 6%, while four directors hold less than 1%, according to FactSet.