Conseco Inc. rejected a proposal by activist investor Steel Partners II LP to acquire up to 22 percent of the company's shares, according to a letter from Conseco CEO Jim Prieur.
Prieur told New York-based Steel Partners that allowing it to amass such a large stake would limit Conseco's ability to repurchase its own shares. He said it also could limit the ability of other large shareholders to buy Conseco shares.
That's because the company could lose the benefit of being able to use losses in prior years to reduce its tax bill. It gained that benefit as part of its 2003 bankruptcy reorganization. If a group of shareholders amasses too large a stake, the Internal Revenue Service could rule that a change of ownership has occurred, which would out Conseco's right to use the tax benefit.
Conseco released Prieur's letter yesterday afternoon.
Steel Partners currently owns 10 percent of Conseco's shares. On May 19, it proposed raising its stake to 22 percent through a tender offer. Steel Partners said it would have paid between $12.50 and $14 per share, at least a 6-percent premium over yesterday's closing price.
To raise its stake, Steel Partners acknowledged it would need special approval from insurance regulators in several states, including Indiana. It asked for Conseco's support in clearing those hurdles.
But in the letter, Prieur wrote, "we will comply with any regulatory obligations that we have, but otherwise we will not support or agree not to object to your applications" because of the threat to the tax assets.
Steel Partners had criticized Conseco's leaders for the company's financial performance and for being "slow" to implement a strategic review the company commenced in March.
Conseco hired Morgan Stanley to review strategic alternatives, which most likely will involve a sale of part of the company.
Conseco shares closed yesterday at $11.83, down 39 percent from a year ago. The stock was up 15 cents this morning.