SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
AMENDMENT NO. 2
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
GUARANTY NATIONAL CORPORATION
(Name of Subject Company)
GUARANTY NATIONAL CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, par value $1.00 per share
(Title of Class of Securities)
401192109
(CUSIP Number of Class of Securities)
Michael L. Pautler
Senior Vice President - Finance
Guaranty National Corporation
9800 South Meridian Boulevard
Englewood, Colorado 80112
(303) 754-8400
(Name, address and telephone number of person authorized
to receive notice and communications on behalf of the
person(s) filing statement)
Copy to:
Hardin Holmes, Esq.
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway, 26th Floor
Denver, Colorado 80202
(303) 623-2700
This Statement amends the Schedule 14D-9 of Guaranty National
Corporation dated May 22, 1996, as previously amended by Amendment No. 1 dated
June 1, 1996 (the "Schedule 14D-9"), by incorporating by reference herein the
information set forth in Exhibits 13 and 14 hereto. This Statement also amends
Items 3,4 and 9 of the Schedule 14D-9 by adding the information set forth below.
Except as otherwise indicated herein, the Schedule 14D-9 remains unchanged in
all respects. Capitalized terms not otherwise defined herein are defined as set
forth in the Schedule 14D-9.
Item 3. Identity and Background
(b) The portion of Item 3(b) of the Schedule 14D-9 entitled
"Background of the Offer; Appointment of the Special Committee" is amended and
supplemented as follows:
On May 28, 1996, the Chairman of the Special Committee met with Mr.
Alan Gruber to further discuss and explain the Special Committee's concerns
about the Offer price being inadequate and about the Offer being for less than
100% of the publicly-held shares. Among the concerns expressed were the
possibilities that the offer price was inadequate; that the decrease in the
"float" which would follow the tender, with possible decreased liquidity and
increased volatility in the market for the Shares, might adversely affect the
price for Shares not purchased by Orion; the possibility that shareholders might
be coerced into accepting the tender because of concerns that the post-tender
price for the stock would be less than the offer price; the absence of any
requirement that a majority of the non-Orion shares approve the offer; and the
absence of provisions which would prevent Orion from acquiring the balance of
the public shares after expiration of the tender at prices below the offer price
or from a subsequent sale of a controlling block of shares on terms which would
not permit the non-Orion shareholders to share in any "control premium."
Although no agreements were reached, Mr. Gruber indicated his willingness to
consider amending the Offer to include certain "back-end" protections for the
Company's shareholders following the consummation of the tender offer.
On May 29, 1996, Orion's general counsel and special outside counsel
contacted the counsel to the Special Committee to inform him that Orion intended
to amend its Offer to include certain of the "back-end" protections that had
previously been suggested by the Special Committee and to extend the Offer for
an additional five business days, until June 12, 1996. Later the same day, the
Special Committee held a telephonic meeting to discuss the Offer and the
recommendation of the Special Committee.
On May 30, 1996, Mr. Gruber called the Chairman of the Special
Committee to reiterate Mr. Gruber's belief that the engagement and incentive fee
structure with the Special Committee's financial advisor raises serious
questions about the objectivity and fairness of the evaluation process. (For a
detailed description of the fee arrangement with Salomon Brothers, see Item 5 of
the Company's Schedule 14D-9 dated May 22, 1996.)
Also on May 30, 1996, counsel for the Special Committee received a
draft of the Purchasers' proposed amendments to the Offer from counsel for the
Purchasers.
Later that day, the Special Committee held a telephonic meeting to
discuss the Offer and the recommendation of the Special Committee. The Special
Committee determined that the Offer is inadequate because of the Offer price and
the fact that the Offer is for less than 100% of the publicly-held Shares, but
nonetheless it made no recommendation at that time to the Company's
shareholders. The Special Committee's determination was based on the following:
(i) The opinion issued by the Special Committee's financial advisor,
Salomon Brothers, that the Offer is inadequate, from a financial point of view,
to the non-Orion shareholders.
(ii) The fact that a shareholder who believes the Offer is inadequate
may nevertheless feel compelled to tender his or her Shares because if the Offer
is consummated, the public float represented by the remaining Shares will be
substantially reduced. The smaller public float may reduce liquidity and lead
to greater price volatility, which could result in a lower price for such
Shares.
(iii) The likelihood that, regardless of the recommendation of the
Special Committee, Orion's Offer will continue and a significant number of
Shares will be tendered.
(iv) The Special Committee's review and analysis of presentations made
to it by its financial advisor with respect to the valuation of the Company's
stock as described in the Company's Schedule 14D-9 dated May 22, 1996.
(v) The Special Committee's familiarity with the Company's business,
financial condition, results of operations, current business strategy and
prospects.
(vi) The repeated attempts by the Special Committee and its financial
advisor to induce Orion to increase its Offer price and change the structure of
the Offer. Although such attempts have resulted in the "back-end" protections
described below, the Special Committee believes it is doubtful that further
discussions will result in any further changes in the Offer Price or number of
Shares being purchased.
(vii) The Special Committee's belief that if the Offer is
consummated, Orion will not mismanage the Company or loot its assets, based upon
Orion's conduct as a major or controlling shareholder of the Company since 1984.
(viii) The fact that the Offer price of $17.50 per share represents a
premium over the price of $16 1/8 at which the Shares were trading immediately
prior to the Offer and over the average price during the last 12 months of
$15.84, but is below the percentage premium that has been paid in other
comparable transactions.
(ix) The fact that Orion currently owns approximately 49% of the
outstanding Shares, has stated that it has no interest in selling its Shares and
has refused to identify the
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parties with whom Orion has discussed the possible acquisition of the Company.
As a result, it is extremely difficult for the Company to effect an alternative
transaction for the Company or the Shares, and the non-Orion shareholders
therefore could not reasonably expect to receive a "control premium" for their
Shares from a third party.
(x) The likelihood that the Shares will continue to be traded on the
New York Stock Exchange and that the Company will remain a reporting company
under the Securities Exchange Act of 1934, as amended.
(xi) The fact that shareholders who wish to retain a long-term
interest in the Company may do so by not tendering their Shares.
The Special Committee also discussed, but made no decision, as to whether it
should request its financial advisor to solicit interest from third parties in
acquiring the Company and whether it should recommend to the Board of Directors
that it amend the Company's Shareholder Rights Plan to eliminate the exemption
for acquisitions by Orion, which could have the effect of causing Orion to
withdraw the Offer if it did not have the approval of the Special Committee.
Finally, the Special Committee instructed its counsel to contact Orion's counsel
to inform him of the Special Committee's position with respect to the Offer and
to attempt to initiate further discussions of the Offer between Orion and the
Special Committee.
On May 31, 1996, counsel to the Special Committee was informed by
Counsel for Orion that the Purchasers would not further discuss with the Special
Committee the Offer Price or the maximum number of Shares subject to the Offer.
Also on that date, the financial advisor to the Special Committee issued its
opinion to the Special Committee. (A copy of the opinion was included as Exhibit
12 to Amendment No. 1 to the Schedule 14D-9 Statement and is incorporated herein
by reference.)
On May 31, 1996, counsel for the Special Committee received the
following revised draft of Purchasers' proposed amendments to the Offer:
Following Mr. Gruber's meeting with the Chairman of the Special
Committee on May 28, the Purchasers confirmed to legal counsel for the
Company and the Special Committee on May 29 that, if at least 4,600,000
shares are validly tendered and accepted for payment and paid for, then:
1. The Purchasers will not purchase, prior to the third
anniversary of the Expiration Date, additional Shares (if after giving
effect to such purchase they would own more than 81% of the outstanding
shares) other than pursuant to an offer made to all holders of Shares which
is conditioned on the acceptance of such offer by holders owning at least a
majority of the Shares then outstanding which are not held by the
Purchasers and their affiliates.
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2. If an offer is made to holders of Shares, as described in
paragraph 1 above, prior to the third anniversary of the Expiration Date,
the Purchasers will offer a purchase price involving consideration equal to
at least $17.50 per share.
3. The Purchasers will support adoption of a policy by the Board
of Directors of the Company that any repurchase of Shares by the Company
prior to the third anniversary of the Expiration Date should be approved by
a majority of those members of the Board of Directors who are independent
of and not employed by any of the Purchasers.
4. If, at any time during the five years following the
Expiration Date, the Purchasers should wish to sell as a block the Shares
owned by them, or propose a merger or consolidation involving the Company,
they will not do so unless (a) in the case of a sale of all Purchasers'
Shares, the purchaser of such Shares undertakes to offer to purchase all
other Shares outstanding for consideration of equivalent value to that
offered to the Purchasers or (b) in the case of a merger or consolidation,
all Shares are exchanged for substantially equivalent value.
Counsel for the Purchasers also stated to counsel for the Special
Committee that after reviewing a copy of Amendment No. 1 to the Schedule 14D-9
it would file an amendment to the Purchasers' Schedule 14D-1.
On June 1, 1996, the Special Committee held a telephonic meeting to
discuss possible actions that could be taken with respect to the Offer. The
Special Committee again discussed but reached no decision with respect to the
possible amendment of the Company's Shareholder Rights Plan to eliminate the
exemption for Orion. The Special Committee decided to request its financial
advisor to solicit any interest of third parties in acquiring all or any part of
the Company. Following the meeting, the Chairman of the Special Committee
contacted its financial advisor and made such request.
Item 4. The Solicitation or Recommendation
The following information is added to Item 4 of the Company's Schedule 14D-9, as
amended to date:
On June 6, 1996, the Special Committee (with Tucker Hart Adams absent)
held a telephonic meeting at which Salomon Brothers presented information about
its solicitation of interest from third parties. The Special Committee further
discussed the possible amendment of the Company's Shareholder Rights Plan.
Salomon Brothers reported that, as of the close of business on June 6, 1996, it
had contacted approximately 12 potential firms which the advisor believed might
have an interest in acquiring some or all of the Shares. Several companies are
evaluating a possible transaction with the Company. However, at this time no
party is in a position to formally express an indication of interest. The
Special Committee believes that any such negotiation would require an initial
understanding between the potential buyer and Orion
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that Orion would be interested in discussing a transaction at a price within the
price range being considered by the potential buyer. The Special Committee is
not aware of what price, if any, would be considered by Orion to be sufficient
as a basis for such discussion.
The Special Committee, at the conclusion of the discussion on the
Shareholder Rights Plan, unanimously (with Ms. Adams absent) decided to request
that a special meeting of the Board of Directors be convened on Tuesday, June
11, 1996 at 11:00 a.m., Denver time, to consider and vote upon the
recommendation of the Special Committee to amend the Company's Shareholder
Rights Plan in order to eliminate the exemption for Orion. The Special
Committee's request was transmitted to the president of the Company by telecopy
on June 7, 1996. The President of the Company has informed the Special
Committee that he is seeking to hold a meeting of the Board on that date. The
purpose for the request is to cause Orion either to negotiate an improved offer
which the Special Committee could recommend to the shareholders, or to withdraw
its offer. The Special Committee does not know at this time whether a majority
of the members of the Board will vote for the proposed amendment. Each member
of the Special Committee, other than Ms. Adams, who was absent from the meeting,
has indicated that he or she will vote in favor of the amendment to the
Shareholder Rights Plan. There can be no assurance as to whether the Board of
Directors will vote to approve the amendment, or as to the response, if any, by
Orion. If the Amendment is adopted, the Special Committee believes that Orion
may withdraw its Offer, or agree to amendments to the Offer which will be
sufficient to cause the Special Committee to recommend acceptance of the Offer,
or institute litigation to invalidate the amendment.
In reaching its decision, the Special Committee considered a variety
of factors, including the price and coercive nature of the Offer, the refusal of
Orion to negotiate with the Special Committee as to increasing the Offer price
or changing to a tender offer for 100% of the outstanding Shares, the fact that
the Special Committee believes that it would be in the best interests of the
Company's shareholders for Salomon Brothers to be able to continue discussions
with third parties who may be interested in acquiring the Company, the fact that
the Offer price is only at the low end of the range of valuations suggested by
the Special Committee's financial advisor based on its discounted cash flow,
comparable public company and comparable acquisition and other transaction
analyses, and the Special Committee's belief, based upon conversations with
management, that any litigation which may result from the amendment of the
Rights Plan would be unlikely to cause significant disruption to the Company's
business, although it could be costly and thus have an impact on the Company's
financial condition. The Special Committee continues to have no basis to
believe, however, that the action of the Board on the proposal will change
Orion's decision that it will not increase either the Offer price or the number
of Shares for which it is tendering.
Opinion of Financial Advisor
Salomon Brothers was retained by the Special Committee to assist the
Special Committee in evaluating Orion's tender offer. In that connection, the
Special Committee requested Salomon Brothers to render an opinion as to the
adequacy, from a financial point of
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view, of the Orion Proposal, as defined below, to the holders of the Company's
common stock, par value $1.00 per share (the "Common Stock"), other than Orion
(the "Non-Orion Stockholders"). Orion's tender offer, collectively with the
resulting minority ownership of Common Stock, is referred to herein and in
Salomon Brothers' opinion as the "Orion Proposal." No limitations were imposed
by the Special Committee upon the scope of Salomon Brothers' investigation or
otherwise with respect to the opinion rendered by Salomon Brothers.
Salomon Brothers rendered to the Special Committee its written
opinion, dated May 31, 1996, to the effect that, as of such date, the Orion
Proposal was inadequate to the Non-Orion Stockholders from a financial point of
view (the "Opinion"). The full text of the Opinion, which sets forth the
assumptions made, general procedures followed, matters considered and limits on
the review undertaken, was attached as Exhibit 12 to Amendment No. 1 to the
Schedule 14D-9, and was mailed to the shareholders of the Company on June 3,
1996. The summary of the Opinion set forth below is qualified in its entirety
by reference to the full text of the Opinion. Holders of shares of Common Stock
are urged to read the Opinion in its entirety.
In connection with rendering the Opinion, Salomon Brothers reviewed
and analyzed material bearing upon the financial and operating condition and
prospects of the Company including, among other things, the following: (i) the
Schedule 14D-1; (ii) certain publicly available information concerning the
Company, including the Annual Reports on Form 10-K of the Company for the years
ended December 31, 1995 and December 31, 1994, and the Quarterly Report on Form
10-Q of the Company for the quarter ended March 31, 1996; (iii) certain internal
information of the Company, primarily financial in nature (including
projections, forecasts and analyses prepared by or on behalf of the Company's
management), concerning the business, assets, liabilities, operations and
prospects of the Company furnished to Salomon Brothers by the Company for
purposes of its analysis, including the unaudited financial statements of the
Company for the four-month period ended April 30, 1996, prepared by the Company;
(iv) statutory financial information of the Company's insurance subsidiaries for
the years ended December 31, 1995 and December 31, 1994, and for the three-month
period ended March 31, 1996; (v) certain publicly available information
concerning the trading of, and the trading market for, the Common Stock; (vi)
certain publicly available information with respect to certain publicly traded
companies that Salomon Brothers believed to be comparable to the Company and the
trading markets for certain of such other companies' securities; (vii) certain
publicly available information concerning the nature and terms of certain other
acquisition transactions and certain transactions involving the acquisition of
minority interests by controlling stockholders that Salomon Brothers considered
relevant to its inquiry; and (viii) the financial terms of the Orion Proposal.
Salomon Brothers also met with certain officers and employees of the Company to
discuss matters it believed relevant to its inquiry including the past and
current business operations, financial condition and prospects of the Company.
In its review and analysis and in arriving at its opinion, Salomon
Brothers assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it or publicly available and neither
attempted independently to verify nor
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assumed responsibility for verifying any of such information. With respect to
financial projections and forecasts, Salomon Brothers assumed that they had been
reasonably prepared and reflected the best currently available estimates and
judgments of the Company's management as to the future financial performance of
the Company. Salomon Brothers expressed no view with respect to such
projections or forecasts or the assumptions on which they were based. Salomon
Brothers did not make or obtain or assume any responsibility for making or
obtaining any independent evaluations or appraisals of any of the Company's
assets, properties or facilities, and Salomon Brothers was not furnished with
any such evaluations or appraisals.
In conducting its analysis and arriving at the Opinion, Salomon
Brothers considered such financial and other factors as it deemed appropriate
under the circumstances including, among others, the following: 1) the
historical and current financial position and results of operations of the
Company; 2) the business prospects of the Company; 3) the historical and current
market for the Common Stock and for the equity securities of certain other
companies that Salomon Brothers believed to be comparable to the Company; and 4)
the nature and terms of certain other acquisition transactions and acquisitions
of minority interests by controlling shareholders that Salomon Brothers believed
to be relevant. Salomon Brothers also took into account its assessment of
general economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuation generally. At the
date of the Opinion, Salomon Brothers had not been requested to solicit, and
accordingly Salomon Brothers had not solicited, interest from any third party
with respect to the acquisition of all or any part of the Company. The Opinion
was necessarily based upon conditions as they existed and could be evaluated on
the date of the Opinion and Salomon Brothers assumed no responsibility to update
or revise the Opinion based upon circumstances or events occurring after the
date of the Opinion.
The Opinion was delivered for the sole benefit of the Special
Committee in its consideration of the Orion Proposal and is, in any event,
limited to the adequacy, from a financial point of view, of the Orion Proposal
to the Non-Orion Stockholders and does not constitute a recommendation to any
Non-Orion Stockholder as to whether such holder should tender shares of Common
Stock in the Orion Offer.
The financial advisor has advised the Special Committee of the Board
of Directors that, based on an express disclaimer in its engagement letter with
the Special Committee, the financial advisor does not believe that any person
(including a shareholder of the Company) other than the Company or the Board of
Directors (including the Special Committee) has the legal right to rely upon
this opinion to support any claims against the financial advisor arising under
applicable state law; and that, should any such claims be brought against the
financial advisor by any such person, this assertion will be raised as a
defense. In the absence of applicable state law authority, the availability of
such a defense will be resolved by a court of competent jurisdiction.
Resolution of the question of the availability of such a defense, however, will
have no effect on the rights and responsibilities of the Board of Directors, or
its Special Committee, under applicable state law. Nor would the availability
of such a state law defense
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to the financial advisor have any effect on the rights and responsibilities of
either the financial advisor or the Board of Directors (including its Special
Committee) under federal securities laws.
In preparing its opinion to the Special Committee and in connection
with a presentation to the Special Committee on May 20, 1996, Salomon Brothers
performed a variety of financial and comparative analyses, including those
described below. The summary of Salomon Brothers' analyses set forth below does
not purport to be a complete description of the analyses performed by Salomon
Brothers or of its presentations to the Special Committee. The preparation of
an adequacy opinion is a complex process involving subjective judgments and is
not necessarily susceptible to partial analysis or summary description. In
arriving at its opinion, Salomon Brothers did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Salomon Brothers believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all analyses and factors, could create a misleading
or incomplete view of the processes underlying such analyses and its opinion.
With respect to the comparable public company analysis, comparable acquisition
analysis and comparable transaction analysis summarized below, no public
company, acquisition or transaction utilized as a comparison is identical to the
Company or the Orion Proposal and such analyses necessarily involve complex
considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors that could affect
the acquisition or public trading values of the companies concerned. In its
analyses, Salomon Brothers made numerous assumptions with respect to the
Company, industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
Company. Any estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
In addition, Salomon Brothers' analyses and estimates of value do not purport to
be appraisals or necessarily to reflect the prices at which the Company or any
shares of Common Stock may be sold. Accordingly, because such estimates are
inherently subject to uncertainty, none of the Company, Salomon Brothers or any
other person assumes responsibility for their accuracy.
In arriving at the Opinion, Salomon Brothers performed, among other
things, a (i) discounted cash flow analysis, (ii) comparable public company
analysis, (iii) comparable acquisition analysis and (iv) comparable transaction
analysis. Salomon Brothers discussed with the Special Committee the need to
consider the blended value of the Orion Proposal in assessing the adequacy of
the Orion Proposal in comparison with the valuation analyses performed by
Salomon Brothers. Salomon Brothers noted that such a blended value would take
into account a 60% cash component equal to the $17.50 tender offer price in the
Offer and a 40% component equal to the market value of the Common Stock after
consummation of the Offer. Salomon Brothers advised the Special Committee that
the market price of the Common Stock following announcement of the Offer (which
had generally been approximately $17.13) was a reasonable approximation of the
blended value of the Orion Proposal on a per share basis, as perceived by the
market.
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Discounted Cash Flow Analysis. Salomon Brothers performed a
discounted cash flow analysis pursuant to which the value of the Company was
estimated by adding (i) the estimated net present value of the Company's future
dividend stream plus (ii) the estimated net present value of the terminal value
of the Company, based upon certain operating and financial assumptions,
forecasts and other information provided to Salomon Brothers by the management
of the Company and its affiliates. Salomon Brothers based its dividend stream
estimates upon projected income statements for the Company for the five year
period ended December 31, 2001, as prepared by the management of the Company.
In addition, as part of Salomon Brothers' discounted cash flow analysis, Salomon
Brothers made certain adjustments to accelerate the distribution of free cash
flows to stockholders, which had the effect of slightly reducing GAAP net
earnings in subsequent years. For purposes of such analyses, Salomon Brothers
utilized discount rates of 10%, 12% and 14%, and terminal values based on
multiples of 9x, 10x, 11x and 12x projected GAAP net earnings in the year 2001
and 1.1x, 1.2x, 1.3x and 1.4x projected GAAP book value in the year 2001. The
discounted cash flow analyses were conducted using two different sets of
operating projections. The first set of projections, prepared by the management
of the Company, herein referred to as the "base case" scenario, assumed, among
other things, a compounded annual growth in both gross and net premiums written
of 12.5% and a combined ratio of 98.5% beginning in 1998. The second set of
projections, herein referred to as the "lower growth" scenario, was prepared by
management upon the request of Salomon Brothers to utilize more conservative
assumptions in preparing such projections. The lower growth scenario, assumed a
compounded annual growth in both gross and net premiums written of 7.5% and a
combined ratio of 99.5% beginning in 1997. From these analyses Salomon Brothers
derived reference ranges for the implied value of the shares of Common Stock
under the base case and the lower growth scenario of $17.93 to $26.87 and $16.83
to $22.98, respectively.
Comparable Public Company Analysis. Salomon Brothers reviewed certain
publicly available financial, operating and stock market information for twenty-
five public non-standard automobile, specialty commercial and personal lines
property and casualty insurers (collectively, the "Comparable Companies").
Salomon Brothers noted that although such Comparable Companies were considered
reasonably similar to the Company insofar as they participate in business
segments similar to the Company's, none of the companies has the same
management, makeup, size and combination of businesses as the Company. In
performing the comparable public Company analysis Salomon Brothers selected
publicly traded non-standard automobile insurers (The Progressive Corp., Midland
Financial Group, Omni Insurance Group and Integon Corp.); specialty commercial
insurers (Allied Group Inc., CapSure Holdings Corp., Executive Risk Inc.,
Frontier Insurance Group, Gainsco Inc., Harleysville Group, Markel Corp., Old
Republic International, Orion Capital Corp., Selective Insurance Group, United
Fire & Casualty and W.R. Berkley Corp.) and personal lines property and casualty
insurers (Allmerica Property & Casualty, The Allstate Corporation, American
Financial Group, Inc., Commerce Group Inc., Horace Mann Educators Corp., Mercury
General Corp., Ohio Casualty Corp., Safeco Corp. and 20th Century Industries).
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Using publicly available information, Salomon Brothers analyzed, among
other things, the market values and certain historical and financial data for
each of the Comparable Companies, including the (i) 52-week trading range, (ii)
dividend yield, (iii) last twelve-month operating earnings per share, (iv)
multiples of price to 1996 and 1997 estimated earnings per share and 5-year
projected earnings per share growth, as published by the Institutional Brokers
Estimate System as of April 18, 1996, and (v) multiples of price to reported
book value per share. Salomon Brothers derived high, low, mean and median
multiples from the foregoing analysis of the Comparable Companies and applied
them to certain financial data relating to the Company. From this analysis,
Salomon Brothers derived a reference range (based on the mean and median values
resulting from application of each methodology) for the implied value of the
shares of Common Stock of $15.31 to $23.81 per share.
Comparable Acquisition Analysis. Salomon Brothers reviewed the
consideration paid in certain public and private acquisitions or business
combination transactions in the non-standard automobile insurance industry since
1988. The acquisitions or business combinations reviewed included the
following: Midland Financial Group/Danielson Holding Corporation, Viking
Insurance Holdings Inc./Guaranty National Corp., Victoria Financial Corp./USF&G,
Bankers and Shippers Insurance Co./Integon Corp., American Ambassador Casualty
Co./Guardian Royal Exchange Plc, Leader National Insurance Co./Penn Central
Corp., Atlanta Casualty Company/Penn Central Corp., Integon Corp./Jupiter
Industries and Guaranty National Corp./Orion Capital Corporation. In addition,
Salomon Brothers reviewed selected property and casualty insurance company
acquisitions since 1995. Using publicly available information, Salomon Brothers
(a) calculated the relationship between the consideration paid in these
transactions and, among other things, each of the acquired companies' (i) GAAP
net operating income, (ii) GAAP book value, (iii) statutory net operating income
and (iv) statutory capital and surplus and (b) determined the percentage premium
that such consideration represented when compared to the share trading price of
each acquired company one month and one day prior to the announcement of such
transaction. Based on the foregoing analyses, Salomon Brothers derived high,
low, mean and median multiples or percentages, as the case may be, and applied
or compared such multiples or percentages, as applicable, to (i) estimated 1996
GAAP net operating income, (ii) March 31, 1996 GAAP book value, (iii) estimated
1996 statutory net operating income, (iv) March 31, 1996 statutory capital and
surplus and (v) share trading prices one month and one day prior to the
announcement of the Offer. From the analysis of comparable transactions
involving non-standard automobile insurance companies, Salomon Brothers derived
a reference range (based on the mean and median values resulting from
application of each methodology) for the implied value of the shares of Common
Stock of $16.74 to $33.89 per share.
Comparable Transaction Analysis Involving Acquisition of Minority
Interests by Controlling Stockholders. Salomon Brothers reviewed the
consideration paid in certain transactions in which a controlling stockholder,
generally one owning more than 40% of a public company, was seeking to acquire
substantial additional ownership of that company. Salomon Brothers considered
48 such transactions since 1992 that it considered comparable to the Offer.
Using publicly available information, Salomon Brothers determined that the mean
and median
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premiums to market four weeks prior to announcement for all transactions were
28.6% and 23.5%, respectively. Of the 48 transactions, 39 have been
consummated. The mean and median premiums to market four weeks prior to the
announcement for the 39 transactions that were consummated were 31.5% and 25.3%,
respectively. Salomon Brothers reviewed in greater detail one of these
transactions since, of the 48 transactions reviewed, it was most comparable to
the Orion Offer. In this transaction, MacAndrews & Forbes sought to increase
its ownership in Marvel Entertainment Group Inc. from 60% to 80% via a tender
offer. The initial offer price was increased by 20% and the final offer price
represented a 58.9% premium to market four weeks prior to the announcement of
the MacAndrews & Forbes offer.
Salomon Brothers noted that these premiums could be compared with the
14.8% premium that the Orion tender offer price represented to the market price
four weeks prior to the Offer and the 12.3% premium that the "blended value" of
the Orion Proposal, using the then current stock price of $17.13 as an
approximation of such "blended value," represented to the market price four
weeks prior to the Offer. The Orion offer represented a premium of 8.5% to the
market price one day prior to the Offer while the "blended value" of the Orion
Proposal represented a premium of 6.2% to the market price one day prior to the
Offer.
In order to provide the Special Committee with some sense of the
impact of the Offer on the resulting minority ownership of Common Stock, in
light of the significant decrease in the public float and liquidity of the
Common Stock that would result, Salomon Brothers also evaluated the correlation
between stock price volatility, as measured by the standard deviation of the
daily stock price returns over a six-month period normalized to a one-year
period, and average daily trading volume of selected comparable property and
casualty insurers. Using publicly available information, this analysis
suggested that lower average daily trading volume generally resulted in a higher
share price volatility and lower share valuation.
-11-
Item 9. Material to be Filed as Exhibits
Exhibit 13 - Letter to Shareholders, dated June 7, 1996
Exhibit 14 - Press release issued on June 7, 1996 (not included in copies
mailed to shareholders)
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 7, 1996
GUARANTY NATIONAL CORPORATION
By:/s/ Michael L. Pautler
----------------------
Michael L. Pautler, Senior Vice President -
Finance and Treasurer
-12-
EXHIBIT INDEX
Description
- -----------
Exhibit 13 - Letter to Shareholders, dated June 7, 1996
Exhibit 14 - Press release issued on June 7, 1996
EXHIBIT 13
Guaranty National Corporation
9800 South Meridian Boulevard
Englewood, Colorado 80112
June 7, 1996
Dear Shareholder:
The enclosed Amendment No. 2 to Schedule 14D-9 includes additional
information about actions taken by the Special Committee with respect to Orion
Capital Corporation's Tender Offer for approximately 30% of the Outstanding
Shares of Guaranty National Corporation (the "Company"), as well as a detailed
description of the analyses done by Salomon Brothers Inc in connection with its
opinion to the Special Committee.
The Amendment also sets forth the decision by the Special Committee to
request that the President of the Company call a special meeting of the Board of
Directors in order to consider and act upon an amendment to the Company's
Shareholder Rights Plan which would eliminate the exemption for acquisitions of
shares by Orion. There can be no assurance that the Board of Directors will
vote to approve the amendment. If the Amendment is adopted, the Special
Committee believes that Orion may withdraw its Offer, or agree to amendments to
the Offer which will be sufficient to cause the Special Committee to recommend
acceptance of the Offer, or institute litigation to invalidate the amendment.
You are encouraged to read these materials carefully before making your own
determination as to whether to tender some or all of your Shares.
Sincerely,
Dennis J. Lacey
Chairman of the Special Committee
-1-
EXHIBIT 14
June 7, 1996
For Immediate Release
Contact: Mike Pautler
Senior Vice President of Finance
(303) 754-8701, or
Sharon McDougall
Director of Communications
(303) 754-8717
For: Guaranty National Corporation (NYSE: GNC)
Guaranty National Corporation
Special Committee
Recommends Amendment of Rights Plan
(Englewood, Colorado) - Guaranty National Corporation ("GNC") announced today
that its Special Committee of disinterested, outside directors has requested
that a Special Meeting of the Board of Directors be called for Tuesday, June 11,
1996 to consider and vote upon the recommendation of the Special Committee to
amend the Company's Shareholder Rights Plan. The Company is filing an Amendment
No. 2 to its Schedule 14D-9 which includes additional information about the
action taken by the Special Committee with respect to Orion Capital
Corporation's tender offer for approximately 30 percent of the outstanding
shares of GNC. The Amendment will also include a detailed description of the
analyses done by Salomon Brothers Inc in connection with its opinion to the
Special Committee.
The proposed amendment would eliminate the exemption for Orion Capital
Corporation and its subsidiaries with respect to Orion's pending tender offer
for approximately 30 percent of the Company's outstanding common stock at a
price of $17.50 per share. There can be no assurance, however, that the
amendment will be adopted by the Board of Directors. If adopted, Orion may
terminate its offer, negotiate for a higher price per share, agree to acquire
100 percent of the outstanding shares, or seek to invalidate the amendment
through litigation. There can be no assurance, however, as to what response
Orion may make.
Through its subsidiaries, Guaranty National writes specialty commercial and
private passenger automobile insurance, as well as collateral protection and
other commercial coverages. The Company is a leading provider of nonstandard
personal automobile insurance written through independent agents. A.M. Best
Company rates Guaranty National Insurance Company and its subsidiaries "A
(Excellent)" and Viking Insurance Company of Wisconsin and its affiliate "A-
(Excellent)". The Company's common stock is traded on the New York Stock
Exchange under the symbol GNC.