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Lawsuit seeks to stop $286 million National Interstate buyout

By Jim Mackinnon
Beacon Journal business writer

National Interstate Corp.’s founder is seeking a temporary restraining order in federal court to stall the nearly $286 million buyout attempt by majority shareholder American Financial Group.

Alan Spachman, who founded specialty insurer National Interstate in 1989, alleges in his federal lawsuit filed Wednesday that the buyout process violates federal securities laws, Ohio law and is a breach of fiduciary duty. Spachman is one of the company’s 10 board members.

Spachman said he could be in favor of the buyout if the process is changed and shareholders are paid more money.

Spachman made public, via a filing with the Securities and Exchange Commission, a letter dated March 5 to National Interstate’s board of directors detailing his concerns about the proposed $30-per-share tender offer, or about $285.7 million, by Cincinnati-based AFG.

The letter said Spachman was filing the federal lawsuit “ ... because my efforts to persuade AFG and its designees have fallen on deaf ears.”

The lawsuit, filed in U.S. District Court for the Northern District of Ohio, says “this case arises out of a coercive tender offer orchestrated by National Interstate’s majority shareholder to acquire the company’s outstanding public shares through a flawed process, on the basis of misleading disclosures, at an unfair price, and with the benefit of highly material inside information that it is deliberately withholding from the public shareholders.”

American Financial Group responded Thursday to Spachman’s letter, not the lawsuit. AFG’s statement read:

• Today’s letter is another attempt by Alan Spachman to prevent National Interstate shareholders from receiving AFG’s all-cash offer of $30 per share of National Interstate Corp. ...

• Our offer is, and always has been, in the hands of shareholders, and it is up to them to make an informed decision.

• Given Alan Spachman’s repeated attempts to deny National Interstate shareholders the opportunity to decide for themselves, shareholders should question his motives and whether he has their best interest in mind.

• Contrary to Spachman’s allegations, we have made abundant disclosures around this matter and have complied with all applicable laws with regard to our offer.

• Our best and final all-cash offer of $30.00 per share for any and all shares represents compelling value for National Interstate shareholders.”

Spachman remains one of National Interstate’s largest shareholders, with about 9.2 percent of outstanding shares. Mutual fund firm T. Rowe Price, another large National Interstate shareholder with about 8 percent of outstanding shares, also has publicly criticized the process.

AFG owns approximately 52 percent of National Interstate and is seeking to buy the remaining 48 percent.

AFG has changed parts of its tender offer, moving its deadline from March 6 to midnight March 17 and also saying that its subsidiary, Great American Insurance Co., no longer needs to own at least 90 percent of National Interstate shares before the merger is done.

Spachman has been saying that National Interstate’s board needs to create a committee of independent directors to evaluate AFG’s tender offer. Four of National Interstate’s directors are current AFG executives while a fifth director recently retired from AFG.

Spachman also calls AFG’s waiver of the 90 percent requirement “highly coercive.”

“I continue to believe AFG can buy the 48 percent of the outstanding shares of National Interstate that it does not currently own by the simple expedients of permitting National Interstate to conduct a fair process and AFG offering a fair price,” Spachman wrote.

Spachman’s lawsuit said that Duff & Phelps, a financial advisory firm hired by National Interstate to evaluate AFG’s initial tender offer, said the Richfield insurer had a value between $29.51 and $35.72 per share.

Shares of National Interstate on Thursday closed at $30.24, down 6 cents.

Jim Mackinnon can be reached at 330-996-3544 or


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