Largest Delta Lloyd Shareholder, Highfields, Will Vote Against Rights Offer

By David de Jong | March 2, 2016

Highfields Capital Management LP, the largest shareholder in Delta Lloyd NV, will vote against the Dutch insurer’s plan to raise 650 million euros ($706 million) in a rights offer it called “unnecessary.”

“Their actions are so detrimental to shareholders, and their executive and supervisory boards so unresponsive to our private concerns, that we are compelled to publicly voice our opposition to this rights issue, point out the flaws in management’s approach, and protect the value of our investment,” the Boston-based investment firm, which manages about $12 billion, said in a presentation on Tuesday. Shareholders will vote on the capital increase on March 16.

“We’re well aware of Highfields’ position,” Martijn Donders, a spokesman for Delta Lloyd, said by phone. “We look forward in full confidence to the rights offer vote in two weeks.” He declined to comment on any specific issues raised by Highfields.

Delta Lloyd, the worst-performing stock on the Amsterdam Stock Exchange in the past 12 months, plans to raise the money to bolster capital. The share price has fallen more than 60 percent from August after a first-half loss fueled speculation that the insurer would require a capital increase.

The insurer, whose shareholders include money manager David Einhorn, fell as much as 3.3 percent on Wednesday and was down 0.8 percent at 6.13 euros on 9:45 a.m.

Raises Stake

Highfields, run by Jon Jacobson, began raising its stake in the insurer in August and now owns more than 9 percent of Delta Lloyd, according to the presentation. The shares could be worth about 15 euros if there is no rights issue and Highfields is correct on capital growth projections for the insurer, the stockholder said in a presentation.

“We believe strongly in the long‐term value of this business,” Highfields said. “Management is putting forth a series of false crises and assumptions to justify this capital raise.”

Delta Lloyd’s leadership is ignoring deferred tax assets and other items in some of its assumptions on capital, according to the presentation. The insurer is not dependent on its credit rating and net debt “is as healthy as it has ever been post-IPO” in 2009, Highfields said.

“Highfields makes a few valid points,” Joost van Beek, an analyst at Theodoor Gilissen Bankiers, said by phone. “But Delta Lloyd is facing a couple of dark clouds externally, such as the possible further lowering of the ultimate forward rate, the development of interest rates as well as investment returns, which justify why they want to do the rights offer.”

Under Pressure

Delta Lloyd has been under pressure to reassure investors as the European Union introduced stricter capital requirements for insurers in January under rules known as Solvency II.

The rights offer will raise the insurer’s solvency ratio from 140 percent to as much as 180 percent with management targeting the top end of the range, Delta Lloyd said Feb. 24. A ratio that high is unnecessary, hurts shareholders and management should instead target a number toward the bottom of the range, Highfields said.

Management is also not aligned with shareholders economically, according to the presentation. Delta Lloyd Chief Executive Officer Hans van der Noordaa, who became CEO in January 2015, does not own a single share in the insurer, Highfields says.

Proxy advisory firms ISS and Glass Lewis & Co. advised their clients on Tuesday to vote in favor of Delta Lloyd’s rights offer.

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