That's a pretty convincing argument.
Clearly that was a low ball offer and the fact that 5% of the shares were tendered demonstrates that.
The company is in run-off and the preferreds are currently out of the money by a few $100mm including the convertible preferreds liquidation preference. If the company is sold, it will be done in such a way so that the chafe in control provision is triggered.
The business isn't going to generate enough earnings to close that gap anytime soon. Ironically, buying the preferreds at a discount helps. The securities they own will not appreciate enough and when rates go up assuming they are matching durations (which all insurance cos must do) the liabilities and assets will both decline in value.
As I've mentioned before numerous times, MM and Cerberus are looking to maximize their recovery of their $600mm investment. They are going to sit on this until there is no more securities to buyback or no more appreciation in the portfolio.
There is a scenario that is possible where MM and Cerberus convert their shares to common to sell the business, but I think that is likely after 2016. There is the opinion out there that the MM and Cerberus' convertible preferreds aren't convertible in 2016 anymore because there is no ordinary shares outstanding- that's why this could go on longer.
The offer is poorly timed for preferred shareholders. I believe the 10k will have the "going concern" language removed for reasons I will not go I to now. It was also poorly timed because the preferred shareholders get 2 seats on the board and I also believe they would pay out 4 quarters of dividends to avoid the shareholders having a voice.
As I said, I think you may see $25 if a number of things happen but it wont be for a while. Given the uncertainly and illiquidity (which will be worse after the tender) this is a pretty good offer. Unfortunately no one else has been able to explain why this isn't.
