Bermuda-based specialty P&C insurer Argo continues to butt heads with activist investor Capital Returns Master, Ltd. as they both seek to sway shareholders ahead of a key vote on the composition of Argo’s Board of Directors at its annual general meeting (AGM) next month.
Last month, Capital Returns and other participants urged shareholders to elect two new directors to Argo’s Board in order to address what they label as “years of underperformance and poor decision-making” at the company.
The calls came as Argo reported worsening losses in its Q3 results, and after a group of investors announced they planned to sue Argo for allegedly misleading them on key performance metrics that led to a huge drop in share price this year.
Argo has since responded to the challenge from Capital Returns in an effort to assure investors that the company has already made the necessary changes to improve its performance and valuation, and to warn that more changes in governance could cause further instability.
But Capital Returns has continued to pile on the pressure with fresh criticisms levelled at the method of governance employed at Argo, charging that the company’s executive management team “have demonstrated they are incapable of creating value for Argo shareholders,” as it continues to lobby for more shareholder support to instate its own pick of directors to the Board.
“It has become clear to us that new, qualified directors are required to ask hard questions and push Argo in the right direction,” Capital Returns wrote in a letter to shareholders, in which it asks for voter support to elect Ronald Bobman and David Michelson, and five of the seven directors nominated by Argo.
“It is undeniable that Argo has destroyed value for shareholders despite having a strong leadership position in the U.S. specialty insurance market,” the letter continues. “It is equally undeniable, in our view, that the value destruction is the result of poor oversight and bad decision-making by the Board and executive management team … In our view, it is clearly time for change.”
The investor proposes swapping out current directors Bernard Bailey and Al-Noor Ramji, who have been nominated again by Argo, but neither of whom – Capital Returns claims – possess “meaningful or relevant insurance expertise.”
However, Argo maintains that these two directors “bring expertise and experience important to the Company’s business and have been instrumental in overseeing the execution of the Company’s transformation, recruiting new management and refreshing the Board.”
Rather, it charges that the directors nominated by Capital Returns would “diminish the Board’s capabilities and expertise,” and says it has reached this conclusion following a formal interview process.
And furthermore, while Capital Returns stresses that it has “owned Argo stock for years” and “first started researching and following the Company and its predecessors almost 20 years ago in 2003,” Argo claims that the investor has been “regularly selling blocks of Argo shares” and questions the long-term interest of the company and its alignment with the best interests of other Argo shareholders.
Nevertheless, Argo grants that its current share price “does not reflect the true value of our business,” and has re-iterated the introduction of a new growth strategy and the implementation of a review process which “is actively exploring a range of options to maximize value for Argo shareholders,” including a potential sale of the company.
It further notes that three of its seven directors will have joined the Board in the past three years, and five of seven directors will have joined the Board in the past four years, suggesting that its current composition reflects “independent and fresh perspectives.”
But Capital Returns argues that the new management team has so far failed to rectify mistakes made by previous leader, including CEO Thomas Bradley, who it notes “has no prior experience leading a publicly traded insurance company as Chairman or CEO,” and who it says only finds himself in this role due to “poor succession planning.”
“Given the Board and management team’s abysmal track record in exercising business judgment and managing risk, we see no reason to be optimistic about Argo’s prospects as an independent company,” the investor stressed. “We believe it is time for the Board to embrace the perspective that the best way for shareholders to maximize the risk-adjusted value of their investment in Argo is for the Company to be sold.”
The issue will now come to a head at Argo’s annual general meeting scheduled for December 15, 2022, when shareholders will have the opportunity to vote on the composition of the Board, and to show whether they remain convinced of the success of Argo’s current trajectory.
