DEFA14A: Ambac Addresses Stockholder Concerns with Supplemental Disclosures on AAC Sale to Oaktree

Ambac Financial Group provides supplemental disclosures to its proxy statement regarding the proposed sale of Ambac Assurance Corporation (AAC) to Oaktree Capital Management, addressing stockholder demand letters and complaints alleging disclosure deficiencies.

Summary

• Ambac Financial Group is supplementing its proxy statement related to the proposed sale of Ambac Assurance Corporation (AAC) to American Acorn Corporation, owned by Oaktree Capital Management, for $420 million.
• The supplement addresses concerns raised in six stockholder demand letters and two complaints filed in the Supreme Court of New York, which allege disclosure deficiencies in the original proxy statement.
• While Ambac believes the claims are without merit, it is providing additional disclosures to mitigate potential litigation risks.
• The supplemental disclosures clarify details regarding non-disclosure agreements (NDAs), management employment post-sale, and the financial advisor's (Moelis) valuation analysis.
• Moelis's dividend discount model analysis used discount rates ranging from 13.75% to 20.0% based on AAC's estimated cost of equity.
• Moelis's precedent transaction analysis applied multiples of 0.30x to 0.65x to AAC's Adjusted Book Value, 0.55x to 0.75x to Adjusted Statutory Book Value, and 0.35x to 0.70x to Tangible Book Value.
• As of March 31, 2024, Ambac estimated AAC's Adjusted Book Value at approximately $849 million, Adjusted Statutory Book Value at $687 million, and Tangible Book Value at $674 million.
• Moelis's publicly traded companies analysis applied multiples of 0.40x to 0.50x to AAC's Adjusted Book Value; 0.30x to 0.60x to AAC's Adjusted Statutory Book Value; and 0.55x to 0.70x to AAC's Tangible Book Value.
• Ambac continues to recommend that stockholders vote in favor of the proposed sale at the special meeting on October 16, 2024.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While there are legal challenges, the company is proactively addressing them. The deal is still expected to proceed.

Positives

• Ambac is proactively addressing stockholder concerns by providing supplemental disclosures.
• The company is attempting to mitigate potential litigation risks associated with the sale of AAC.
• The supplemental disclosures provide additional transparency regarding the valuation analysis and deal terms.

Negatives

• The stockholder demand letters and complaints indicate potential dissatisfaction with the initial disclosures.
• The need for supplemental disclosures suggests possible weaknesses or omissions in the original proxy statement.
• Litigation, even if Ambac believes it is without merit, can be costly and disruptive.

Risks

• Ambac may receive additional stockholder demand letters and complaints related to the sale.
• The ongoing litigation could delay or complicate the closing of the transaction.
• Stockholders may not approve the sale despite the board's recommendation.
• The sale is subject to certain adjustments which may impact the final consideration.

Future Outlook

Ambac continues to recommend that stockholders vote 'FOR' the proposals being considered at the special meeting of stockholders.

Management Comments

• Ambac believes that the claims asserted in the demand letters and the complaints are without merit and that no supplemental disclosure to the Proxy Statement is required under any applicable rule, statute, regulation or law.
• Ambac has determined that it will make the below supplemental disclosures to, among other things, reduce the burden, inconvenience, expense, risk and disruption of continuing or potential litigation, and without admitting liability or wrongdoing.

Industry Context

The transaction reflects ongoing consolidation and investment activity in the insurance and financial services sectors, with private equity firms like Oaktree seeking opportunities in undervalued or distressed assets.

Comparison to Industry Standards

• The valuation multiples used by Moelis in the precedent transaction analysis (0.30x to 0.65x Adjusted Book Value) and publicly traded companies analysis (0.40x to 0.50x Adjusted Book Value) can be compared to similar transactions in the insurance industry.
• Companies like Apollo Global Management, Blackstone, and KKR are active investors in the insurance space, and their transaction multiples could serve as benchmarks.
• Comparing the discount rate of 13.75% to 20.0% to the cost of equity of comparable insurance companies provides context for the valuation.

Legal Proceedings

• Six stockholder demand letters have been sent to Ambac alleging disclosure deficiencies.
• Two complaints have been filed against Ambac and its Board of Directors in the Supreme Court of New York alleging negligent misrepresentation and concealment.

Stakeholder Impact

• Shareholders will vote on the proposed sale, which will impact the value of their investment.
• Employees of AAC may be affected by the change in ownership and potential restructuring.
• The sale could impact Ambac's future strategic direction and financial performance.
• The purchase agreement provides that all directors, managers and officers of AAC must resign from AAC effective at the Closing of the Sale.

Next Steps

• Stockholders will vote on the proposed sale at the special meeting on October 16, 2024.
• Ambac will continue to address any further legal challenges or stockholder concerns.
• The transaction is expected to close following stockholder approval and satisfaction of other closing conditions.

Key Dates

Keywords

Ambac, AAC, Oaktree, Sale, Proxy Statement, Stockholder, Disclosure, Litigation, Valuation, Moelis