SCHEDULE 13D/A: Activist Investor Stilwell Group Boosts Kingsway Financial Stake to 21.7%, Citing Undervaluation

Stilwell Group, a prominent activist investor, has increased its beneficial ownership in Kingsway Financial Services Inc. to 21.7% through a new preferred stock acquisition, asserting the company's assets are undervalued.

Summary

• The Stilwell Group, consisting of Stilwell Activist Fund, Stilwell Activist Investments, Stilwell Associates, Stilwell Value Partners VII, Stilwell Value LLC, and Joseph Stilwell, has increased its beneficial ownership in Kingsway Financial Services Inc.
• The Group now beneficially owns an aggregate of 6,020,921 shares of Common Stock, representing approximately 21.7% of the 27,537,151 common shares outstanding as of May 8, 2025.
• This ownership includes 105,263 shares convertible from Class C Preferred Stock and 52,631 shares convertible from newly acquired Class D Preferred Stock.
• Stilwell Associates expended $500,000 to acquire 20,000 shares of Class D Preferred Stock on May 8, 2025, with a stated value of $25 per share, convertible into common stock at a basis of 2.63158 shares of common stock per preferred share.
• The Group's stated purpose in acquiring shares is to profit from the appreciation in Kingsway's market price by asserting shareholder rights, as they believe the company's asset value is not adequately reflected in the current share price.
• Joseph Stilwell, a member of the Group, has continuously served on Kingsway's board of directors since April 23, 2009.
• The Stilwell Group has a documented history of taking activist positions in 76 other publicly-traded companies since 2000, consistently aiming to profit from share appreciation by asserting shareholder rights and addressing perceived undervaluation.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive from the activist investor's perspective, as they are increasing their stake and explicitly stating their belief in the company's undervaluation and their intent to drive appreciation through asserting shareholder rights. Their extensive history of successful activist campaigns further supports this positive outlook on potential value creation.

Positives

• The activist investor, Stilwell Group, has a stated purpose to profit from share price appreciation by asserting shareholder rights, indicating a clear focus on increasing shareholder value.
• The Group explicitly believes that Kingsway Financial's assets are not adequately reflected in the current market price, suggesting potential for upside if their strategies are implemented.
• Joseph Stilwell, a key member of the Group, has a long-standing presence on Kingsway's board since April 23, 2009, providing an established channel for influence.
• Stilwell Group has a documented history of successful activist campaigns, with 26 companies sold or merged after their intervention and 12 companies sold or merged after they seated directors on the board.
• In 20 instances, the Group exited activist positions after companies took steps to maximize shareholder value, such as share repurchases or second-step conversions, leading to market price appreciation.

Negatives

• The Stilwell Group explicitly states that they "do not believe the value of the Issuer is adequately reflected in the current market price of the Issuer's Common Stock," indicating a perceived undervaluation or underperformance.
• Stilwell Value LLC, a key entity within the Group, was subject to an SEC administrative cease and desist order on September 25, 2024, for failing to timely file certain beneficial ownership reports, resulting in a $75,000 civil monetary penalty.

Risks

• The activist stance of the Stilwell Group may lead to strategic disagreements with current management or the board, potentially causing internal friction or disruption.
• The Group's objective to maximize shareholder value, potentially through a sale or merger, may not align with the long-term strategic vision of the company or the interests of all stakeholders.
• The Group's belief that the company's assets are not adequately reflected in the market price suggests underlying issues that may need significant operational or strategic changes to resolve.
• Past regulatory issues for Stilwell Value LLC with the SEC regarding timely filing of beneficial ownership reports could indicate a risk of non-compliance, although the Order has been satisfied.
• Ongoing legal proceedings initiated by the Stilwell Group against other companies (e.g., Peoples Financial Corporation, Silvergate Capital Corporation) highlight a willingness to pursue litigation to achieve their objectives, which could be costly and time-consuming for the Issuer if similar disputes arise.

Future Outlook

The Stilwell Group's primary objective is to profit from the appreciation in Kingsway Financial Services Inc.'s market price by asserting shareholder rights, driven by their belief that the company's asset value is currently undervalued. The Group may seek to make additional purchases or sales of shares and may formulate further plans or proposals regarding the Issuer. They also have outstanding options on common stock expiring in December 2025 and preferred stock that will be redeemed in 2032. For other companies, the Group explicitly states intentions to work with management to maximize shareholder value or to gain board representation and work towards value maximization, including potential sales.

Management Comments

• "Our purpose in acquiring shares of Common Stock of the Issuer is to profit from the appreciation in the market price of the shares of Common Stock through asserting shareholder rights."
• "We do not believe the value of the Issuer is adequately reflected in the current market price of the Issuer's Common Stock."

Industry Context

This filing highlights the ongoing trend of activist investor engagement in publicly traded companies, particularly within the financial sector, where Stilwell Group has a long history of targeting companies perceived as undervalued or underperforming. The Group's strategy often involves advocating for significant corporate actions such as mergers, acquisitions, share repurchases, or changes in corporate governance to unlock shareholder value. This specific action against Kingsway Financial Services Inc. aligns with Stilwell's established pattern of identifying companies where they believe asset values are not fully recognized by the market.

Comparison to Industry Standards

• The document primarily details the Stilwell Group's historical activist engagements and their current position in Kingsway Financial Services Inc., rather than providing a direct comparison of Kingsway's financial results against industry benchmarks.
• However, the Group's track record, as detailed in Schedule A, shows a consistent strategy across various financial institutions (e.g., Security of Pennsylvania Financial Corp., Cameron Financial Corporation, Community Financial Corp., American Physicians Capital, Inc., etc.).
• Their success in prompting sales, mergers, or shareholder-friendly capital allocation (like significant share repurchases, e.g., Oregon Trail Financial Corp. repurchased approximately 15% of its shares, American Physicians Capital, Inc. repurchased 15% of its outstanding shares, MB Bancorp, Inc. repurchased an initial 10% of its shares outstanding) suggests their strategies have historically led to value realization in comparable companies within the banking and insurance sectors.
• The Group's current belief that Kingsway's value is not adequately reflected in its market price implies a perceived underperformance relative to its potential or peers, though specific comparable companies for Kingsway's performance are not detailed in this filing.

Management Changes

Legal Proceedings

• On September 25, 2024, Stilwell Value LLC consented to an SEC administrative cease and desist order for failing to timely file certain beneficial ownership reports on Schedule 13D and 13G, resulting in a $75,000 civil monetary penalty. Stilwell Value LLC has satisfied the obligations of this order.
• The Stilwell Group is currently engaged in a derivative lawsuit on behalf of Peoples Financial Corporation (PFBX) against PFBX's directors in the Chancery Court of Harrison County, Mississippi, for breach of fiduciary duty, seeking damages in excess of $50 million. Discovery has been allowed, and an interlocutory appeal by directors was denied on April 1, 2025.
• The Stilwell Group filed suit against Silvergate Capital Corporation (SICP) in California seeking to enforce shareholder records inspection rights, and the court ordered production on August 9, 2024. They also filed suit in Maryland to compel SICP to hold an annual meeting, which was granted, and Joseph Stilwell was elected to the board on September 27, 2024, despite SICP's Chapter 11 bankruptcy filing and attempts to enjoin the meeting.

Related Party Transactions

• Stilwell Value LLC entered into three Option Agreements on March 31, 2025, with 'certain counterparties' to purchase common stock, though the nature of the relationship with these counterparties is not specified as 'related party' in the filing.
• The purchase of Class D Preferred Stock by Stilwell Associates and Class C Preferred Stock by Stilwell Activist Fund and Stilwell Activist Investments are transactions between the Issuer and entities within the Stilwell Group.

Stakeholder Impact

• Shareholders: Potential for increased shareholder value if the Stilwell Group's activist strategies (e.g., sale, share repurchases, improved governance) are successfully implemented, as indicated by their historical track record. However, activist campaigns can also introduce uncertainty and volatility.
• Management/Board: Increased scrutiny and pressure from a significant activist shareholder, potentially leading to changes in strategic direction, capital allocation, or even personnel. Joseph Stilwell is already on the board.
• Employees, Customers, Suppliers, Creditors: The document does not directly address specific impacts on these groups for Kingsway Financial Services Inc. However, any significant strategic shifts (e.g., a sale or merger) driven by activist pressure could indirectly affect these stakeholders through changes in operations, corporate culture, or business relationships.

Next Steps

• The Stilwell Group may seek to make additional purchases or sales of Kingsway Financial Services Inc. common shares.
• The Group may formulate additional plans or proposals regarding Kingsway Financial Services Inc.
• The options granted by Stilwell Value LLC to certain counterparties are exercisable until December 29, 2025.
• Kingsway Financial Services Inc. is obligated to redeem all outstanding shares of Class C Preferred Stock by February 12, 2032.
• Kingsway Financial Services Inc. is obligated to redeem all outstanding shares of Class D Preferred Stock by May 7, 2032.
• For IF Bancorp, Inc. (IROQ), if the shareholder proposal for sale does not lead to a prompt sale, the Group intends to seek board representation.
• For Peoples Financial Corporation (PFBX), the Group is pursuing an ongoing derivative lawsuit against PFBX's directors for breach of fiduciary duties, seeking damages in excess of $50 million.
• For Silvergate Capital Corporation (SICP), the Group intends to work to maximize value for all common shareholders after Joseph Stilwell's election to the board.

Key Dates

Keywords

Activist Investor, Shareholder Rights, Undervaluation, Preferred Stock, SEC Filing, Schedule 13D, Corporate Governance, Investment Management, Financial Services, Kingsway Financial Services Inc., Stilwell Group, Proxy Contest, Merger, Acquisition, Share Repurchase