(CN) - A class of shareholders wants to put the brakes on Nationwide Mutual Insurance Co.'s proposed $750 million takeover of Harleysville Mutual Insurance Co., which it says is unfair.
     The class filed suit to "protect the rights" of Mutual policyholder-owners, who they say were "completely abandoned" by company directors, including defendant and CEO Michael Browne, during negotiations for the merger. According to the complaint, the deal will line directors' pockets with tens of millions of dollars but leaves policyholder-owners out to dry.
     34 Butler Real Estate LLC is lead plaintiff in the class action, which names 12 Mutual directors, Harleysville Group Inc., Harleyville Mutual Insurance Co. and Nationwide Mutual Insurance Co. as defendants.
     "Mutual's directors have negotiated a proposed transaction with Nationwide Mutual Insurance Company ... under which Nationwide, acting directly and through a newly created wholly-owned stock subsidiary, will acquire both Mutual and Group for the total cash consideration of at least $750 million. The entire $750 million will be paid to the minority shareholders of Group, while absolutely no cash will be paid to Mutual, which is the majority shareholder of Group, or to its policyholder-owners. At the conclusion of the transaction, Nationwide will own Mutual and Group and all of their assets," the federal complaint states.
     Mutual directors never negotiated a cash consideration for policyholder-owners and there was "no one at all negotiating on their behalf or looking out for their interests in the negotiations."
     "As a result, under the terms of the proposed deal, the policyholders-owners of Mutual will receive no cash whatsoever, while each minority shareholder of Group, including each of Mutual's directors will receive $60 per share in cash. This represents a merger premium of 13 percent. That 137 percent merger premium is more than 900 percent of the magnitude of the average median merger premium of approximately 15 percent for similar deals in the insurance industry," the complaint states. "Because the defendant directors of Mutual are all minority shareholders in Group, they stand to collectively reap tens of millions of dollars through consummation of the proposed transaction, all at the expense of Mutual policyholders."
      "Aside from the transparent intent of the director defendants and the group director defendants to squeeze out Mutual's policyholders for the purpose of lining their own pockets as minority shareholders of Group, the terms of the proposed transaction also include onerous provisions that serve only to further oppress the interests of Mutual policyholders," the complaint states.
     The provisions require that directors back the deal even if another suitor tables a superior offer. A stockholder voting agreement allows Nationwide to 'lock up' a 54 percent majority of outstanding shares, "despite the fact that Nationwide is paying nothing to that majority shareholder, Mutual, or its policyholders," the complaint says.
     Daniel Bacine filed suit for the class and seeks an injunction and compensatory damages for unjust enrichment, breach of duty, aiding and abetting breach of duty and constructive trust.
     Neither the plaintiff's law firm nor Harleyville responded to requests for comment.