Japanese insurance company buying Delphi Financial for $2.7 billion in cash

A Japanese insurance giant has agreed to pay $2.7 billion in cash for Delphi Financial Group Inc., a Wilmington company that owns Reliance Standard Life Insurance Co. in Center City, the two companies said Wednesday.

The buyer, Tokio Marine Holdings Inc., is intent on expanding its U.S. presence and for the second time in three years found the means to do that in the Philadelphia area. It bought Philadelphia Insurance Cos. in Bala Cynwyd for $4.4 billion in cash three years ago.

The $43.88 per share offer for Delphi's Class A shares represents a 73 percent premium to their closing price Tuesday on the New York Stock Exchange. They closed at $44.00 Wednesday.

The Delphi sale has a wrinkle in that Robert Rosenkranz, a New York investor who founded the company with the $220 million purchase of Reliance Standard in 1987, negotiated a 20 percent premium for Class B shares, compared with the price for the Class A shares.

The proposed price for the Class B shares is $52.88.

Rosenkranz, who is chairman and chief executive of Delphi, controls 83 percent of the Class B shares, which have 10 votes each, giving him 49.9 percent of the overall Delphi voting power.

In a conference call, Rosenkranz explained the two different prices. The offer from Tokio was attractive for public shareholders, he said.

"However, as a long-term shareholder of Delphi, and from my personal investment perspective, I was content and motivated to remain an investor in the company for the foreseeable future and not be a seller," he said. "And the indicated valuation was not sufficient in my judgment to meet my own investment objectives and get my support as a shareholder."

A committee of independent Delphi directors negotiated with Rosenkranz and with Tokio to arrive at the proposed deal, which includes a special dividend of $1 per share that will be paid when the deal closes to all Delphi shareholders.

A corporate governance expert said it is clear that the shares with more votes would be worth more, but said the arrangement highlighted the problem with dual-class stock. "Everybody ought to be on the same page," said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

In a concession to public Class A shareholders, a majority of them have to approve the sale for it to proceed. If they do not, Delphi will have to pay a $82 million breakup fee to Tokio.

Tokio Marine said Delphi's operations, which also include businesses in St. Louis and San Jose, Calif., have little overlap with those at Philadelphia Insurance, but allow it to diversify its risk and should allow for cross-selling to the two customer sets.

Reliance Standard, founded in 1906, has 500 of its 1,000 employees in Philadelphia. Only a few work in Delphi's Wilmington administrative offices, a spokeswoman said.

Employment at Philadelphia Insurance in Bala Cynwyd has increased to 748 from about 600 since the purchase by Tokio was announced.