American Phys. Goes to ProAssurance - Analyst Blog

Yesterday, medical professional liability insurer American Physicians Service Group Inc. (AMPH) agreed to be acquired by ProAssurance Corporation (PRA). Per the agreement, the shareholders of American Physicians will receive $32.50 per share in cash from the acquirer and the transaction is expected to close in the fourth quarter of 2010. Excluding one-time transaction and restructuring costs, ProAssurance expects the transaction to be accretive to its 2011 earnings.
 
American Physicians believes that ProAssurance will offer superior quality insurance protection for the policyholders as well as integrate its employees. The company also believes that its shareholders, who remained insulated even during the economic turmoil, will also stand to benefit from the merger. The share price of American Physicians leapt approximately 23.4% on Tuesday to close at $32.43 following the announcement of the acquisition.
 
American Physicians ended the second quarter with solid results aided by a decline in total expenses, strong policyholder retention and a decrease in pending claims.
 
In this context, we have recently upgraded American Physicians to Outperform from Neutral as we believe the company is set to benefit from its expansionary initiatives, excellent policyholder retention as well as aggressive share buyback program.
 
American Physicians is the second largest writer of medical professional liability insurance in Texas. The acquisition will help ProAssurance to immediately expand its footprint in Texas , an important part of ProAssurance’s growth strategy. Additionally, with the experience of American Physicians operating profitably in Texas, ProAssurance expects to accrue immediate tangible benefits.
 
American Physicians’ growth commitments of expansion in Arkansas and Oklahoma also complement that of ProAssurance. ProAssurance believes these two markets hold the key to the long-term growth.
 
Following the announcement of the acquisition, credit rating agency A.M. Best Co. reaffirmed the financial strength rating of “A” (Excellent) and issuer credit ratings (ICR) of “a” for ProAssurance Group and its members and the ICR of “bbb” of its parent holding company, ProAssurance Corp.
 
The affirmation came on the back of ProAssurance gaining immediate footprint in Texas, accelerating its diversification effort Also, the rating agency believes that the risk-adjusted capitalization will not be affected and ProAssurance will be able to integrate the acquisition as exemplified by its track record.
 
However, law firms – The Law Office of Abe Shainberg, Robbins Umeda LLP, Ryan & Maniskas LLP, The Briscoe Law Firm PLLC, Faruqi & Faruqi LLP, Goldfarb Branham LLP, Kendall Law Group, and Levi & Korsinsky – contend that a cash price of $32.50 per share is under-priced and are thus investigating whether the board of directors breached their fiduciary duties to shareholders. Analysts consider a price of $35.00 per share is deemed fit for American Physicians shareholders.
 
Based in Birmingham, Alabama, ProAssurance Corporation, through its subsidiaries, provides professional liability insurance products, primarily to physicians, dentists, other healthcare providers, and healthcare facilities in the United States. It also engages in the legal professional liability business. It is the fourth largest writer of medical professional liability insurance in America .
 
Headquartered in Austin, Texas, American Physicians Service Group Inc. is a leading provider of medical professional liability insurance services for physicians, dentists and other health care providers in Texas, Arkansas and Oklahoma.

 
AMER PHYSICIANS (AMPH): Free Stock Analysis Report
 
PROASSURANCE CP (PRA): Free Stock Analysis Report
 
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