Gregory Shepard, who has been urging the company to consider combining itself with another mutual insurance firm, announced a tender offer for 962,636 of the company's Class B shares at $30 each. That represents a 42 percent premium to the Class B shares' closing price of $21.07 on Tuesday.
Shepard is the company's largest shareholder, with the exception of Donegal Mutual Insurance Co. He holds stakes of 18 percent and 7.1 percent in the company's Class A and B shares respectively, according to a news release issued by Shepard on Wednesday.
The company has an estimated 25.6 million Class B shares outstanding. The offer will expire on April 19.
One condition of the tender is that Shepard be allowed to appoint three people of his choosing to the DGI board and the board of Donegal Mutual Insurance Co, and that the boards not be expanded beyond their current size of 12 directors.
A representative for Donegal did not return a call for comment.
Shepard unsuccessfully tried to introduce a shareholder proposal for a vote at the company's upcoming annual meeting in April that called for the company to hire an investment banker to evaluate alternatives that could enhance shareholder value, including a possible sale of the business.
Donegal blocked the proposal and the Securities and Exchange Commission said in February that it would not take action if the company opted to exclude it.
Shepard said the company is also pursuing action against him for ownership of more than 10 percent of Class A shares of the company, which he says is an attempt to block his tender offer.
He said the Marietta, Penn.-based company has not been successful in delivering a positive return for its shareholders. He also has strong concerns about the company's proposed CEO pay package and a proposal to authorize more Class A shares, saying it is dilutive and contrary to the interests of shareholders.
Shepard said believes the company's shares trade at a discount to their potential value if they were to combine with another insurer.
Shares of Donegal's Class B shares trading jumped more than 33 percent to $28.10 in afternoon trading. Its Class A shares increased 9 percent to $16.03.