A battle over Economical Insurance Group has taken an unusual twist, with the insurer's chief financial officer leaving the company amid allegations he secretly helped Westaim Corp. plot a takeover attempt.
In a lawsuit filed last week against ousted CFO Sandeep Uppal, the company alleges that Mr. Uppal helped to orchestrate Toronto-based Westaim's takeover play and, further, that Mr. Uppal hoped to become president of Economical or its successor after the deal. It accuses him of breaching his fiduciary duty.
The allegations contained in the lawsuit, filed in the Ontario Superior Court in Kitchener, have not been proved. Mr. Uppal could not be reached for comment.
But Westaim chief executive officer Cameron MacDonald confirmed in an interview Monday that the firm, which currently runs a specialty insurer, is interested in acquiring Economical, whose book value is close to $1.5-billion, according to analysts.
"Westaim has a mandate to grow our [property and casualty]assets and we have had discussions with many firms, including Economical," Mr. MacDonald said. "Westaim has a platform that is well-capitalized and, importantly, we believe it would complement many of the objectives important to their stakeholders, employees and community. So we remain very interested."
Economical recently started down the road toward becoming Canada's first property and casualty insurer to demutualize. Demutualization, a process that many life insurers, including Manulife Financial Corp. and Sun Life Financial Inc., went through beginning in the late nineties, would see the company's mutual policy holders become its shareholders and would likely lead to either a stock listing or new ownership.
Westaim is a publicly traded holding company that owns Jevco Insurance Co., which specializes in insuring recreational vehicles such as motorcycles and snowmobiles. Economical, which has about 2,500 employees, sells home, auto and commercial insurance. Alberta Investment Management Corp., the province's major pension and investment manager, owns nearly half of Westaim, which is managed by Goodwood Inc.
In its statement of claim, Economical says it received an e-mail from Westaim last July asking for a meeting. The CEOs and other officials from the two companies met on Oct. 13, during which Westaim used a Power Point presentation to outline its proposal for a friendly takeover.
The suit claims Mr. Uppal secretly had a number of phone conversations with Westaim, and that he played a large role in creating the Power Point document used in Westaim's presentation.
It also accuses Mr. Uppal of helping VC & Co. Advisory Ltd., a firm that often advises activist investors, in its bid to replace Economical's board of directors and force a demutualization.
In the fall, VC & Co. began asking mutual policy holders of Economical to sign a proposal for the insurer's next annual general meeting that sought to have the board of directors replaced.
A spokesperson for Economical declined to comment on the lawsuit.
The company has begun a formal process in which it is considering whether to launch an initial public offering or accept a takeover offer. Analysts speculate that Intact Financial Corp., the biggest home, auto and business insurer in Canada, is weighing a bid.