Shares of Patriot National Inc fell 4.6 percent on Friday after it announced late Thursday that it could not pay a special dividend pending a court hearing that would happen late March at the earliest.
Patriot, which had originally planned to pay the $2.50 dividend on Dec. 9, said the Court of Chancery of the State of Delaware also prohibited it from continuing a previously announced stock repurchase program at least until a court hearing expected some time after March 24.
The company, which helps insurers comply with regulations, said on Dec. 7 that the court issued a temporary restraining order related to a class action stockholder lawsuit but that it still hoped to pay the dividend in January.
By the close of trade Thursday, Patriot shares were down 24.9 percent so far this year after sharp swings including a 20 percent drop on Dec. 12, the first trading day after the scheduled payment date for its dividend.
“The market is building in the expectation it is less likely they’re going to get their dividend,” said Kenneth Billingsley, an analyst at Compass Point Research & Trading in Washington D.C. He estimated the company’s value at $4 per share, excluding the $2.50 dividend.
Patriot shares fell as low as $4.72 on Friday. A company representative was not immediately available for comment.
The company likely set the dividend to please shareholders after merger talks with Ebix Inc. fell through in early November, Billingsley said.
Patriot National at the same time announced an expansion of its buyback program and disclosed a new $280 million loan and a $30 million credit facility that increased the company’s leverage.
Whitney Maroney, founding partner at Millrace Asset Group in Berwyn, Pennsylvania, said he sold his roughly 195,000 shares in Patriot after the company announced the special dividend.
“We didn’t think that paying a one-time special dividend was in the best interest of shareholders,” said Maroney. “It doesn’t do anything to grow the revenue for the company, specially when you lever up to do it.”
The dividend proposal met with a previous challenge when a court slapped Patriot with a temporary restraining order against the payment following a lawsuit filed by Hudson Bay – one of Patriot’s largest shareholders, according to the latest public ownership filings.
That restraining order was lifted after a Dec. 1 hearing in New York.
(Reporting By Sinead Carew; Editing by Rodrigo Campos and Andrew Hay)
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