Burying the hatchet benefits SCOR. The title of the French reinsurer soared by more than 8% on the Paris Bourse on Friday to end at 28.3 euros the day after the revelation of a peace agreement with the insurer Covéa.
In conflict since Covéa tried to buy SCOR in 2018, the two heavyweights in the insurance sector created a surprise Thursday by announcing that they were ending their legal fights and overhauling their relations by signing a “protocol transactional agreement ”.
“The agreement is positive for SCOR and Covéa because it puts an end to a conflict which was a source of distraction for the management teams of the two groups”, first judge Christian Badorff, analyst at Moody’s.
The mutualist Covéa, holding a little more than 8% of SCOR’s capital, agrees to withdraw from the reinsurer by giving it control over its shares. In addition, SCOR cedes part of its life reinsurance business to Covéa for just over € 1 billion. Finally, he obtains from the latter a “transactional indemnity” of 20 million euros.
A “distracting” conflict
The armistice between the two groups de facto suspends a civil lawsuit by SCOR against Barclays, the bank of Covéa, which was to open Monday in London. He also buries the criminal trial initiated by SCOR and its leader Denis Kessler against Thierry Derez and Covéa. This was to start in July.
Beyond this judicial peace, many observers welcome the transfer of activities from SCOR to Covéa. “It is a source of capital that can be used to grow in the non-life reinsurance sector, at a time of the cycle when prices are increasing,” Judge Christian Badorff.
Under this long-term agreement, SCOR, whose life reinsurance business suffered from the third wave of the Covid-19 epidemic in the United States, must cede to Covéa 30% of the “life” portfolio held by its entities in Ireland for 1 billion euros.
A valuation in the cellar
“This agreement undoubtedly shows that the valuation of the group was in the cellar, judges an analyst. We have a market capitalization of 4.8 billion euros on Thursday and all of a sudden we discover that the valuation of the life business is perhaps between 5 and 6 billion! “
Another positive element for the reinsurer: the agreement provides for an option to purchase the SCOR shares that Covéa currently holds. And this, at an exercise price of 28 euros, i.e. the average purchase price of the shares by Covéa over time.
For SCOR, which has always been concerned about its independence, this is one way to protect itself from an attempted takeover of Covéa. Knowing that he has also obtained from the insurer that he undertakes not to approach him in any way for 7 years.
What will SCOR do with this purchase option? Will he look for a new reference shareholder? The question agitates analysts.
Towards share buybacks?
In any case, “SCOR now has control of 8% of the capital, and the risk of an ongoing sale by Covéa is now completely ruled out,” Judge Olivier Pauchaut, analyst at Bryan Garnier. The market is also buying the increased probability of having a return to the shareholder in the form of share buybacks, knowing that SCOR’s stock market performance over the past few years has been disappointing ”.
On the other hand, “we do not see as a positive point the fact that Covéa can no longer make an offer on SCOR for the next seven years”, write UBS analysts. In 2018, Covéa made a buyback offer at 43 euros per share.