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Fairfax to Acquire 80% Interest in Eurolife


giofranchi
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My expectation is that this isn't all that it seems.

 

For one, Fairfax is essentially buying this, in part, from itself given that it controls 17% of the selling entity. The cash paid directly provides Eurobank with increased liquidity, higher capital ratios, and the ability to maximize the focus on banking. Fairfax gets the third largest insurer in Greece, for a reasonable sum of money, while benefiting the equity of another company it holds a large position in. I'd also add that the market share of the company has grown significantly through the crisis - from 5.8% in 2008 to 10.1% today.

 

Since the deal was all cash, any money the insurance makes (it is profitable) will be directly add to bottom line and per share EPS. It won't be an insignificant amount either as the company pulled in EUR 32M in just Q3 alone. It actually seems like Fairfax got a steal on this paying just 5-6x earnings from 2013/2014.

 

Maybe nobody is crazy about a life insurance deal, but it seems like a great price for a growing company and the cash paid directly benefits another investment that Fairfax has a sizable sum of money in...

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From the Eurolife website:

 

Earnings before tax was Eur 37 million from life and Eur 33 million from General Insurance in 2014.

Eur 274 million BV at Life, 76 million at General Insurance (not enough info to know if there are major one time items at General as profit is massive compared to equity base).

14% ROE at life in 2014, 28% at general insurance

FFH's 1.13x BV purchase price on 2014 figures looks like a steal if these figures are even remotely sustainable.

 

http://www.eurolife.gr/en/HomeEN/Company/FinancialHighlights

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After issuing equity, why would they sell 40% to OMERS? It does not make sense...

 

 

From the annual report:

 

third largest insurer in Greece and which distributes its products through Eurobank’s network, for $347 million–at about its underlying book value. We got to know Alex Sarrigeorgiou in the last few years and were very impressed with him, his management team and their track record. The company writes A306 million in premiumsA248 million in life insurance and A58 million in property and casualty. Over the past ten years, the property and casualty operations have had a combined ratio of 60.0% while the life insurance operations produce stable earnings with plain vanilla products. Eurolife had net income in 2015 of A48.4 million, 45% from life and 55% from P&C. We welcome Alex Sarrigeorgiou and the over 300 employees of Eurolife to the Fairfax family. As we did with Brit, where OMERS purchased 30% from us to help us finance the acquisition, we expect OMERS to buy 40% of Eurolife’s shares at close to help us finance the acquisition. In the case of both Brit and Eurolife, we expect to be able to acquire the interests back within the five years after closing, after providing OMERS with an acceptable return. The team at OMERS has been a pleasure to deal with

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