“As a result of recent deterioration in the trading performance of Zurich’s general insurance business, Zurich has terminated discussions with RSA regarding a possible offer,” RSA Insurance (LSE: RSA) said today.
Its shareholders might have to wait some time now before receiving a brand new offer for the holdings — but that was a risk I already highlighted on 7 August when I wondered whether it was too early for a change of ownership at the British insurer.
Inevitably, its stock was hammered today, falling more than 20% in early trade.
Zurich has confirmed that the “due diligence findings were in line with their expectations” and, while an offer had not emerged, Zurich “had not found anything that would have prevented them from proceeding with the transaction on the terms announced on 25 August“.
Back then, RSA announced that it had received “a revised proposal from Zurich regarding a possible all cash offer for the Company at 550 pence per ordinary RSA share“.
RSA now trades at 400p a share, and I am confident that its management team will continue to deliver on its promises. Moreover, its stock does not seem incredibly expensive at 1.1x book value.
That said, earnings multiples do not point to ‘bargain territory’, while forward core operating margins and cash flows may end up disappointing the bulls — all of which suggests to me that there might be better alternatives than the general insurance sector in this market. My advice is to keep RSA on your radar while paying attention to any news associated to new capital requirements across the industry.
Finally, RSA also noted today that since Zurich’s unsolicited interest on 28 July, it had made good progress in the delivery of its restructuring plan — indeed, it agreed to sell its Latin American division to Grupo Sura for about £400m earlier this month, in a deal that will strengthen its capital position.
Down Down Down
Elsewhere, such a tiny company such as JQW (LSE: JQW), whose stock had plunged by 41% before midday, also caught my attention. Following today’s fall, its market cap is now £12m.
Until last week it offered business-to-business e-commerce services with a focus on Chinese trades, but now its operations have been suspended.
It said today that on 19 September it had received an “Administrative Penalty Decision Letter (…) that has imposed penalties of a fine of RMB 18,000 and a one-month suspension of operations for violations of the Advertisement Law of the People’s Republic of China, the Advertisement Management Regulations, and the Prohibition of Pyramid Selling Regulations“.
The warning was issued by the local Administration of Industry and Commerce (AIC) following an investigation after the “AIC received a complaint from the public that certain advertisements on the Company’s B2B website platform violated advertisement regulations“.
It said at the end of August that it will be publishing its interim results for the six months ended 30 June 2015 “on or around Wednesday 23 September 2015.” Watch this space…
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