One of Argo Group International Holdings, Ltd.’s largest shareholders, Capital Returns Management, LLC, has called on the re/insurer’s Board of Directors to conduct a strategic alternatives review and consider a full sale of the company.
The activist investor believes that Argo’s assets and market position support a sale price of at least $80 per share.
In a letter to Argo’s board, Capital Returns highlights the value and growth potential of the company’s profitable U.S. specialty business, but claims that its performance is being hindered by “capital constraints and obstructed from view” by the poor performance of Argo’s international business, and “misguided focus on global growth initiatives.”
Capital Returns goes on to note the decline in Argo’s stock over the past three bull-market years, the fact it’s underperformed its peers during Kevin Rehnberg’s tenure as CEO, as well as over the last three and five-year periods.
“Today, Argo’s stock trades at just book value, and 12x projected consensus estimates of 2022 EPS, while its specialty insurance peers enjoy an average valuation of 2.2x book value and 19x projected 2022 earnings,” reads the letter sent to the board.
News reports said recently that the re/insurer was looking at alternatives for its Lloyd’s business, a move welcomed by Capital Returns as it feels that this operation, combined with Argo’s other international businesses, are tying up some USD 850 million in capital while offering little return.
“The fact is, in these businesses, Argo has no demonstrable advantage, a long history of consistent disappointment, and volatile results. These results have long masked Argo’s financially superior U.S. specialty insurance business. The international businesses have also distracted management from focusing on the U.S. business, which suffers from capital constraints, excessive reinsurance purchases and a weakened AM Best rating,” says the letter.
Argo’s investor continues to say that exploring the sale of the Lloyd’s business is “the most modest step” the company’s board can take to improve shareholder value. The Board should also look at offloading Argo’s Bermuda-based underwriting activities, as well as divesting its 9% stake in International General Insurance Holdings, Ltd., argues Capital Returns.
“Exploring the sale of the entire Company is the optimal and necessary next step to maximize shareholder value,” says the letter.