Analysis: Business interruption mess opened the door to new player at FBD

Protector typically builds large stakes in companies it invests in

Protector CEO Sverre Bjerkeli

Jon Ihle

April 16 2021 06:05 AM

JUST because Protector Forsikring has said its new stake in FBD is an investment, rather than the first step towards an acquisition, doesn't mean there isn't more to come from this new relationship.

The Norwegian insurance group bought 6.3pc in the embattled Irish insurance on Tuesday, immediately making it one of the largest shareholders after two farmers groups – Farmers Business Development plc and FBD Trust – and long-term holder M&G.

The opportunity arose as income investors looked for the exits after a difficult period for FBD during which the board cancelled two years of dividends.

With ready sellers, Protector made its move.

It was a classic value scenario for the company, which uses the equity portion of its €1.35bn in funds to take big positions in ailing firms.

FBD, which had been through the wars in 2020 with a long-running dispute over business interruption claims by its pub customers, was a ripe opportunity.

It's share price had not fully recovered to its pre-Covid level and it was nursing a €65m provision for business interruption costs, not to mention a year's negative publicity.

But the 6.3pc Protector bought this week is unlikely to be the company's only move.

Protector Forsikring's chief investment officer Dag Marius Nereng told the Irish Independent that he would not rule out acquiring more shares in FBD.

Further stakebuilding would be consistent for the company, which typically builds large stakes in companies it invests in, according to a presentation it gave to investors last month.

It maintains a highly concentrated portfolio of investments in undervalued businesses and h as taken ownership positions of between 30pc and 50pc in its top five equity holdings, suggesting Protector buys for the long term and seeks major influence over its investments.

Already its FBD shareholding is a significant one within its overall investment fund.

Out of the €1.35bn in investments, €182m are equity stakes in companies. FBD represents €17m, or 9.3pc of the equity portion of the portfolio, so it is likely to get some attention from Protector.

It is not out of the question that Protector will ultimately seek representation or influence on FBD's board, which is chaired by former IFA president Liam Herlihy.

FBD has historically been dominated by the interests of farmers, who founded the company in the 1960s on a "by farmers for farmers" basis.

That ethos has been fiercely protected by the 32.7pc of the company controlled by farming interests.

The board rejected an approach in 2008 from Dutch group Eureko that valued the business at €1.2bn – about four times today's market capitalisation.

If Protector increases its stake close to the levels in other top holdings, the reign of the farmers could come under threat. A 10pc share price bump shows the market expects more to come.