May 8, 2009 / 12:31 PM / 10 years ago

BUY OR SELL-Fortis emerges from legal, shareholder battles

BRUSSELS, May 8 (Reuters) - Stricken financial group Fortis FOR.BR has finally emerged from a series of legal battles and mutinous meetings of shareholders, some of whom threw shoes at board members or wrestled in the aisles.

Investors agreed to the carve-up of the group last week, approving the sale of former Belgian banking arm Fortis Bank to France’s BNP Paribas (BNPP.PA) from the Belgian state.

Rump Fortis now consists of insurance activities in home market Belgium and spread across the world as well as a share of toxic assets held by the less toxic-sounding Royal Park Investments and some 3 billion euros ($4 billion) in cash.

With the structure of the group much clearer, investors and analysts are increasingly looking at the merits of investing in Fortis rather than viewing it simply as a speculative punt.

After the vote, Fortis shares have risen some 30-35 percent to a peak of 2.4180 euros, their highest since the early October break-up. Is there room for a further rally?

CASH, BNP PARIBAS OPTION

Fortis plunged to a 28 billion euro net loss last year, but the insurance operations made a 6 million euro profit, helped by a timely exit from the stock market.

Chief Executive Karel De Boeck called it a new start for Fortis and noted a number of operations were in fast-growing markets, with funds available to sustain their development.

Even ignoring the merits of the insurance business, Fortis holds some 3 billion euros of cash, or some 1 euro per share.

The Belgian state has also agreed to give Fortis investors any profit it might make on the BNP shares it received for Fortis Bank above their price at the break-up of 68 euros. This call option is worth some 0.5 euro per share now.

“If financial stocks correct, then I’d expect Fortis to suffer much less. It could fall to say 1.80 euros, but not back to 1 euro,” Benoit Petrarque, of Kepler Capital Markets, said.

Even the 760 million euros in toxic assets, marked down to 59 percent of par, could yield some value. Most analysts have put the value at zero for now.

The closing of the BNP transaction, expected in the coming days, will be significant for the group.

FORTIS IMAGE, HOLDING VALUATION

For many investors, the words Fortis and crisis go hand-in-hand. The shares crashed from almost 30 euros before its ill-fated joint ABN AMRO bid to below 1 euro after its carve-up.

“We saw a lot of speculators come in at 1 euro, but convincing long-term investors is not an easy task,” Petrarque said.

The crisis has raised questions about the value of Fortis as a brand and concerns that it has lost market share in Belgium.

A number of investors are looking to the company’s first-quarter results next Thursday (May 14) for reassurance.

Insurance as a whole has not been the most buoyant sector. Customers are not attracted by low guaranteed rates and shy away from equity-linked products. Insurers themselves are struggling to make money with premiums.

Fortis’s cautious approach means it has likely missed the stock market rally of the past two months and may cap profit growth in future.

“I consider it really as a holding company with virtually no synergies and some cash,” said Ivan Lathouders, analyst at Bank Degroof.

Degroof increased its target price for the stock to 1.97 euros from 1.70 euros on Friday, but cut its rating to “reduce” from “hold” given the recent rally of Fortis shares.

Uncertainty remains over the value of hybrid instruments known as CASHES and FRESHES and the risk of further litigation continues. Some investors say Fortis misinformed or was late in informing markets after the credit crisis struck in August 2007.

Fortis will need to communicate its future strategy and its plans for the cash, whether to return to shareholders or invest in add-on businesses, and will perhaps need a new name.

“That will probably come with the interim results in August and could make the difference between reaching our target of 2.50 euros or not,” said ING’s Albert Ploegh. (Reporting by Philip Blenkinsop; Editing by David Cowell)

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