Exor Stock: Another Step Into Healthcare (OTCMKTS:EXXRF)

After the market close, one week ago, Exor (OTCPK:EXXRF) announced its entry into the healthcare sector through the acquisition of 10% of the Institut Mériuex with a reserved capital increase of €833 million. As for the transaction details, we should note that one-third of the amount will be paid immediately, while the remainder will be paid within the next 12 months. At the investor day last November, Exor outlined its possible entry into healthcare as one of the goals for the near future, along with diversification into the luxury and technology sector. After the more contained investment of €67 million for the acquisition of 45% of Lifenet, this new agreement represents a step forward and a more concrete one in the Health sector.

Looking at the specifics, Institut Mériuex is a conglomerate of five companies, active in various spheres of the healthcare sector. BioMériuex, the main subsidiary, is a company listed on the Paris stock exchange where it capitalizes around €11 billion. It offers in vitro diagnostic solutions and is present in 45 countries, with 17 dedicated R&D centers. The French group also includes Mérieux NutriSciences, the world’s leading supplier of testing and consulting services in the food and nutrition sector, present in 26 countries with 100 accredited analysis laboratories. Through ABL (Advanced Bioscience Laboratories) Inc., a company based in the USA and France, Institut Mériuex is then active in the bio-manufacturing for third parties of products for gene therapy, oncolytics, vaccines and protein biotherapies. The holding also includes Transgene, a listed biotech company that develops therapeutic vaccines and oncolytic viruses against cancer. Finally, the conglomerate invests in the venture capital and private equity market through Mérieux Equity Partners, a company with a portfolio of over 30 investments and more than one billion assets under management.

Moreover, in the meantime, important financial resources will arrive in the coffers of the Exor holding. According to the latest news, in a few days, the closing of the sale by Exor of Partner Re to the French Covea for $9 billion will be announced. Thus, this will represent a maxi capital gain for Exor. The new agreement for the sale of Partner Re to Covea means a net gain of $3.2 billion. With the operation in the pipeline, Exor will be able to count on 9 billion in availability. The firepower will be used always keeping in mind the group guideline: “investing to build large companies”.

Conclusion

A few analysts pointed out that the group could have chosen a more direct way to diversify into the healthcare sector, emphasizing the fact that it was better to go for direct investments rather than buying a minority stake in a holding that in turn holds listed assets. And we agreed. But, at the same time, we underline how the long-term partnership with IM guarantees access to a platform and sector know-how that Exor does not have. According to our estimates, the investment represents 3% of Exor’s NAV. We updated the book value per share including the IM transaction, and we again note that there is a discount much higher that the historical average. Continuing to apply a discount of 20%, we reaffirmed our target price at €96 per share. This news was also positively received by the market, and it is fully consistent with Exor’s strategic plan. The shareholders also authorized the board of directors to repurchase shares of the company on the market for a maximum amount of €500 million for the following 18 months. Again, a small positive upside for Exor valuation.