Finance chief explains unprofitable deal of an insurer

Hauptsitz der Vaudoise Versicherung in Lausanne
Vaudoise Insurance is domiciled in Lausanne. (Image: media service)

Vaudoise Insurance has bought back its own shares and actually lost money in the process. The CFO tells why he is nevertheless satisfied.

Share buybacks are booming at the moment because that’s apparently where the company’s internal money is best invested. Lausanne-based insurer Vaudoise has also offered a fixed-price share deal on the market, as reported.

After the transaction was completed Switzerland’s new business news portal is now doing the math, and there is apparently an indirect loss of several hundred thousand Swiss francs.

11.3 million paid

The insurer would have saved these if it had not bought back the shares at the fixed price of 402 Swiss francs, but had purchased the securities via the market, for example, on Thursday last week at 396 Swiss francs or at the beginning of the offer at 392 Swiss francs.

The share buyback ultimately raised 28,125 shares, according to the company. Therefore, insurer thus spent around 11.3 million Swiss francs on the deal.

On top of that the company now has to pay the full fees of the Zurich cantonal bank ZKB, which accompanied the share buyback offer.

Larger packages

What does the company say? Vaudoise CFO Christoph Borgmann nevertheless expressed his satisfaction to, even though the total volume of 100,000 shares offered was far from being reached.

CFO Vaudoise Christoph Borgmann

Christoph Borgmann, chief financial officer of the Lausanne-based cooperative insurer Vaudoise. (Image: media service)

The repurchase volume was deliberately set at a high level so that investors who might have wanted to sell a larger block of Vaudoise shares would have been able to do so.

Low liquidity

In general, it is difficult to get rid of large portfolios of Vaudoise shares due to the low daily transaction volume on the stock exchange, Borgmann explained.

With a volume of around 28,000 shares, it would have taken investors around half a year to get rid of it on the open market.

The price offered of 402 Swiss francs per share was determined during the share buyback so that it was not very much above the current price and would not have put sellers in a significantly better position than shareholders who remained invested.

Form to be filled in

In any case the whole offer was mainly of interest to institutional investors in Switzerland, if they claimed back withholding taxes. Arbitrage, he said, was likely to have been lucrative only to a small extent given the narrow spreads to the market.

After all, investors would also have to wait a while for the withholding tax to be refunded, and there is an administrative burden with a form associated with it, the 48-year-old explained.

Pleasure for all

Ultimately, however, all shareholders would have benefited from the offer, the Vaudoise CFO went on to say, showing that the offer had its justification after all. If a larger block of shares were to come onto the market, the share price might otherwise drop significantly, according to the logic.

The share buyback would have given sellers the chance to get out in one fell swoop. This would have taken ‘pressure’ off the market.

Attractive yield

And Borgmann pointed out another advantage for all Vaudoise shareholders to Since the repurchased shares are not entitled to dividends, the company’s profits are distributed among far fewer owners.

However, the value of the dividend yield is currently already between a respectable 4 and 5 percent for the insurer. And the cooperative shares even earn interest at 6 percent.


Finance chief explains unprofitable deal of an insurer

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