Update 8:15 pm: Adds Verisk comment.
Update 3pm: Adds analyst comment.
Verisk Analytics (NASDAQ: VRSK) rose 3.6% after holder DE Shaw said the company should become a pure play insurance data business by selling off non-core businesses and look to add some independent directors.
DE Shaw, which said it has a “significant economic” position in the company, argues that Verisk (VRSK) shares could see 70% upside, equal to more than $ 20B of value for holders, if the company would try to implement the investor’s plans, according to a letter sent to Verisk’s board.
The DE Shaw push comes after the investor privately contacted Verisk (VRSK) nearly five months ago to try to get the company to focus on its business and enhance its board. Verisk has a market cap of $ 31 billion.
“If DE Shaw achieves an outcome in which Verisk becomes a pure-play Insurance Services co, and significantly restructures its cost base and BoD, to achieve faster organic rev growth, sustainable margin expansion and superior capital allocation, we think the EBITDA multiple could increase 3x-5x, “Truist analyst Andrew Jeffrey, who has a buy rating and $ 240 price target on VRSK, wrote in a note.
DE Shaw is calling VRSK to commit publicly to becoming a “pure-play” insurance company, which could result in a more than 25% increase in its valuation multiple. The investor also wants VRSK to find outside and independent candidates for the board and notes that four of the 11 sitting directors have been on the board for more than 17 years.
“We welcome the modest reforms implemented by the board following our commitment, but the board has not gone far enough,” DE Shaw managing directors Edwin Jager and Michael O’Mary wrote in a note. “The Company has underperformed for a decade because of operational missteps, poor capital allocation, a misguided diversification strategy, and lack of sufficient oversight and the board should fully embrace the value creation plan outlined in this letter to maximize value for all of Verisk’s shareholders. “
Verisk responded to DE Shaw’s letter and said it has engaged in “constructive” private dialogue since October where there has been “broad alignment between DE Shaw’s recommendations and initiatives already underway or under consideration by Verisk,” according to a statement.
“Verisk has been engaging in an extensive shareholder outreach program, led by independent members of the board and management, that has provided a range of perspectives from investors, including DE Shaw,” Verisk said in the statement. “Informed by this feedback, Verisk has undertaken several actions aimed at advancing corporate governance and enhancing long-term shareholder value – many of which were discussed in the company’s SEC filings, news releases and most recent earnings call.”
DE Shaw said that while it applauds some of the moves that Verisk (VRSK) has made since it has been engaged in discussions with the company, it had an issue with some “non-standard” provisions, including a multi-year standstill that VRSK wanted the investor to agree to.
“These requests are inconsistent with directors who are focused on accountability, and we view this as an attempt by the board to insulate itself from criticism and stave off further action from us or other shareholders,” the investors said in the letter.
Last month, Verisk agreed to sell financial services unit to TransUnion for $ 515M.