The stock market was marginally down on Friday morning as stimulus talks have stalled. However, Sirius International Insurance Group (SG) is a major standout. As of 11:15 a.m. EDT, the insurer's shares were higher by more than 40%.
The move in Sirius Group is being fueled by news that the company has agreed to merge with reinsurance company Third Point Reinsurance (TPRE -5.82%) to create a combined insurance company called SiriusPoint Ltd., which would represent about $2.5 billion in gross written premiums over the last year.
In this particular transaction, Third Point is acting as the acquirer, and is purchasing Sirius Group with a somewhat complex combination of cash and stock with a total value of $788 million. Most of Sirius Group's shares are owned by China-based Minsheng Investment Group, which will receive $100 million in cash plus $477 million in Third Point shares in exchange for its stake. Other Sirius Group shareholders can choose to receive $9.50 per share -- a premium of roughly 36% to the stock's latest closing price -- or a combination of Third Point Re stock and other instruments, and one option would guarantee shareholders a combination of equity and cash of at least $13.73 per share two years after the transaction closes.
Given the premium offered and the potential value of the cash-and-stock terms, it's no surprise that Sirius Group's stock is reacting the way it is. Because of some of the complex ways shareholders could choose to get paid when the deal closes, there could still be significant value in Sirius Group shares for patient investors -- even after today's massive gain.