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Societe Generale (SCGLY) to Divest Lyxor to Amundi for $979M

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After receiving bids from many firms within Europe and the United States for its asset management business, Societe Generale (SCGLY - Free Report) has finally announced the divestiture of Lyxor Asset Management to Amundi for €825 million ($979 million). Amundi is a subsidiary of French bank Credit Agricole SA (CRARY - Free Report) .

With a view to manage costs after incurring huge losses in the first half of 2020 owing to the dismal performance of its equities derivatives business, Societe Generale had been preparing to divest Lyxor for the past several months. Notably, Lyxor is the third largest provider of exchange-traded funds (ETFs) in Europe and has nearly €140 billion of assets under management (AUM) as of Dec 31, 2020.

Several firms like BNP Paribas SA, JPMorgan (JPM - Free Report) , State Street (STT - Free Report) and Deutsche Bank’s DWS had expressed interest in buying Lyxor. However, owing to valuation issues, these firms stepped back.

Deal Details & Benefits

As part of the transaction with France-based Amundi, the sale will include Lyxor’s ETFs, and other active and alternative management activities for institutional clients in the country and abroad. Nonetheless, Societe Generale will be retaining some Lyxor operations, including Lyxor AM Japan Co. Ltd.

The deal is expected to close by February 2022 and Societe Generale will record an after-tax capital gain of €430 million. Further, it will result in an estimated positive impact of nearly 18 basis points on the company’s core Tier 1 equity ratio.

Frédéric Oudéa, CEO of Societe Generale, said, “Societe Generale and Amundi will remain key partners, each participating mutually in the value proposition implemented for their clients. In addition, this transaction would successfully close the refocusing program launched in 2018 by Societe Generale.”

The program has simplified the company’s “organisation and optimised its capital allocation by focusing its business model on core activities, working in synergy and benefiting from critical size.”

Notably, Societe Generale will form a new wealth and investment solutions division, which will include those activities that are not part of the transaction and “will be staffed by Lyxor teams also not included in the deal.” The new division will include structured asset management solutions for global clients and structure savings, asset management and investment solutions for the company’s private and retail banking networks.

For Amundi, the proposed transaction will make it the largest provider of ETFs in Europe, with 14% market share. Amundi CEO Yves Perrier, stated “The acquisition of Lyxor will accelerate the development of Amundi, as it will reinforce our expertise, namely in ETF and alternative asset management.”

Other Restructuring Efforts by Societe Generale

In 2020, Societe Generale came up with the plan of reducing costs by about €450 million annually by 2022-2023. The plan relied on the company’s move of combining French retail operations with its Credit du Nord subsidiary to enhance profitability.

Further, after witnessing losses in two consecutive quarters, Oudéa reshuffled top management positions. He wants to reduce risk and, hence, is shifting toward simpler products. The redundancies are part of his plan to stop trading in complex structured equities products.

Additionally, last November, Societe Generale announced its plan to cut approximately 640 jobs in France as part of the effort to restructure its credit and equity derivatives structured business.

Price Performance and Zacks Rank

Over the past six months, shares of Societe Generale have gained 84.7% compared with 38.6% growth recorded by the industry it belongs to.

Societe Generale currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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