NU Online News Service, March 14, 1:42 p.m. EDT
Aon stock is not performing as well as the rest of the market because investors are waiting for the company to complete its move toLondon, an analyst says.
In a research report released by Deutsche Bank, analyst Yaron Kinar says shares in the Chicago-based insurance-brokerage firm are underperforming the Standard & Poor’s 500 Index by two points.
Since the announcement that Aon plans to relocate its headquarters toLondon, shares are up 3.8 percent, while the S&P 500 is up 5.8 percent. Aon is also lagging its peer group, which is up 6.3 percent.
“While this is partially explained by disappointing results announced [Feb. 3], we also attribute it to the transaction-related overhang,” says Kinar.
The analyst saysU.S.institutional investors are avoiding purchasing the stock until after the relocation “so as not to be levied a capital-gains tax.”
Shareholders are voting on the plan Friday and Kinar says the move is expected to be “completed in weeks” after the vote.
Moving to London, Aon will enjoy tax advantages because more than half of its revenues are generated from outside of the United States. Kinar goes on to say that the firm’s international business is expected to grow, and by moving to the United Kingdom Aon will enjoy a lower corporate-tax rate and transfer profits with greater tax advantages in the future.
The company also can access $300 million in cash that is sitting on its international balance sheets “which should translate into a six million share buyback shortly after the move is completed.”
These advantages will be offset by a $20 million one-time transaction charge and another approximate $20 million in ongoing expenses.
Kinar says the move should serve as a catalyst for the stock, and any risks stemming from the move are viewed as minor.