British insurer RSA agrees £7.2 billion cash takeover offer

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British insurer RSA RSA.L is backing a 7.2 billion pound cash offer from Canada’s Intact Financial IFC.TO and Denmark’s Tryg TRYG.CO in one of Europe’s biggest financial takeover bids this year.

Insurers have become an attractive proposition since the coronavirus crisis despite reputational damage from disputes over business interruption claims, industry sources say. Home-working has led to fewer claims on home and motor insurance while commercial insurance rates have risen sharply.

RSA’s directors backed the Intact-Tryg bid unanimously and recommended that shareholders vote in favour of the consortium’s offer, the company said on Wednesday, having first flagged the approach early this month.

Best known in Britain for its More Than brand, RSA provides home, motor and commercial insurance and also has large operations in Canada, Ireland and Scandinavia.

If successful, the suitors would carve up RSA between them, the British group said. Intact would gain RSA’s Canada, UK and international operations while Tryg would take its Sweden and Norway businesses. The pair would also co-own RSA’s Danish unit.

Tryg would pay 4.2 billion pounds while Intact would contribute 3 billion pounds, with the overall offer representing a 51% premium to RSA’s Nov. 4 closing share price of 460 pence.

“Our deep knowledge of these markets makes us ideally placed to integrate, operate and enhance the value of our combined group,” Tryg CEO Morten Hubbe said in a statement.

KBW analysts described the deal as “transformational” for Tryg.

CEVIAN SUPPORT

Activist investor Cevian Capital, RSA’s largest shareholder, said it fully supports the takeover.

“We assess that the long-term competitiveness of RSA’s business will benefit from combining with Tryg and Intact, the best-performing non-life companies in their respective geographies,” said Christer Gardell, co-founder of Cevian, which owns a 14.9% stake in RSA.

Gardell added that RSA Chief Executive Stephen Hester – a former NatWest NWG.L boss – had put the insurer on a better footing. Since joining in 2014, Hester has shored up RSA’s balance sheet with a 773 million pound rights issue and scaled back underperforming operations.

Industry sources said RSA had been seeking a buyer since a 5.6 billion pound bid from Zurich Insurance ZURN.S collapsed in 2015.

However, the appetite for deals has been growing across the sector. In August motor insurer Hastings HSTG.L agreed to be bought by Finland’s Sampo SAMPO.HE and South Africa’s Rand Merchant Investment RMIJ.J.

RSA shares rose 3.9% to 672 pence by 0841 GMT, while Tryg dipped by 0.5%.

Morgan Stanley MS.N advised Tryg and Barclays BARC.L advised Intact and the joint bidding company. Goldman Sachs GS.N, Robey Warshaw and BofA Securities advised RSA.

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