RSA Gets $9.5 Billion Offer in Year’s Biggest U.K. Takeover

RSA Insurance Group Plc received a 7.2 billion-pound ($9.5 billion) takeover proposal from Canada’s Intact Financial Corp. and Danish insurer Tryg A/S, paving the way for the biggest acquisition of a U.K.-listed company this year.

The consortium is now conducting due diligence on the blue-chip British insurer after proposing a potential cash bid of 685 pence per share, RSA said in a statement late Thursday, confirming an earlier Bloomberg News report. The price represents a 49% premium to RSA’s last close before the announcement.

RSA is set to be broken up under the plan, with Intact keeping its Canadian and U.K. and international operations. Tryg would take the Swedish and Norwegian operations, which will help make it Scandinavia’s biggest listed property and casualty insurer. RSA’s Danish business would be jointly owned by the two firms.

The offer represents “great value for shareholders,” as RSA shares have struggled since 2018, according to Royal Bank of Canada. While a competing offer from a consortium of Aviva Plc and Sampo Oyj would make sense, neither company is in a position to do a deal now, Citigroup Inc. analyst James Shuck said.

“It’s difficult to see another bidder emerging at this point,” Shuck wrote in a report Thursday. “Any rival bidder would find it very difficult to match the offer price given the size of the synergies that would be available to the existing consortium.”

‘Unique Opportunity’

RSA has indicated it would likely recommend the potential offer. Shares of RSA were down 2% at 11:04 a.m. Friday in London, clipping some of the previous day’s record gains and giving it a market value of 6.8 billion pounds. U.K. competitors rose on news of the takeover approach, with the FTSE 350 Insurance index gaining as much as 2.4%. The broader FTSE All-Share Index fell 0.2%.

The suitors said in a statement they see the potential combination as “strategically compelling,” with Tryg citing a “unique opportunity” to break into the top ranks in two key markets. Intact plans to finance its 3 billion-pound contribution to the purchase price with a private stock placement, as well as debt and preferred equity offerings.

Tryg plans a rights issue next year to help fund its 4.2 billion-pound portion of the transaction, according to the statement. Its shares rose as much as 5.7% in Copenhagen trading Friday.

A sale could mark a swan song for RSA Chief Executive Officer Stephen Hester, who has been cutting costs and selling assets in what observers saw as preparation for a potential sale since he joined in 2014 from the Royal Bank of Scotland Group Plc, now known as Natwest Group Plc.

Insurers have been seeking to gain scale even as they grapple with the impact of low interest rates and the coronavirus pandemic. A purchase of RSA would be the biggest takeover of an insurer announced this year, surpassing KKR & Co.’s acquisition of the former life insurance arm of Goldman Sachs Group Inc. for more than $4 billion.

Deal Surge

RSA, which traces its roots back to 1706, offers a range of general and specialty insurance products and has long been viewed as a possible takeover target. In 2015, Zurich Insurance Group AG abandoned a 5.6 billion-pound offer for RSA after an explosion at a Chinese port triggered losses in its own business. A potential stumbling block for any new suitor could be RSA’s pension plans, which guarantee payouts to its workers on retirement regardless of market returns.

The London-based insurer said earlier Thursday that its operations in the U.K., Canada and Scandinavia are all performing in line or ahead of expectations, excluding the impact of Covid-19 claims. Group business operating profit was up in the first nine months of the year, it said in a statement.

Acquisitions involving companies in the insurance industry are up nearly 50% this year to $130 billion, according to data compiled by Bloomberg. Finland’s Sampo and a partner agreed in August to buy Hastings Group Holdings Plc in a deal valuing the U.K. non-life insurer at about 1.66 billion pounds.

Last month, U.K. insurance company Liverpool Victoria said it’s in exclusive talks with Bain Capital about a potential deal.

RSA is being advised by Robey Warshaw LLP, Goldman Sachs and Bank of America Corp. Barclays Plc is working with Intact and Morgan Stanley is advising Tryg.

©2020 Bloomberg L.P.

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