Stephen Hester, CEO of RSA, could be in line for multimillion payout if the £7.2 billion takeover proposal from Canada’s Intact Financial and Denmark’s Tryg is successful
RSA, the insurance company, is in talks with a two overseas rivals over a £7.2 billion ($9.2 billion) joint bid which would see one of the FTSE 100’s oldest companies broken up, in what would be the biggest takeover offer of a U.K. listed company so far this year.
London-based RSA RSA, -2.53% confirmed details of a potential 685 pence a share cash offer from Canada’s Intact Financial IFC, -1.82% and Denmark’s Tryg TRYG, +3.32% in a statement to the stock market after trading closed on Thursday.
Shares in RSA RSAIF, +7.99%, which surged more than 46% to 670p in after-hours trading on Thursday, were down 2.06% in early morning London trading as investors mulled the bid.
The news helped lift the rest of the sector, with shares of Aviva AV, +2.28% and Legal & General LGEN, +0.56% up 3.71% and 1.23%, respectively.
The potential takeover offer represents a 48% premium to RSA’s closing share price on Nov. 4. It also includes the payment of the previously announced 8 pence a share interim dividend.
Under the terms of the deal, Intact would retain RSA’s U.K., Canada and international businesses for £3bn, while Tryg would take control of the Sweden and Norway businesses for £4.2bn. The two companies would co-own RSA’s Denmark operations. Last year, RSA appointed Christian Baltzer, a former CFO of Tryg, as head of its Danish business.
James Pearse, equity analyst at RBC Capital Markets said the 685p proposal would represent “a great deal for shareholders”, but did not rule out the possibility of other bids.
This was echoed by William Ryder, equity analyst at Hargreaves Landsdown, who said investors will be hoping for another bidder to come in to “jack up the price.”
Zurich Insurance ZURN, -0.86% made a £5.6 billion takeover proposal to buy RSA in 2015, but the deal collapsed after the Swiss insurer said it wanted to focus instead on the problems of its general insurance business.
The board of RSA, which said it received the offer on Oct.2, said it would be “minded to recommend the Proposal”, subject to due diligence, which is currently under way, and satisfaction on other terms.
RSA, whose history as a company dates back to 1706, was created in 1996 by the merger of Sun Alliance and Royal Insurance. It provides home, motor and commercial insurance. It owns brands including More Than and Motability.
If successful, the deal would help Intact to bolster its presence in the competitive Canadian property and casualty (P&C) industry, while Tryg would create the largest listed P&C insurer in Scandinavia with total assets of about DKK99 billion.
In a trading update on Thursday morning, before the takeover talks were disclosed, RSA said that operating profits for the first nine months of 2020 had increased compared with the previous year, and insurance premium income fell only 3% year-on-year to £4.6bn.
“While COVID-19 has held back our profit overall, RSA’s inherent strength and the improvements we have made are driving the business forward in a pleasing manner. The outlook for continued underwriting improvements remains positive,” RSA chief executive Stephen Hester said.
Hester, a former chief executive of Royal Bank of Scotland RBSPF, +4.79% – now called NatWest Group NWG, +0.93% – was widely credited with helping bring the bank back from the brink of collapse after the 2008 financial crisis.
If the deal goes through, he could be in line for a multi-million pound windfall if he sells more than 833,000 shares he owns, on top of performance-related shares and bonuses which could be paid on completion of the deal.
Intact and Tryg have until Dec. 3 to agree terms of the potential takeover, or withdraw the offer.
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