ZURICH made a recommended £5.6 billion takeover proposal to British rival RSA yesterday, paving the way for one of the biggest consolidations in the European insurance market.
The Swiss giant confirmed it was weighing an offer a month ago, but left it until the final hours under City takeover rules to table a proposal valued at 550p for each RSA share.
RSA shareholders will also receive a dividend payout worth 3.5p a share if the takeover goes ahead, lifting the overall price to £5.63bn.
City analysts said the mooted price was in the middle of the range expected by institutional shareholders in both companies.
If yesterday’s deadline of 5pm had expired without a firm proposal, Zurich would have had to walk away under London’s Takeover Panel rules.
RSA, which owns the More Than brand, said that it planned to recommend the proposal to shareholders and gave Zurich another four weeks to come up with a firm takeover offer by 22 September.
However, the suitor has reserved the right to ultimately bid below 550p a share. Insurance expert Eamonn Flanagan at Shore Capital said a takeover of RSA was now “inevitable”.
But he added a rival offer was still possible “from another continental European insurer”. RSA shares ended the day 19.5p higher at 514.5p – an increase of almost 4 per cent.
The tie-up between the groups would be similar in size to Aviva’s agreed takeover this year of rival UK insurer Friends Life.
Zurich said at its interim results earlier this month that it saw “significant benefits” from a takeover of RSA, but added that “any capital deployment would need to meet the same hurdles that we apply to any other investment’’.
RSA’s chief executive is Stephen Hester, the former boss at Royal Bank of Scotland, pictured below. He was hired to revive the insurer’s fortunes after a series of profit warnings and the uncovering of a £200 million hole in RSA’s Irish division more than 18 months ago.
Half-year results from RSA earlier this month showed group operating profits rose 84 per cent to a better-than-expected £259m compared to a year ago, driven by higher underwriting profits, fewer weather-related claims and stable investment income.
The insurer said its underwriting profits in the UK were at their highest since 2006 due to a more disciplined approach and hit a ten-year record at its sizeable Canadian business.
The figures signalled the turnaround under Hester, who took over at RSA from his predecessor Simon Lee, was making progress after assets sales, changes to the management team and a £775m rights issue to rebuild the group’s balance sheet.
Over the past six months, RSA has sold businesses in China, India, Hong Kong and Singapore. It also announced the disposal of its UK engineering inspection business, bringing its total agreed disposals to £835m.