Zurich pulls plug on £5.6bn RSA takeover deal

Stephen Hester has called on shareholders for help. Picture: Phil Wilkinson
Stephen Hester has called on shareholders for help. Picture: Phil Wilkinson
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MORE than £1 billion was slashed from the stock market value of British insurer RSA yesterday after the collapse of its £5.6bn takeover by rival Zurich.

The Swiss major pulled out of merger talks citing one-off financial hits, including from the fatal explosions at a Chinese storage station last month, and a slump in trading at the group’s general insurance business.

Whilst we would not rule this out, we suspect it may take some time

Eamonn Flanagan

RSA, owner of the More Than insurance brand, said in a statement: “As a result of recent deterioration in the trading performance of Zurich’s general insurance business, Zurich has terminated discussions with RSA regarding a possible offer.”

Zurich revealed that it would take a $275 million (£177m) provision from the explosions at a container storage station in Tianjin in mid‑August.

The group said it now saw weaker‑than‑expected profitability in its general insurance arm extending into its third trading quarter, and that a review of its US auto division would also result in a further $300m (£193m) provision.

After the provisions, Zurich forecast it would make a $200m (£129m) third‑quarter loss. The company added that its “focus instead will be on taking the necessary actions to deliver the required performance of the general insurance ­business”.

Its withdrawal from the merger came a day before a bid deadline under the City’s takeover rules. RSA hired former Royal Bank of Scotland chief executive Stephen Hester in February last year to revive its fortunes after a series of profit warnings and a £200m hole in the balance sheet of the company’s Irish business. Since then Hester has sold a string of assets and held a £775m cash call on shareholders to help rebuild the insurer’s balance sheet.

The group said yesterday that Zurich had completed its “due diligence” scrutiny of its accounts but had “not found anything that would have prevented them from proceeding with the transaction terms announced on 25 ­August”.

RSA said it was continuing to make progress, citing its recently announced 84 per cent rise in half-year operating profits to £259m, and adding that trading in July and August had been ahead of expectations.

RSA’s shares closed down 21 per cent at 403.3p. Zurich’s offer terms on 25 August were 550p an RSA share. A Zurich spokeswoman said the company remained alert to acquisition opportunities. But she added that a sale of its general insurance arm was not on the table as much of the operations remained profitable.

Most City analysts are doubtful that other bidders will come forward for RSA at this stage. European majors Allianz and AXA, which like Zurich offer both life and general insurance, had indicated they were not interested.

Shore Capital analyst Eamonn Flanagan said it “remains to be seen” whether the derailed offer by Zurich will prompt interest from other potential bidders.

But he added: “Whilst we would not rule this out, we suspect it may take some time.” RSA shareholders had largely welcomed the proposed offer, but some Zurich investors had said they would prefer the cash-rich insurer to return money to them via special dividends or share buybacks.

Another analyst said: “I think it may go quiet now acquisition-wise with these two companies now for a while. They both have their minds elsewhere.”

Activist investor Cevian Capital, with a 13 per cent stake in RSA, declined to comment.