Zurich with potential £5.6 bn move on ailing RSA

Stephen Hester, formerly of RBS, has been working to turn around RSA. Picture: Phil Wilkinson

After a fresh spike in market speculation the previous day that a deal might be on the cards, Zurich confirmed it was “evaluating a potential offer” for its smaller rival.

Bankers estimate it could be worth £5 billion to £6bn, although they have not ruled out other potential buyers being flushed out by developments.

City analysts said it was the latest sign of renewed merger and acquisition activity in the sector after several years of relative inaction in the wake of the financial crash.

Last April, UK insurer Aviva splashed out £5.6bn for Friends Life.

Shares in RSA jumped more than 17 per cent after the announcement from Zurich, which has been sporadically touted for years as a potential buyer.

Analysts also said the would-be suitor’s timing was opportunistic, the target group having endured a torrid 18 months since a £200 million hole in the accounts of its Irish arm was discovered in late 2013.

RSA issued a terse statement in response yesterday, noting Zurich’s announcement. It added: “RSA has not held talks with or received a proposal from Zurich and shareholders are advised to take no action.

“RSA looks forward to updating the market on trading performance and strategic progress at the interim results announcement on 6 August 2015.”

Media reports have suggested the bid may be pitched at 550p per share, or about £5.6bn. Under City Takeover Panel rules, Zurich now has until 25 August to make a firm offer or walk away.

RSA’s main brand in Britain is More Than. Last year the group wrote £2.6bn in UK premiums, 15 per cent down on the previous 12 months. The group employs 19,000 staff and writes business in 140 countries.

The company is run by Stephen Hester, former chief executive of Royal Bank of Scotland, who was hired to revive the insurer’s fortunes after the discovery of the balance sheet shortfall and a series of profit warnings.

After yesterday’s announcement, shares in Zurich fell almost 2 per cent on the Swiss stock exchange, valuing the group at about £29.1bn.

It said in December it had at least $3bn (£1.9bn) of excess cash to deploy by the end of next year and would only return it to investors if it failed to find suitable deals.

Hester, who took over at RSA from Simon Lee, has sold non-core assets including businesses in Hong Kong, Poland and Canada, overhauled the management and held a £775m rights issue in an effort to rebuild RSA’s balance sheet.

However, some shareholders have been disappointed with RSA’s share price performance.

Brenda Kelly, head analyst at London Capital Group, said a bid for RSA would be the largest takeover by Zurich in 15 years.

She added: “Attracted by the various synergies that would come with the tie-up, there may be other potential suitors for RSA in the near term.”

Shore Capital broker Eamonn Flanagan said RSA had some “terrific” businesses in Canada and Scandinavia.

He added: “The UK would offer Zurich the opportunity for some pretty material cost savings.”

Analysts said that renewed insurance deal activity had also been prompted by low premium rates across the global industry.