LONDON (Reuters Breakingviews) - RSA is back at the altar. Five years after being jilted when Zurich Insurance decided to withdraw its marriage proposal, the UK insurer has received a 7.1 billion pound offer from Canada’s Intact Financial and Denmark’s Tryg. This latest one looks more promising.
Since Zurich fell through RSA, headed by former RBS boss Stephen Hester, has been the focus of various rumoured bids – including from the foreign party that has now come forward. The Canadian-Nordic consortium’s offer is compelling. At 685 pence a share, it’s 52% above where its target’s shares were trading on Thursday, and also comes with an extra 8 pence in the form of RSA’s interim dividend. It’s also appreciably higher than the 550 pence a share Zurich offered, and even above the decade-high RSA shares hit in mid-2018. Little wonder the target’s board said it was minded to accept the offer.
The buyers are incentivised to be generous. For Intact, buying RSA allows the Canadian business to expand in Alberta, increasing its domestic market share from 15% to 20%, according to Citi. The bank’s analysts reckon there are no obvious market share issues. For Tryg, the deal has even bigger benefits. It will allow it to boost its market share in Sweden from 3% to 17%, in Norway from 13% to 15% and Denmark from 22% to 32%.
They will still have to deliver punchy synergies to make it work, though. To justify the 2.4 billion pound premium they would have to extract over 300 million pounds overall, according to Breakingviews calculations incorporating a 25% tax rate. RSA’s forecast operating profit for 2020 is only 654 million pounds, according to Refinitiv. Back when Zurich was seeking a tie-up with RSA, its assumed synergy target was 200 million pounds of synergies. Tryg’s share, meanwhile, only amounts to 108 million pounds, and Intact’s is yet to be divulged.
Still, Hester’s latest proposal seems to have more chance of success. To secure the same benefits, a rival consortium will have to be created with the same overlap. Without that, and in the current uncertain environment, it will be hard to justify outdoing RSA’s already-tempting proposal.
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