UK insurance group RSA subject to £7.2bn takeover talks

UK insurance group RSA has today revealed that it is in talks with a consortium of Canadian insurer Intact Financial and Danish insurer Tryg about a takeover offer – in a deal that values the company at more than £7.2bn.

Should the deal go ahead, it will be the biggest M&A deal of a UK-listed company in 2020.

In a statement, the UK insurer said: “The board of RSA has indicated to the consortium that it would be minded to recommend the proposal, subject to satisfactory resolution of the other terms of the possible offer, including a period of due diligence.”

RSA has confirmed details of a potential takeover offer from Intact Financial Corporation and Tryg A/S. The potential offer is for 685p in cash per share, which represents a 46% premium to the closing share price on 4 November 2020. The offer also includes the payment of the previously announced 8p interim dividend.

The offer is not final, and the two suitors may amend or withdraw their offer, and have until 3 December to do so. RSA’s board has indicated it would be “minded to recommend the Proposal”, subject to due diligence and satisfaction of other terms.

RSA shares have risen 46.7% since the news became public.

Industry reaction

William Ryder, Equity Analyst at Hargreaves Lansdown said: “The offer represents a substantial premium to RSA’s closing share price on 4 November, and a more marginal premium to the pre-COVID price. The offer seems more than reasonable to us, although investors will be hoping another bidder comes in to jack up the price. Investors that thought RSA was undervalued may feel the suitors are taking advantage of low prices caused by the pandemic, but at the very least potential returns have been brought forward. However, nothing’s set in stone and given the lessons of 2020 nothing should be taken for granted.”

John Colley, Associate Dean of Warwick Business School, said: “The takeover offer for RSA of £7.2 billion reflects reduced valuations of the insurance sector as a consequence of Covid. In effect it is opportunistic in timing and reflects high levels of liquidity. Corporates have large amounts of cash earning very little interest which they are keen to spend. A 46% premium to the pre-bid price is a high price and one wonders if Tryg and Intact will regret the move in the years to come. They will both have significant integrations to perform, which often result in lost business and key people. In centuries old cultures such as Sun Alliance and Royal Insurance change will not come easily. It will mean redundancies and reduced employment in the U.K. as the centre of control moves to Canada and the Nordics. The Head Office will no doubt be closed.”