M&A Deals Market Trends

Intact and Tryg £7.2bn bid to take over UK insurer RSA

This month, Canada’s Intact Financial and Denmark’s Tryg made a joint bid to acquire RSA, a 300-year-old UK insurance firm, for £7.2bn. The deal follows a growing trend towards UK insurers being bought by overseas rivals; Finnish insurer Sampo and South Africa’s Rand Merchant acquired Hastings this year for £1.7bn. Similarly, Germany’s Allianz bought LV and Legal & General’s general insurance businesses at the beginning of 2020. If the takeover goes ahead, it would be the largest acquisition of a UK-listed company announced this year.       

Deal overview 

Formed in 1996 through a merger between Sun Alliance and Royal Insurance, RSA Insurance Group PLC is a UK general insurance firm, with a market capitalisation of £6.9bn and P/E ratio of 20.13 (as of November 13th). The company employs 13,500 people and serves customers across more than 100 countries, but its core businesses are based in Scandinavia, Canada, and Ireland. The company’s non-core businesses consist of its United Kingdom legacy business, and its Middle Eastern operations. RSA’s product lines include personal motor, household, commercial property, liability, and marine. The firm notably underwrites home insurance for brands such as John Lewis, and pet insurance for Argos and Tesco. 

Intact Financial, one of Canada’s standout financial stocks (rising about 53% over the past five years), alongside Denmark’s Tryg have presented a takeover proposal that would break up RSA. Intact Financial (Market Cap: C$20.9bn, P/E ratio: 23.3) provides property and casualty insurance in primarily Canada and the U.S. Tryg A/S (Market Cap: 56.7bn DKK, P/E ratio: 23.2) is one of the largest non-life insurers in the Nordic region. The consortium has proposed to pay 685 pence in cash per RSA share, including RSA’s previously announced interim dividend of 8 pence per share. The offer was made on October 2nd, and represents a 50% premium to RSA’s closing price on October 1st. Shares in RSA shot up 46% to 670 pence on Thursday November 5th when talks were announced by Bloomberg. 

According to the deal proposal, Intact would take control of RSA’s UK and Canadian businesses for £3bn, while Tryg would acquire RSA’s operations in Sweden and Norway for about £4.2bn. The two groups would co-own RSA’s Danish business. Intact has already struck a deal with three of Canada’s largest pension funds for C$3.2 bn ($2.4 bn) in financing to support the takeover. These investments will come in the form of subscription receipts at C$134.50 each, and are conditional on both Intact and Tryg agreeing on a firm deal with RSA later this year in December. Tryg, on the other hand, is planning to launch a rights issue in 2021 to finance the deal. 

Deal rationale 

If the deal goes ahead, it would allow Intact to solidify its presence in the Canadian property and casualty industry, increasing Intact’s total direct premiums written by 66% from approx. C$12 bn to C$20 bn. Additionally, Intact has expressed interest in harnessing customer-driven data and analytics to strengthen RSA’s UK & International personal and commercial lines businesses. Tryg would be well-positioned to create the largest listed property and casualty insurer in Scandinavia with total assets of about 99bn DKK. The deal is projected to be accretive to net operating income per share on closing, “high-single digit in the first year and reaching upper-teens within 36 months,” according to the consortium’s proposal. 

Not all RSA shareholders are impressed with the deal offering, and argue that the firm is faring well on its own. On Thursday November 5th before the deal was announced, RSA reported that operating profits for the first nine months of 2020 had increased compared to the prior year, and insurance premium income fell just 3% year-on-year to £4.6bn. This relative success may be due to higher commercial insurance rates, and lower non-pandemic related claims. Although, strategically, this takeover may well be a sensible move for RSA considering it has been dealing with various challenges since 2014. After identifying shortcomings in RSA’s Ireland-based businesses, chief executive Stephen Hester decided to bolster the firm’s balance sheet with a £773m rights issue back in March 2014, followed by sales of some of its international businesses. Moreover, since 2018, RSA has exited a number of less profitable business lines so as to streamline its operations. 

Intact and Tryg have until December 3rd to make a firm offer. It will be interesting to see if any additional convincing offers are proposed before then. Some have proposed UK rival Aviva Plc and Germany’s Allianz SE as potential contenders. Although, analysts do not think the prospect of a competing offer is likely, considering how attractive this current bid is. Furthermore, it would be difficult for any rival bidders to match the potential synergies offered by the current consortium. 

According to Bloomberg, acquisitions within the insurance industry are up almost 50% this year, totalling $130bn. This suggests that insurers have perhaps been turning to consolidation as a way to gain scale, in the midst of a low interest rate environment and lower profits due to coronavirus-related claims —  it wouldn’t be surprising if RSA followed suit. 


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