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Insurer RSA says up to Zurich to decide next move in mooted takeover
August 6, 2015 / 5:14 AM / 2 years ago

Insurer RSA says up to Zurich to decide next move in mooted takeover

ZURICH/LONDON (Reuters) - Zurich Insurance Group ZURN.VX has reiterated its interest in RSA (RSA.L) but stressed it would not overpay for the British insurer, which said the “ball is in Zurich’s court” in determining what happens next in the possible takeover.

A sign of RSA insurance company is pictured outside its office in London in this December 13, 2013 file photo. REUTERS/Toby Melville/Files

Cash-rich Zurich is weighing up a bid for RSA, a deal which would vault the Swiss insurer into the leader’s seat in British commercial insurance and help with access to Canada, Scandinavia and Latin America.

Britain’s Daily Telegraph newspaper reported Zurich was said to be weighing a bid of about 525 pence a share, valuing RSA at 5.4 billion pounds ($8.4 billion). Sources close to RSA say the deal should have a value closer to 600p per share.

Announcing first-half earnings, Zurich Chief Executive Martin Senn said any takeover would have to provide a return on its investment of at least 10 percent before the addition of any debt. Otherwise the group would rather return capital to shareholders.

Senn did not say what price Zurich would be prepared to pay or reveal the state of any potential talks.

Shares in Zurich, which posted an unexpected drop in second-quarter profit, were down 3.8 percent by 0745 GMT. RSA shares fell 1.4 percent, while the sector as a whole .SXIP was down 0.1 percent.

RSA boss Stephen Hester told Reuters: “We have a valuable and successful future, obviously if someone pays enough, they can cut that short ... We have absolutely nothing but pride at what we think the future will hold for this company on its own.”

OFFER DEADLINE

Hester said RSA would be talking to its shareholders, of which activist investor Cevian Capital is the biggest with 13 percent.

Under British takeover rules, Zurich has until Aug. 25 to come up with a firm offer or walk away from a deal, unless both sides agree a deadline extension.

Zurich told shareholders earlier this year it had $3 billion in surplus capital to spend on M&A activity or return to shareholders by the end of 2016.

It said cash reserves were now expected to exceed $3.5 billion in 2015 and $10 billion for the 2014-2016 period. This is ahead of its previous mid-term target of $9 billion.

“We estimate that $200 to $300 million of synergies could justify an offer price of up to 6.00 pounds a share as a maximum, ignoring potential disynergies and integration risks,” analysts at UBS, who have a “neutral” rating on Zurich stock, wrote in a note.

Tighter European regulations due to come into force in January 2016, along with strong competition in the sector and low investment returns, have encouraged several insurance tie-ups and more are expected to follow.

Swiss group ACE ACE.N for instance bought upmarket U.S. property insurer Chubb Corp (CB.N) last month in a $28 billion deal to get access to wealthy clients.

European rivals such as AXA (AXAF.PA) and Allianz (ALVG.DE) could also find a merger with RSA attractive, analysts say, although AXA said this week it saw no need for big acquisitions. 

Editing by David Holmes

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