Stephen Hester has consistently said that what matters most to him is to run RSA well. City cynics, noting his formative years at CSFB, a ferocious investment bank, have consistently assumed selling the general insurer for loads of cash was his real priority. With consortium bidders offering £7.2bn for RSA after an extended turnround, Mr Hester is poised to tick both boxes.
Tryg of Denmark and Canada’s Intact would pay around twice what RSA was worth when Mr Hester took over in 2014. Zurich, whose own bid foundered amid internal dissent in 2015, proffered £1.4bn less. This time round, it helps that sterling and UK stocks are cheap because of Brexit.
British insurance stocks are particularly weak. Most quoted Lloyds insurers have been taken over. Hastings is set to go the same way for £1.7bn. The trend embodies the UK’s Wimbledon Effect: providing a venue dominated by foreign players.
The uncompromising Mr Hester, who fell out with ministers as head of state-controlled bank RBS, has negotiated a good premium. The bidders would shell out a 52 per cent uplift on the undisturbed three-month average share price. The exit price/earnings ratio would be around 15 times.
Tryg, buying the Scandinavian business for £4.2bn, is paying a higher price to book value than Intact, purchaser of Canadian and UK units for £3bn, reckons Panmure’s Ming Zhu. Lex estimates total cost savings for the bidders might be around £1.5bn, taxed and capitalised. That would leave the pair with £900m of control premium still to cover.
The RSA board has not recommended the offer, but is “minded” to do so. That means it is leaving the door ajar for rival bids. Aviva is perennially tipped as a purchaser. But RSA shares are trading at a 40p discount to the £6.93 offer price, implying a takeover battle is unlikely. So is a scenario in which Mr Hester dons the pipe and slippers of the early retiree. He will be back.
Our popular newsletter for premium subscribers Best of Lex is published twice weekly. Please sign up here.