Zurich in $8.8 billion bid for RSA

LONDON/ZURICH: Zurich Insurance Group AG made a friendly £5.6 billion ($8.8 billion) takeover proposal for British rival RSA Insurance Group Plc yesterday, paving the way for one of Europe’s biggest insurance deals.

Zurich said a month ago it was weighing a bid but left it to the last day under British takeover rules to unveil a cash offer of 550 pence per share, roughly in the middle of the price range expected by investors in Zurich and RSA.

RSA said it planned to recommend the proposal to its board and gave Zurich another four weeks to come up with a firm takeover offer, though the Swiss insurance company reserved the right to ultimately bid below 550 pence per share.

Tighter European capital regulations due to come into force in January 2016, strong competition in the insurance sector and low investment returns have encouraged several insurance mergers and more are expected in Europe and the United States.

The deal is similar in size to Aviva Plc’s agreed takeover this year of rival British insurer Friends Life Group Ltd and would beat Exor SpA’s $7 billion purchase of Part-nerRe Ltd.

Analysts say a merger could offer operating efficiencies for Zurich, which like RSA has a large presence in Britain, and also provide the Swiss insurer with better access to Canada, Scandinavia and Latin America, where RSA has a strong presence.

Zurich, which has said it will not overpay and is seeking a return on any investment in RSA of at least 10%, said it had reached a “common understanding” with RSA on how the British general and commercial insurer values itself.

One top 10 shareholder in Zurich was unhappy with the offer price given the weak macroeconomic backdrop, saying it would be hard for the Swiss company to hit its desired return targets.

“After a large market sell-off, it’s a big price. More than the market expected. It seems Zurich management is rather ignorant in regards of market forces,” said the shareholder, who declined to be named.

Analysts at Berenberg said the offer premium of 26% to RSA’s share price before Zurich first signalled its interest on July 28 meant the choice was easy for RSA shareholders.

Zurich, though, would need to save $500 million to reach its target of a 10% return on investment, they added.

Shore Capital’s Eamonn Flanagan said a deal of some kind was “now seeming inevitable”, though he did not rule out the possibility of a counterbid from another European insurer.