November 5, 2020 by David Gambrill
A consortium composed of Intact Financial Corporation and Nordic property and casualty insurer Tryg A/S is preparing a cash offer to acquire RSA plc for £7.2-billion (about Cdn$12.3 billion).
Intact is Canada’s largest property and casualty insurer, with a market share of 15.27% and about $8.76 billion in net premiums written (NPW) in 2019. RSA Canada is Canada’s seventh-largest insurer, with a market share of 4.35% and $2.5 billion NPW in 2019.
Headquartered in Copenhagen, Denmark, Tryg is one of the largest non-life insurance companies in the Nordic region, with more than 4 million customers in Denmark, Norway and Sweden.
Under the terms of the proposal, Intact would pay £3.0 billion (about Cdn$5.15 billion) and Tryg would pay £4.2 billion (about Cdn$7.2 billion) to acquire RSA.
Intact would retain RSA’s Canada, U.K. and International operations and obligations, while Tryg would retain RSA’s Sweden and Norway operations. Intact and Tryg would co-own RSA’s Denmark operations.
In a joint press release announcing the proposal, Intact said that such a deal would increase its total direct premiums written from approximately Cdn$12 billion to Cdn$20 billion. The combination of RSA’s Swedish and Norwegian operations with Tryg would allow Tryg to break into the Top 3 tier for P&C in Sweden and Norway.
The release announcing the intent to make an offer is a requirement under European regulations for such an offer to be made. “There can be no certainty that an offer will be made for RSA under the Code,” the joint release states.
Under European regulations, the consortium must announce whether or not it intends to make an offer for RSA by no later than 5 p.m. (London, UK time) on Dec. 3, 2020.
The proposal is subject to due diligence, the recommendation of the board of RSA, the support of RSA’s pension fund trustees, and board approvals by Intact, Tryg and TryghedsGruppen.
“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 proposal, including a period of due diligence which is currently underway by the consortium,” the companies announced in a joint release announcing the offer.
For its part, Intact says a potential acquisition of RSA would expand its position in the Canadian P&C industry.
“The acquisition would also create a leading global specialty lines platform, with an expanded product offering and access to new customers for Intact’s existing specialty franchises,” the joint release states. “Intact also sees significant opportunity to deploy its customer-driven data and analytics focused approach in RSA’s UK & International personal and commercial lines businesses.”
Intact announced it intends to finance its portion of the proposed transaction and associated costs with an equity private placement. Approximately three-quarters would be provided by cornerstone investors, together with debt and preferred-share issuances. The company would use an unsecured bridge and term loan credit facility to provide funds certainty for the proposed transaction.
Intact said it will structure the financing to support its current credit ratings.
“The proposed acquisition is expected to exceed Intact’s internal rate of return threshold,” the release states. “It is also expected to be immediately accretive to net operating income per share on closing, high-single digit in the first year and reaching upper-teens within 36 months. As well, operating [return on equity] is expected to be maintained at a mid-teens level in the medium term, with [book value of equity per share] increasing in excess of 25% on completion of the acquisition.”
Strategically, regarding RSA’s Danish business, with over $1 billion in annual premiums, Intact said it “sees an opportunity to sustain its personal lines operating performance and to continue to improve commercial lines, while retaining optionality with respect to strategic alternatives for the business.”