9th Nov 2020 13:01
(Alliance News) - Intact Financial Corp - who alongside Tryg AS has put in a GBP7.2 billion bid to buy RSA Insurance Group PLC - said Monday the potential deal will expand the Toronto-based insurer's market opportunity.
The board of London-based general insurer RSA Insurance on Friday backed the GBP7.2 billion takeover proposal from a two-headed consortium that would see the company split up geographically.
A day earlier, RSA on Thursday confirmed that Intact Financial and Danish insurer Tryg had made a proposal to buy the FTSE 100-listed firm and divide it up between them.
On Friday, it said Intact would pay GBP3.0 billion and take RSA's Canada and UK & International business, while Tryg would pay GBP4.2 billion and take the Sweden and Norway operations. The pair would co-own RSA's business in Denmark.
The proposal comprises 685 pence in cash per RSA share, plus payment by RSA of the announced interim dividend of eight pence per share. RSA closed at 670.00p on Thursday, jumping in the final minutes of trading from its quote of 452.60p just 10 minutes prior to the close.
Shares in the FTSE 100-listed insurer were trading 0.7% higher in London on Monday at 653.45 pence each.
On Monday, Intact said: "The transaction also provides Intact a unique opportunity to deploy its best-in-class operating model which is expected to allow Intact to continue achieving its financial objectives of 10% net operating income per share growth annually over time, and 500 basis points of annual ROE outperformance. Canada will remain at the core of Intact's business where outperformance is well established."
Intact will retain the RSA pension scheme obligations as part of the transaction, the Canadian insurer noted. Intact believes that the schemes are "well-managed with significant steps already taken to de-risk".
The UK pension schemes' IFRS surplus was estimated at GBP416 million at September 30, with funding arrangements in place at GBP75 million per year.
"Constructive discussions with the pension Trustees are well advanced, and the metrics for the proposed transaction reflect the financial impact of the pension schemes' obligations. Intact will also assume RSA's issued debt and preferred shares-hybrid instruments," Intact added.
Intact also believes it will maintain a strong capital position following the deal, with an estimated capital margin above CAD1.5 billion and an minimum capital test above 194% in Canada, a Solvency II coverage ratio above 160% in the UK and an risk-based capital above 400% in the US.
Intact's debt-to-capital proforma for the closing of the deal is expected to be about 26%, which is expected to fall to 20% within 36 months of completion.
RSA has previously noted Tryg would seek to finance its portion of the takeover primarily with a rights issue in 2021, while Intact would make an equity private placement, plus debt and preference share issues.
By Paul McGowan; [email protected]
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