28th Sep 2006 07:00
\* TRoyal & SunAlliance • Sale of US operation and termination of Group SEC registration\* T Royal & Sun Alliance Insurance Group plc (R&SA) today announces the sale of itsUS operation to Arrowpoint Capital, a vehicle set up by the R&SA US managementteam. R&SA is also announcing today the termination of its American DepositaryReceipt (ADR) programme, its voluntary delisting from the New York StockExchange (NYSE) and action to terminate its US Securities and ExchangeCommission (SEC) registration. Sale of US operation In September 2003 the Group announced that its US operation was strategicallynon core. The US operation was closed to new business and a restructuring planwas instigated with the objective of bringing certainty and finality to theGroup•s US exposure. In the last three years the Group has taken significantaction to deliver this objective. The Group is selling its US operation to Arrowpoint Capital for a deferredconsideration of £158m ($300m), which will be funded from the future performanceof the US operation. The transaction is conditional upon, inter alia,shareholder and regulatory approvals. On receipt of these approvals and withcompletion of the transaction, the Group will make a £151m ($287.5m) capitalcontribution into the US regulated entities. The net capital contribution, writeoff of US net assets and other related costs will result in an estimated pre taxloss on disposal of £443m(1). Andy Haste, Group CEO commented, •Today•s announcement is a significant step forthe Group. The sale of the US operation is the right deal for our shareholdersand US policyholders. The transaction will bring certainty and finality anddelivers on our objective of a clean exit from the US. Over the last three years we have dealt with a number of legacy issues and inthe Core Group built a high quality business focused on driving profitablegrowth and continuous operational improvement. We remain confident of continuingto deliver sustainable profitable performance.• Two existing arrangements will remain in place: the Adverse Development Cover(ADC) and the Letter of Credit supporting certain third party reinsurancerecoverables (LOC). The ADC is a reinsurance cover put in place in 2003. It isat its policy limit and therefore not subject to further insurance risk. Theprudent assumptions supporting the projected payment patterns give additionalcover against potential timing risks for payment of claims. For the LOC of £79ma methodology has been agreed to step it down commencing two years after thecompletion of the transaction conditional on the financial health of the USregulated entities. In the event that the regulated entities are required todraw down on the LOC, a mechanism has been agreed for reimbursement to theGroup. Neither the ADC nor the LOC represent new exposures to the Group and thedirectors believe that they do not represent material risks to the Group giventheir nature, timing and likelihood. As part of the disposal the Group has given minimal representations andwarranties and the transaction represents a clean exit from the US. It isintended that the present value of the deferred consideration will be held aspart of the general investment portfolio of R&SA. With the completion of the transaction the Group will continue to be in a strongfinancial position with a pro forma IGD surplus of £1.1bn and IGD coverage ratioof 1.9 times. The disposal is a related party transaction and under UK Listing Rules requiresshareholder approval at an Extraordinary General Meeting of the Company. It is anticipated that the formal notice of the meeting and the resolutions tobe proposed, together with a circular setting out further details of thetransaction, will be sent to shareholders in mid to late October with the EGM ofR&SA to be held in early to mid November. Subject to receipt of shareholder andregulatory approvals, R&SA is targeting completion by the year end. Delisting and Deregistration R&SA has been listed on the NYSE and registered in the US under the USSecurities Exchange Act 1934 since 1999 when the listing and registration wereidentified as an important milestone in the continued global development of theGroup. The purpose of the listing was to give the Group access to one of theworld•s largest capital markets and to provide the then large number of USemployees with the opportunity to invest in the Group through ADRs. The strategic benefits to the Group of having a US listing and registration nolonger apply. Following the capital actions taken by the Group since 2003, R&SAis no longer dependent upon a US listing for capital raising, and todayannounced the sale of its US operation; in addition the size of the ADRprogramme is now at its lowest level since April 2004. Given these reasons, the Group believes that it is no longer cost effective norin the best interests of R&SA to maintain the NYSE listing, the ADR programme orits SEC registration. The Group estimates the ongoing costs of complying withSEC reporting and other requirements to be over £10m per annum. R&SA•s NYSE listing is expected to terminate on 30 October 2006. In order toterminate the SEC registration and suspend SEC reporting obligations, R&SA mustcertify that there are less than 300 US holders of each relevant class ofsecurity, whether held directly or indirectly, and thereafter must maintain thenumber of US holders at less than 300. As R&SA currently has over 300 USholders, it will be proposing to amend its Articles of Association to includeprovisions conferring upon the Board the power to require any US holder to sellsecurities and restrict the number of US holders. Subject to legal, fiduciaryand regulatory requirements and costs, the compulsory transfer power would beapplied first to those US holders with the smallest holdings of shares. Deregistration from the SEC requires an amendment to R&SA•s Articles ofAssociation and as such, requires shareholder approval. A formal notice of themeeting and the resolutions to be proposed together with a circular setting outfurther details will be sent to shareholders on 2 October, with an EGM of R&SAbeing held on 26 October. The termination of the ADR programme and delisting from the NYSE will affectneither R&SA•s high level of communication and disclosure for all shareholdersincluding US investors, nor its listing of ordinary shares on the London StockExchange. In line with other companies listed on the London Stock Exchange, R&SAwill resume half yearly reporting for 2007. R&SA maintains high standards ofcorporate governance and will continue to be subject to the listing rules, theprospectus rules and the disclosure rules made by the UK Listing Authority, andto the Combined Code on Corporate Governance. R&SA will be hosting a conference call for Investors and Analysts at 9.30 amtoday. To access the call please dial 0800 358 5260 (UK Freephone) or +44 (0) 207190 1232, quoting R&SA. The conference call will also be broadcast live via ourwebsite www.royalsunalliance.com and will be available on demand later in theday. Copies of the slides to be presented will be available on the website from9 am today. For further information: \* TAnalysts Press----------------------------------------------------------------------Helen Pickford Phil Wilson-Brown----------------------------------------------------------------------Tel: +44 (0) 20 7111 7212 Tel: +44 (0) 20 7111 7047----------------------------------------------------------------------Andrew Wigg Rupert Younger (Finsbury)----------------------------------------------------------------------Tel: +44 (0) 20 7111 7138 Tel: +44 (0) 20 7251 3801----------------------------------------------------------------------\* T Notes to Editors Sale of US Operation 1. The estimated loss on disposal is calculated as follows: \* T £m £mNet assets as at 30 June 2006 (322)Capital contribution (151)Present value of deferred consideration 70 ----------Net contribution (81)Transaction and other costs (29)Foreign exchange previously taken to reserves (11)----------------------------------------------------------------------Estimated pre tax loss on disposal (443)======================================================================\* T Subject to a closing net asset adjustment and foreign exchange 2. The net asset value of the US operation being sold was £322m at 30 June 2006and £433m at 31 December 2005. These net asset values include the impact of thedeconsolidation of the ADC. 3. The US operation•s loss before tax was £17m for the six months ended 30 June2006 and £29m in the year ended 31 December 2005. 4. The gross assets of the US operation being sold were £5,594m at 31 December2005 and £4,528m at 30 June 2006. 5. The deferred consideration of £158m ($300m) will be funded through dividendspaid by the regulated entities to Arrowpoint Capital. No dividends are permittedbefore the fourth anniversary of the completion date. 6. Arrowpoint Capital Corp. of Delaware is a newly formed company comprised ofR&SA US senior management and outside directors. 7. John Tighe, Sean A. Beatty, Dennis W. Cahill, Marc-Andre Lefebvre, Julie A.Fortune, James F. Meehan, Catherine A. Carlino, Robert J. Dixon, Daniel R.Keddie, David M. Davenport, David D. Shumway, Michael J. Crall, Larry G. Simmonsand Edward J. Muhl are each a Related Party by virtue of each of them being adirector of one or more subsidiaries of the Company which form part of the USOperation. The Purchaser is a Related Party by virtue of the fact theindividuals named above are, in aggregate, able to exercise or control theexercise of 30 per cent or more of the votes able to be cast on all, orsubstantially all, matters at general meetings of the Purchaser. 8. The Group has a number of financial and contractual arrangements with the USoperation. These were entered into in the ordinary course of business andcontinue after disposal of the US operation. 9. Assuming an exchange rate of £1 = 1.90 US$, which was the rate at 22September 2006. Delisting and Deregistration 10. As at 4 September 2006 US holdings beneficially held by US residentsaccounted for approximately 16.8% of R&SA•s shares in issue. 11. The ADR programme represents both a small proportion of the Company•soverall share capital and the shares held by US residents. As at 31 August 2006,the ADRs represented approximately 2.3% of R&SA•s shares in issue. This is thelowest level since April 2004. 12. There is low liquidity in the ADRs, with the average daily trading volumesin the 12 months to 22 September 2006 being 2.2% of the volumes for ordinaryshares traded on the London Stock Exchange. 13. A notice terminating the ADR programme is being sent to ADR holders thisweek and will become effective on 30 October 2006 (the Termination Date). ADRholders have until 30 November 2006 to instruct Citigroup N.A (the Depositary)to exchange ADRs for R&SA ordinary shares. Holders who wish to exchange theirADRs for R&SA ordinary shares can call the Depositary on 877 248 4237 (in theUS) or +1 781 575 4555 (from outside the US) for more information on thisprocess. 14. The Depositary•s usual charges will apply to all exchanges of ADRs. Any ADRsin existence after 30 November 2006 will be cancelled by the Depositary, whowill then sell the R&SA ordinary shares underlying those ADRs with ADR holdersbeing entitled to the sale proceeds net of the Depositary•s expenses and othercosts. Important Disclaimer This document contains forward-looking statements as defined in the US PrivateSecurities Litigation Reform Act of 1995. It contains forward-looking statementsand information relating to the Company•s financial condition, results ofoperations, business, strategy and plans, and general industry outlook(including trends in results, prices, volumes, operations, margins, overallmarket conditions, risk management and exchange rates) based on currentlyavailable information. These statements are often, but not always, made throughthe use of words or phrases such as •aim•, •anticipate•, •believe•, •continue•,•could•, •estimate•, •expect•, •intend•, •may•, •plan•, •seek•, •should• or•will• or the negative of these terms or similar expressions. The specificforward-looking statements cover, among other matters, our strategy andoperational objectives, estimated loss on disposal of the US operation,assumptions relating to the payout patterns under the ADC, the likelihood ofdraws on the LOC, payment of dividends by the US regulated entities andregulatory approval. The Company undertakes no obligation to update or reviseany of the forward-looking statements publicly, whether as a result of newinformation, future events or otherwise, save in respect of any requirementunder applicable law or regulation. Copyright Business Wire 2006Related Shares:
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