It was to be a deal that cemented Stephen Hester’s return to City bigwig status, after he was axed as chief executive of RBS in 2013. But RSA’s sale to Zurich is no more, after the Swiss insurer pulled out of the £5.6bn takeover of its British rival.
The FTSE 100-listed insurer’s shares promptly fell more than 20% to around 407p this morning. That erased the gains the shares had made in anticipation of the deal, which would have paid out a hefty premium at 550p per share.
RSA's shares leapt after Zurich's bid was announced. Source: Yahoo Finance
Zurich blamed ‘recent deterioration’ in its General Insurance business for its cold feet. It’s predicting a loss of around $275m from payouts for the enormous explosions at the Port of Tianjin in China last month, as well as ‘large losses’ of some $300m for its US car unit and ‘certain other lines of business’.
So where does that leave RSA? The company was unsurprisingly very keen to remind everyone that Zurich’s offer, announced on July 28, had been ‘unsolicited’. It also emphasised that the Swiss spurner’s due diligence ‘had not found anything that would have prevented from proceeding with the transaction.’
RSA has sold off a number of businesses since Hester joined in February 2014, with its Latin American arm flogged off for £403m two weeks ago. And it reported strong first-half results in August, with pre-tax profits leaping 317% to £288m.
But the turnaround of the troubled insurer isn’t done yet. It’s currently under investigation by UK accounting watchdog the Financial Reporting Council over ‘financial regularities’ at its Irish unit, which had to be bailed out by a £200m cash injection from its parent in 2013.
It will also have to placate what Panmure Gordon analyst Barrie Cornes labelled ‘long suffering RSA shareholders’, given they now have no prospect of ‘what would have been an excellent exit route’. With activist investor Cevian Capital as the largest shareholder, Hester has his work cut out.