R&SA's sale of US operations will reignite bid expectations

Royal & SunAlliance (R&SA) will become an acquisition target following the sale of its US operation, with Aviva touted as an ideal match, according to analysts.

This week R&SA announced the sale of its US legacy business to Arrowpoint Capital, a vehicle set up by the unit's management team, for £158m.

Greig Paterson, of investment bank Keefe, Bruyette and Woods, said the deal would 'reignite buy-out expectations'. He added that a tie-up with Aviva made sense.

He said: "We believe that there is a high probability of a bid for R&SA in the medium term. Given the large cost savings associated with an in-market merger and the resultant strong cash flow position, we believe a tie-up between Aviva and R&SA makes a lot of sense."

He did not expect any Competition Commission issues over such a move, except in Ireland where the two groups would have 30% of the non-life retail market.

In the UK the non-life retail combined market share would be 20%, with Nowich Union focusing on the SME commercial sector and R&SA having a "higher end bias".

In addition to a bid from Aviva, Paterson said there were many US and European insurers that would find R&SA an "attractive asset".

Datamonitor analyst Andrew Birkett said if a merger with Aviva did go ahead, this would place the combined entity ahead of all other insurers, including Royal Bank of Scotland Insurance, in terms of market share in personal insurance, based on 2004 figures.

The sale saw R&SA terminate its American depositary receipt programme, delist from the New York Stock Exchange and announce action to end its US Securities and Exchange Commission registration.

Andy Haste, R&SA group chief executive, said the sale was a "significant step for the group".

In 2003, the group announced that its US operation was strategically non core and was closed to new business and a restructuring plan was instigated.

Paterson added that the sale could mean a potential ratings upgrade. Moody's has now placed the European ratings of the R&SA group on review for possible upgrade.

In early September, R&SA shares stood at around 140p. As Insurance Times went to press they were at 148p.