Direct Line float threatened by private equity bids

Direct Line’s plans for a flotation could be derailed by a private equity bidding war, according to reports.

Buy-out firms are thought to be preparing bids just weeks before its owner Royal Bank of Scotland is expected to file for the £3.2bn listing.

The Sunday Times said two takeover bids are being prepared, including a joint bid by American private equity firms Blackstone and Bain Capital while a consortium of Kohlberg Kravis Roberts, Apax and BC Partners is also planning an offer by the end of the month.

Insurance Times reported last month how a clutch of private equity firms were circling the business.

RBS has always favoured a flotation as its preferred option for offloading its insurance arm and has targeted a September listing.

The sale is being led by Goldman Sachs, Morgan Stanley and UBS. Eight other investment bankers; Bank of America Merrill Lynch, BNP Paribas, Citi, Commerzbank, HSBC, Investec, KBW and RBC have now also been added to the syndicate in junior roles, according to Reuters.

If the float goes ahead 30% of the company is expected to be sold to investors, followed by another sale next year, which would take RBS’s holding down to below 50%.

An RBS group spokesman said: “We are not going to comment on speculation, but the base case plan is for the RBS Group to dispose of [Direct Line Group] by way of a public flotation and that is targeted to commence in the second half of 2012, subject to market conditions. The process of separation is proceeding on plan.”