This week the serious contenders for RBSI will finally begin to emerge
“Of course everyone is taking a look. It’s an irresistible proposition,” says a leading analyst close to the deal to sell off the Royal Bank of Scotland’s insurance business. “And who doesn’t want a little rummage through their numbers?” he adds gleefully.
This week however, the game begins for real. We should find out who is seriously interested in taking on the business and who RBS is prepared to negotiate with.
This point is particularly emotive because, so far, the brief has been that RBS does not want to invite private equity bidders to the table. It wants to sell the business as a lump – and why shouldn’t it? It would be cleaner, quicker and generate more value for its shareholders as the insurance unit is greater than the sum of its parts.
As a negotiation standpoint, RBS probably wants to stop the vested private equity interests from running the rule over each part of its business and using their detailed knowledge of where there is value or growth to drive down the price. It may be easy to blame the exclusion of such investors on a lack of confidence in their ability to raise the capital needed, but the same rationale can be applied to explain why the key stock bidders may not want to pay anything near the £8bn asking price.
It is expected that six bidders will emerge for the group by the end of this week, with Allianz, Zurich and AIG the frontrunners after Warren Buffett ruled his Berkshire Hathaway group out of the running. But are these power players going to pay £8bn for a business that operates in a market in which they are already present? Perhaps such a deal is more feasible for one of the other contenders on the shortlist, such as Ping An, Bank of China or Generali. It would enable them to break into the UK market through established brands.
A problem arises for RBS Insurance if they do not receive adequate offers. Ultimately, however, this deal is about how desperately the RBS parent company needs to sell this division and how desperate it is to get the right price from the competing parties.