As takeover speculation mounts, how plausible is a bid for RSA?
Speculation this week that RSA Insurance could be a target for takeover is tantalising the taste buds of market analysts.
Zurich Financial and Sampo have been rumoured as propective bidders, although both companies have refused to comment.
But the burgeoning question of the likelihood of such a takeover - and any potential suitors - has drawn a line down the middle of the market.
Shore Capital analyst Eamonn Flanagan is confident that RSA could be a takeover target at some point this year.
“It’s got good market positions in key territories and some emerging markets, and I think that makes it a viable prospect,” he says.
According to the Independent, one trader noted this week that RSA‘s failed £5bn bid for UK rival Aviva in mid-2010 changed it from “predator to prey”.
Flanagan believes that Zurich could be one such predator to eye up RSA. “Zurich is a real possibility,” he says. “If somebody does come for RSA, I think there’ll be a counter bid: Zurich comes through, then Allianz might show its hand.
“There are other companies out there that might want to have a pop at Royal, but might not want to be the first one to go for it.”
But Panmure Gordon analyst Barrie Cornes isn’t so sure an imminent bid is likely. “In terms of timing of the cycle, it would be an odd time to buy RSA. While the UK motor market has improved rapidly, commercial lines is still very soft.”
Cornes concedes that the performance of RSA’s combined ratio – consistently around 95% - means it’s a quality prospect, but points out that its valuation will count out many potential suitors.
“The valuation argument at these sorts of levels would probably rule out an acquisition, but never say never,” he says.
For Cornes, the game is wide open but the result is uncertain. “It could be anyone from A to Z: from AXA to Zurich, and anyone in between. But I just can’t see it happening.”
Power of persuasion
Any potential bidder will need to convince RSA’s shareholders that they are not playing a zero-sum game. Cornes says that RSA’s shareholders are not unhappy with the company’s performance, so any bid will need a serious sweetener.
“If someone was to offer 30% on the share price,” he says, “I’m sure there would be a lot of interest from the shareholders, but I don’t think they are an unhappy bunch.”