Royal Bank of Scotland is unlikely to go ahead with a sale of its insurance units – which include the Direct Line and Churchill brands – unless market conditions markedly improve in coming weeks, as it struggles to attract enticing bids in a dismal financing environment.
The bank will take the stalled auction, which has been going since April, into thenew year in the hope that it can besalvaged as the disintegrating M&A market takes its toll on the ambitious plan to release more than £5bn to pay down debt. But there seems little chance of a breakthrough. As banks, worried about their balance sheets, refuse to lendonattractive terms for takeovers, many companies are having trouble selling assets.
This year has seen the highest number of withdrawn deals on record as buyers face trouble financing buys, according to the data consultancy Dealogic.
Pulled deals include BHP Billiton’s $66bn (£44bn) bid for rival Rio Tinto, and thisweek the acquisition of Canada’s BCE by a group of buyout firms for C$35bn (£19bn).
Analysts had initially valued the RBS insurance arm as high as £7bn, RBS’s asking price at the start of the auction.
“They will just roll it over into the new year in case things improve,” said one person familiar with the situation.
Royal Bank of Scotland’s advisers had in early summer shortlisted four suitors who had submitted first-round bids for due diligence and a second round of offers. They were the US insurance giants Allstate and Travellers, the German insurer Allianz, and the natural frontrunner Zurich Financial.
The first public bombshell to hit the process was when Zurich Financial issued a statement in July saying it had pulled out of the process.
Asthe financial meltdown took hold from late August, others also dropped out.Theonly two propositions currentlyonthe table are a bid from the US insurer Allstate offering a lot less than RBS was after, and a bid from the buyout giant CVC for just 50 per cent of the business.
The process has not progressed for the lastmonth,andit will not do so over the next few weeks as many participantsand bankers take off for the Christmas break on one of the rare years quiet enough to allow them to.
Royal Bank of Scotland will wait and see early in the new year whether conditions improve, and otherwise abandon the sale.
The bank has already sold its half of a joint venture with Tesco, which was part of the portfolio being sold, to the supermarket chain for £1bn.
The lender has also been one of the most stretched by the credit crunch, and has received a substantial bailout from the Government, which is resulting inthestate taking a 67 per cent stake in the beleaguered bank. But the package it is taking does strengthen its capital structure, and this makes it easier for it to walk away from the sale.
“It would be dumb for RBS to sell these assets at a fire-sale price, which is where people can finance it right now,” said a second person familiar with the process. “The pressure has gone away.”