The deeply troubled insurance giant behind the More Than brand, RSA, was left vulnerable on Friday to a takeover or a break-up as the company issued its third profits warning in six weeks, lost its chief executive and said its dividend could be cut again.
Shares in the group – down more than 20 cent at one stage – eventually finished the day 12 per cent lower, wiping about £500m off its value. Simon Lee, 52, who became chief executive two years ago, has left with immediate effect with a year’s pay of £824,000. RSA shares are now down 37 per cent this year while the FTSE 100 has risen by nearly 10 per cent.
At these levels, analysts said, the insurer could be vulnerable to a takeover bid. Shore Capital’s Eamonn Flanagan said: “Such a valuation (£3bn market capitalisation) leaves the company open to an opportunistic bid from a corporate predator. RSA would offer the likes of Axa, Allianz or Zurich major presences in Scandinavia and Canada, a terrific consolidation play in the UK and Ireland and a presence latent with opportunity in Latin America.”
RSA’s Scandinavian business Codan, which accounts for more than a third of profits, could also appeal to local bidders including Finnish insurer Sampo or Danish-based Tryg, according to Collins Stewart’s Ben Cohen. Intact Financial, Canada’s largest provider of home, car and business insurance, would also be a contender for the Canadian business as it has expressed interest in acquisitions, he added.
Mr Cohen said: “You are more likely to see potential buyers for parts of the operation rather than the whole. The really big groups have been a lot less interested in deals in mature Western markets.” Exane BNP Paribas brokers added: “We expect management are more likely to sell emerging markets businesses which do not generate cash and capital.”
RSA said it is pumping an extra £135m into its Irish arm on top of the £70m it put in last month after discovering a black hole. It also said the latest storm to hit the UK, Xaver, would cost it £25m. Together these mean profits will be lower than expected.
Chairman Martin Scicluna, who will take on an executive chairman role until a new chief executive can be found, said there would be “speculation” over a sale, adding that “nothing is ruled in and nothing is ruled out”. But he added: “Right now we have no plans to have a rights issue.”
Mr Lee’s decision to depart was abrupt, he said: “We were in the process of finalising our Irish reserves review yesterday. Simon came to me last night and said it would be in the best interests of the company if he went. There were no discussions with shareholders and the senior independent director was not involved.”
Mr Lee has been under growing pressure since RSA cut its dividend by a third in February. He will leave without any bonus and no outstanding share options or incentives. Mr Scicluna said: “We are very disappointed with Ireland, which has caused a disproportionate amount of pain to the group. I began the search for a new chief executive last night but it will take several months to find and appoint one.
“I have also started a review of the whole business with the objective of strengthening our capital.” Mr Scicluna added that the final dividend would be reviewed once 2013’s full results were in.
Mr Lee, who formerly ran RSA’s international business, succeeded the highly respected Andy Haste as chief executive in November 2011. Investors began to worry about serious problems at the company when, late on a Friday night a month ago, the company announced it was suspending its three top executives in Ireland pending an investigation into “issues” in its claims and finance divisions.
The head of the Irish business later quit after claiming he was made the “fall guy.”
Philip Smith said he had been left “traumatised” by the affair. He said he would “pursue justice outside the current flawed process.”
RSA Ireland’s chief financial officer, Rory O’Connor, and claims director, Peter Burke, were also suspended at the same time.