RBS abandons sale of insurance business
06 February 2009
Bailed out by the UK government, the Royal Bank of Scotland has abandoned plans to sell its insurance business to raise capital, as it failed to find a buyer willing to pay £6-7 billion in the current economic gloom, although it had been up for sale since the past 10 months.
The announcement came soon after a £5-billion offer made by private equity consortium comprising BC Partners and Apollo management, backed by former Aviva UK chief executive Patrick Snowball, was turned down by the bank, which as it felt that the offer undervalued the business of its insurance arms, Churchill, Privilege, and Direct Line brands.
The joint offer by BC Partners and Apollo Management would have left RBS with a large minority shareholding apart from the uncertainty of the joint bidders being able to raise enough funds to close the deal.
The auction process, went on for 10 months and firms like Warren Buffett's Berkshire Hathaway, Zurich Financial Services, China's Ping An and Allianz of Germany, were all sent sales memorandum by RBS, but all them shied away from actually bidding.
Private equity firm CVC Partners, jointly with Swiss Re had also bid for the insurance business of RBS, where they had valued the business at £6 billion for a 51 per cent stake, but the government had turned down this offer also.
Government appointed chief executive of RBS, Stephen Hester, said that the sale of its insurance business under current prices, would destroy the value for RBS's shareholders and he now considers it a strategic fit within the retail and commercial operations of the bank as the insurance firms still sells over a thousand policies every week.