No surprise RSA has recommended Zurich £5.6bn offer

A little more than 18 months since Stephen Hester was ejected from Royal Bank of Scotland, before his revival efforts were complete, he is set to leave another turnround project unfinished.

Yet shareholders in RSA – the FTSE 100 insurer where Mr Hester is chief executive – have reason to be more satisfied than the UK government was when he left part-nationalised RBS.

On Tuesday, RSA’s larger rival Zurich tabled an indicative £5.6 billion offer for the company. The 550p a share price equates to almost double RSA’s tangible book value – a punchy multiple in a sector that trades at a significantly lower premium, typically of about 50 per cent.

The offer is pitched at a premium of about a quarter to RSA’s market value four weeks ago. On that basis, it is perhaps unsurprising that RSA has indicated that its investors should accept.

Some other measures could judge Mr Hester’s tenure less kindly, however. Mr Hester was hired to turn round RSA after a profit warnings. But under his watch, RSA shares have failed to climb back above the 573p level they were trading at a few months before his arrival – his efforts have been hampered by weak investment income and intense competition.

Analysts say that without the premium offered by Zurich, RSA’s shareholders would probably face a long wait for Mr Hester to deliver on all his financial targets and generate a similar return.

Dividend

Under the terms, RSA shareholders would also be entitled to a recently declared interim dividend of 3.5p.

Ben Ritchie, senior investment manager at Aberdeen Asset Management – Zurich’s third-largest shareholder – says: “There’s at least a reasonable chance that there’s quite substantial cost synergies that could be realised, particularly from the core UK and Ireland business. And the Scandinavia and Canada operations are decent businesses.”

Other investors remain unconvinced, however. Andrea Williams, senior equities fund manager at Royal London, which holds shares in the Swiss group, says she is “somewhat disappointed” as she believed Zurich managers were focused on returning cash to shareholders instead of pursuing big M&A.

–(Copyright The Financial Times Limited 2015)