R&SA Offers $1.16 Billion for Codan Minority Shares; Best, S&P Comment

The UK’s Royal & Sun Alliance Insurance Group plc, through its wholly-owned subsidiary RSA Overseas Holdings B.V., announced an all cash tender offer for all for the outstanding shares in Denmark’s Codan A/S that it does not currently own – around 25 percent.

R&SA is offering Codan’s minority shareholders DKK 605 ($109.10) per share, for a total valuation of DKK 6.414 billion (£584 million – $1.16 billion). It will fund the offer through “existing resources” and the placement of £300 million ($591 million) of additional shares.

The offer price “represents a premium of 15 percent to Codan’s closing share price of DKK 525 [$94.68]” as of May 23, 2007, said the announcement, “and 18 percent to the 6-month volume weighted average.” While open to all Codan shareholders, the offer is nonetheless restricted in certain countries where prohibited by law, unless legal formalities are met – i.e. the U.S., Japan, Canada, Australia and several others.

R&SA said the “transaction will simplify the Group structure and capital position.” It also indicated that Codan’s Board “has unanimously recommended the Tender Offer to Codan’s shareholders. The three directors who are R&SA employees did not participate in the deliberations or the Codan Board resolution.”

Group CEO Andy Haste commented: “We have a strong portfolio of businesses and are committed to delivering sustainable profitable performance. Codan is a core part of the Group. The acquisition of the minority shareholding demonstrates the strategic importance of Codan and enhances our platform for delivering profitable growth. The transaction is expected to be mildly earnings accretive in 2008 and I am confident in the long term prospects for this business.”

He also took the opportunity to note that R&SA had “made a strong start to the year and we reaffirm our expectation that the Group will deliver a combined operating ratio of better than 95 percent for 2007.”

Both Standard & Poor’s Ratings Services and A.M. Best Co. indicated that their ratings on R&SA would remain unaffected by the tender offer.

S&P, which rates R&SA “A-” with a stable outlook, said: “The goodwill generated by the proposed transaction will cause a short-term decline in R&SA’s capital adequacy. However, capital is expected to rebuild over the rating horizon, through retained earnings, to a level more supportive of the existing ratings.”

Best indicated that acquiring the additional Codan shares is “likely to make a positive contribution to R&SA’s future earnings,” and that it would not “have a material impact on A.M. Best’s expectations for R&SA’s consolidated risk-adjusted capitalization.”