As the deadline approaches for
Zurich Insurance Group to make an offer for British rival RSA Insurance Group, the latter's investors are preparing themselves for a lowball bid that might not even reach $8 billion as previously estimated by several media reports.
Share prices of RSA have declined to 492 pence since hitting 528 last August 4, and leading Zurich investors are not too happy that the cash-rich Swiss firm is weighing a bid as high as 525 to 550 pence per share of RSA—a deal worth more than $8 billion.
One top Zurich investor said that a deal at 510 pence is much more "preferable" than higher bids.
"We expect an offer before the deadline, and have spoken to the company several times and told them not to overpay," he said.
The serious lack of counter bidders is also not helping RSA's case, with big European insurers like
AXA and
Allianz not too keen on participating in any M&A activity.
Furthermore, majority of Zurich investors surveyed by Bernstein Research analysts are concerned that the deal would cut chances of surplus cash being returned to shareholders.
"I am somewhat disappointed by Zurich's approach to RSA," said Zurich shareholder Andrea Williams. "I got the impression that the desire was to use the excess capital via buybacks or higher dividend and thus return it to shareholders and was not aware that a large deal was contemplated."
Yet if the deal pushes through, Zurich could gain larger leverage not just in the Canadian commercial insurance industry, but also in Britain, Scandinavia, and Latin America.
Meanwhile, RSA investors share differing sentiments. Some investors believe that RSA's multi-year turnaround plan can further increase its share prices to 600 pence, while others think that 572 pence is an acceptable valuation--$627.6 million higher that Zurich shareholders' valuation.
According to William Fitzpatrick, senior equity analyst at
Manulife, an offer of 550 pence is "a sweet spot for both companies."
"The industry has been consolidating, it will continue to do so, there is only a handful of these mid-cap players that are available," he said.
