Comment

RSA is in too much of a rush to sell after slump

RSA break-up is remarkably short-termist for a company that measures its history in centuries

RSA
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What a time to announce a takeover bid. Not just slap bang in the middle of the most hotly contested US election in history but after the market has closed too, and more than a month since the approach was made to boot.

Perhaps the folk at RSA were hoping no one would notice as they meekly succumbed  to a £7.1bn joint effort from Canada’s Intact Financial and Denmark’s Tryg, the latest in a flurry of opportunistic approaches for UK companies with bombed-out share prices from the pandemic.

True, it’s not officially a done deal yet. The pair still need to formalise their interest before a takeover deadline of Dec 3. But, with the RSA board saying they are minded to recommend it, the white flag is being run up the pole above the company’s Fenchurch Street headquarters in the Square Mile.

That’s hardly a shocker when you consider their 685p-a-share offer is almost a 50pc premium to the share price.

In the cut-throat world of mergers and acquisitions, a 30pc bounty is considered generous enough to land the prize most of the time, though someone clearly forgot to tell Canada’s GardaWorld as it continues its pointless attempt to get G4S on the cheap. A 46pc spike in RSA’s shares suggests the market approves too.

No doubt directors would argue that at those levels they would be shot if they didn’t recommend it to shareholders, but would they really? Yes, it’s a huge premium, but it’s a Covid premium. 

The share price had traded above 600p throughout 2017 and 2018, and was heading back towards that level before the pandemic. Indeed, it’s only a 19pc premium to the pre-corona price, so in that context it is decidedly underwhelming.

In fact, it is tempting to say the whole thing is. Sure, it’s not a hi-tech company, or pharma, or a business with sprawling manufacturing operations and tens of thousands of employees, but it is Britain’s oldest insurer, and it is about to be ruthlessly carved up between two overseas rivals.

RSA traces its roots back to 1710 when the Sun Fire Office was founded in the aftermath of Great Fire of London. Sure history isn’t everything, but isn’t that sort of heritage worth preserving?

It is also a company, thanks to six years of heavy-lifting under boss Stephen Hester, that had finally been knocked into shape after repeated profit warnings and an accounting scandal at its Irish arm.

Having chosen to focus on the big, profitable insurance markets of the UK, Canada and Scandinavia, it has a fairly bright long-term future as an independent company.

Wouldn’t management and shareholders prefer to stay the course and find out?

The share price has taken a hammering recently but which stocks haven’t? RSA’s shares had been steadily recovering until talk of a second wave and lockdown began to emerge in September.

It will undoubtedly be a difficult hole to climb out of, but ultimately as a management team you can either choose to try to climb out of that hole through hard work, or sell yourself out of it.

Maybe the prospect of a £15.8m share payout makes that decision easier for Hester at least. But for a company that measures its history in centuries, not months, it seems remarkably short-termist.

The nightmare before Christmas

It doesn’t take much to rile a man who once declared “I’m not Father Christmas” but to be fair to Mike Ashley, he’s right to be frustrated at the muddled guidelines governing which retailers can and can’t stay open during lockdown 2.0.

Incredibly, ministers can’t seem to decide what is and isn’t an essential retailer. There’s confusion too about so-called “mixed retail”, which covers a pretty broad area.

Wisely, the tycoon appears to have given up on the idea that parts of his empire might make the cut, but that hasn’t stopped Ashley’s Frasers Group from laying the blame with Michael Gove.

The company clearly hasn’t forgiven him for outing its questionable attempts to remain open last time. The Government can’t even decide what a “bicycle shop” is, it complains.

Perhaps, but nor has Frasers Group done a great job of explaining why it should be classified as an essential retailer. Last time, it was gym equipment. This time, one assumes it’s pedal-powered transport.

But has anyone asked what it all means for the real Santa Claus, if lockdown is dragged out till Christmas?