Royal & Sun Bids $1.2 Billion for Rest of Codan A/S

24 May 2007 • by Natalie Aster

Royal & Sun Alliance Insurance Group Plc, the U.K.'s second-biggest property and casualty insurer, offered a 15 percent premium to buy shares it doesn't already own in Denmark's Codan A/S for 6.4 billion kroner ($1.2 billion), reported TheBloomberg.

RSA Overseas Holdings BV, a unit of Royal & Sun, bid 605 kroner a share for remaining shares of Denmark's third-largest non- life insurer, Copenhagen-based Codan said today in a statement. Codan shares closed yesterday at 525 kroner.

A successful offer would give Royal & Sun Alliance full control of Codan, which operates in Denmark, Norway, Sweden and the Baltic region. Royal & Sun Alliance plans to sell new shares valued at 300 million pounds ($596 million) to fund the Codan bid.

``It's not the most compelling deal in the world and is not a cheap deal,'' said Kevin Ryan, an analyst at ING Wholesale Banking in London, who has a ``hold'' rating on the stock. ``Prices are coming off in most lines of business.''

Shares of Codan rose 15 percent to 604 kroner, their steepest rise ever, at 10:20 a.m. in Copenhagen. They are up 10 percent this year, valuing the company at 3.7 billion euros ($5 billion).

Royal & Sun shares fell 4 percent, the most in three months, to 162.8 pence at 9:20 a.m. in London. They are up 7 percent this year, valuing the insurer at 4.9 billion pounds.

Royal & Sun is offering 2.1 times book value for the Codan stake, whereas insurance assets typically sell at two times book value at the top of the market, Ryan said.

Codan has 6,207 employees and reported that net income fell 20 percent to 968 million kroner last year. Codan generated 25 percent of Royal & Sun Alliance group's net written premiums and 24 percent of underwriting result in 2006. Royal & Sun Alliance already owns 71.66 percent of the Danish insurer.

``The tender offer reaffirms that Codan is core to the Royal & Sun Group,'' it said in the statement. ``Codan is a strong business providing exposure to the Scandinavian insurance markets.''

Royal & Sun Alliance completed the sale of its U.S. operations in March to focus on the U.K., Scandinavian businesses and emerging markets. It aims to diversify its income by having worldwide units that operate on differing business cycles.

``Consequently, Codan is integral to the group's objective of delivering sustainable profitable performance,'' Royal & Sun said in the statement.

Codan has until June 21 to accept the bid, it said. It has recommended that shareholders accept Royal & Sun's offer.

Royal & Sun Alliance, should it manage to acquire more than 90 percent of Codan, would then try to buy all shares and delist the company. Royal & Sun will also request a shareholder meeting to elect new Codan directors.

As long as Royal & Sun has less than 90 percent of Codan shares, it will not seek a delisting, it said.

JPMorgan Cazenove Ltd. and Merrill Lynch & Co Inc. will manage Royal & Sun's sale. ABN Amro Bank N.V. was the financial adviser to Royal & Sun Alliance on the Codan offer.