Financial News

  • 17 February 2014, 14:10

Hester Floats £200m Sale Of RSA Canada Unit

Stephen Hester, the new chief executive of the embattled insurance group RSA, is sounding out potential buyers of a business in Canada as he aims to stamp his mark on the company.

Sky News has learnt that RSA has commenced an auction of Noraxis Capital Corporation, a network of regional insurance brokers, which could raise as much as £200m.

The sale process was kicked off before Mr Hester was parachuted into RSA earlier this month, but sources confirmed on Sunday that the former Royal Bank of Scotland (RBS) chief executive had authorised it to continue.

Bank of America Merrill Lynch, the Wall Street giant, is overseeing the talks with prospective buyers.

Noraxis is a subsidiary of Roins Financial Services Limited, which also serves as the holding company for RSA's main operations in Canada.

It has more than 150 members, including prominent local names such as CG&B Group, Renfrew, Ranger, Stevenson & Hunt, Atrens Counsel, Fraser & Hoyt and Bell & Grant.

Sources said that interest was likely to be strongest from existing players in the Canadian insurance market.

If the broker network attracts a suitable offer, a sale would not include the rest of RSA's business in the country, whose troubled recent history has been a significant factor in the group's travails.

Mr Hester's predecessor, Simon Lee, was sacked late last year following the discovery of an accounting scandal at RSA's business in Ireland. The problems, which are the subject of several regulatory probes, resulted in the injection of £200m of fresh capital into the company.

The ongoing extreme weather conditions experienced in Britain, where RSA operates under the More Than brand, are likely to cost the company a substantial sum, threatening its ability to pay a dividend.

Analysts have speculated that other RSA subsidiaries, or indeed the whole company, could be vulnerable to opportunistic bids from predators.

Mr Hester is also exploring the sale of its operations in central and eastern Europe, which include businesses in Latvia and Poland. UBS, the investment bank, is handling that process.

RSA operates in 32 countries across Europe, Asia, Latin America, Canada and the Middle East, having been on an acquisition spree largely comprising small transactions in recent years. In central and eastern Europe, it operates in Lithuania, Latvia, Estonia, Poland, Russia and the Czech Republic.

Mr Hester won plaudits in the City, if not in Westminster, for his efforts to undertake the biggest transformation in corporate history at RBS.

Although he was ultimately ousted by George Osborne, the Chancellor, with whom he had a difficult relationship, Mr Hester's recruitment was regarded as a coup for RSA.

The City expects the new boss to tap investors for up to £500m in fresh equity, either through a rights issue or a share placing.

Coincidentally, Mr Hester will present RSA's full-year results on the same day later this month that his former employer announces a revised strategy under its new chief executive, Ross McEwan.

RSA, which has seen its shares slump by 28% during the last 12 months, leaving it with a market value of just over £3.5bn, declined to comment.

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