Investors skeptical of Zurich’s tentative $8.8-billion RSA offer

Bloomberg News

Zurich Insurance Group AG’s announcement that it’s considering a £5.6-billion ($8.8 billion U.S.) offer for RSA Insurance Group PLC is leaving investors in doubt that the takeover will happen at that price.

While RSA shares rose 4.6 per cent in late London trading on Tuesday, they were still about 6 per cent below Zurich’s tentative offer. The Swiss insurer is seeking details about RSA’s pension deficit, its reserves and liabilities, before making a firm bid, Zurich spokesman Riccardo Moretto said by phone.

Chief executive officer Martin Senn is pressing on with the deal, which comes amid turmoil on financial markets. Acquisition targets globally are trading at an average of 15 per cent below their offer prices, excluding negative spreads spurred by bidding wars, data compiled by Bloomberg show. A wide spread – usually greater than 5 per cent – signals concern that an offer could get derailed or reduced. Insurance stocks have sunk about 8 per cent since Zurich said it was considering an offer on July 28.

“The deal hasn’t been done yet,” said Stefan Schuermann, an analyst at Vontobel AG in Zurich. “The market sees this possibility of a lower price in case Zurich finds skeletons in the closet.”

At the current bid price, Zurich Insurance would be making the biggest acquisition in the industry in Europe. Mr. Senn would need to borrow to finance the transaction – Zurich’s cash reserves amount to about $3-billion. Regulators in Britain have given the Swiss insurer until Sept. 22 to come forward with an offer, the companies said on Tuesday.

RSA said Zurich had raised its bid on Tuesday, without saying what the previous offer was. Earlier in the month, it was offering about 525 pence while RSA was demanding at least 600 pence a share, the Sunday Telegraph reported Aug. 5. A deal would include Zurich honouring an interim dividend of 3.5 pence a share announced this month, RSA said.

“Investors are conscious of the fact that Zurich has only made an indicative offer,” Guy de Blonay, manager of the Jupiter Global Financials SICAV fund, said in an e-mailed response to questions from London. “There is no certainty.”

RSA’s pension deficit has deterred some insurers from making formal offers for the company in the past. RSA recorded a gap of £3.1-billion at the end of last year.

“We think this is a reasonable price,” said Ming Zhu, an analyst at Canaccord Genuity in London. “RSA made some strong progress in the first half of 2015. That provides some comfort to Zurich shareholders.”

Zurich’s purchase of RSA, its biggest since 2000, would allow it to expand in Britain and Latin America as well as access RSA’s profitable Scandinavian and Canadian units at a time when its own returns are in decline.

The company’s shares climbed 2.3 percent to 267 Swiss francs in Zurich, partly reversing four days of declines.

While Mr. Senn has said the purchase could bring significant cost-savings and other benefits, investors including Simon Wyss at Privatbank von Graffenried AG, have said he will need to persuade some shareholders.

“I’m not that, sort of, convinced, to be honest,” Andrea Williams, a portfolio manager at Royal London Asset Management Ltd. in London, who holds Zurich shares, said. “With Zurich in the past, I’ve got the impression that there was excess capital coming back to shareholders and that there wasn’t that much of an appetite for deals.”

Anthem stands by its $47 billion offer for Cigna despite rival insurer’s rejection of the bid

Anthem remains committed to its roughly $47-billion bid to buy Cigna, a deal that would create a health insurance giant with international reach and added muscle to improve technology for consumers and negotiate rates with providers.

The Blue Cross-Blue Shield insurer said Monday, June 22, 2015 that the two companies would cover more than 53 million people combined, a total that easily surpasses that of current market leader, UnitedHealth Group Inc.

Anthem said the combined insurer would have a much broader base over which to spread costs and expenses, and it could make technology investments over the industry’s biggest customer pool.

“The proposal we submitted to Cigna presents significant and compelling value for shareholders in a transaction that would bring together two highly complementary platforms with a powerful growth potential,” Anthem Inc. CEO Joseph Swedish said in a statement from the company.

The Indianapolis insurer reiterated its commitment to its most recent offer of $184 per share in cash and stock a day after Cigna delivered a caustic response to Anthem’s proposal.

Bloomfield, Connecticut-based Cigna Corp. dismissed that offer in a letter sent Sunday to Anthem’s board. Cigna said it saw a number of obstacles standing in the way of a deal that “under the right circumstances” would provide substantial benefits to consumers, doctors and investors.

Analysts and other experts have been expecting consolidation at the top of a health insurance industry that has had to adjust to the health care overhaul and is dealing with slow growth in the biggest piece of its market, employer-sponsored health insurance. They see several advantages to a big combination.

A larger insurer can gain more leverage and negotiating power to use in hashing out rates with care providers. But that advantage may be limited by regulators who will seek to make sure the acquiring insurer doesn’t gain an unfair advantage in any market.

An acquisition also can strengthen an insurer’s use of data and technology, which are playing a growing role in monitoring patients and care. At a very basic level, that means things like tracking whether patients are keeping up with their immunizations.

Insurers also are trying to give consumers better information on the cost and quality of the care they buy, since those patients are being exposed to more of the bill through things like high-deductible health insurance.

“In a lot of ways, this is really health care moving in the direction of banking, and there are a lot of positive and negative aspects to that analogy,” said Dan Mendelson, CEO of the market analysis firm Avalere Health.

Anthem is currently the nation’s second-largest health insurer, while Cigna ranks fourth in terms of enrolment. Anthem specializes in selling individual coverage and insurance to workers of small businesses. It also has grown its government business, which includes Medicare, Medicaid and coverage of federal employees.

Health insurance is Cigna’s main business, but it also sells group disability and life coverage in the U.S., and it has a growing international segment that Anthem lacks. Much of Cigna’s health insurance business involves coverage where the employer pays the claims and then hires Cigna to administer the plan, a growing and less-profitable form of coverage in employer-sponsored health care.

Shares of Cigna jumped 7 per cent, or $10.97, to $166.20 in June 22, 2015 morning trading – more than $17 per share below the offer  – while Anthem rose 4.9 per cent, or $8.15, to $173.21.



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