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.”

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