Direct Line set for IPO
RBS Group has confirmed plans to sell off its Direct Line insurance arm – which has a significant presence in Yorkshire – through a stock market floatation.
Analysts believe the floatation could see the business valued at £3bn.
Direct Line Group has two offices in Leeds and another in Doncaster and employs more than 3,000 staff in the region. Its main operating subsidiary, UK Insurance, is headquartered in Leeds.
The decision to sell Direct Line was forced on RBS by European Union regulators who made it a condition of receiving state aid. The Government took a majority stake in RBS at the height of the financial crisis.
Paul Geddes, chief executive of Direct Line Group, said: “We are delighted to be announcing the intention to float Direct Line Group. Our people have worked hard in recent years to transform the business in order to take advantage of our distribution, scale and market leading brands.
“Our work to maximise these advantages is by no means complete and we have a clear strategy that spans distribution, pricing, claims and operational efficiency. We look forward to being a listed company and are more committed than ever to providing customers with excellent products and service levels, whilst seeking to deliver sustainable returns for our shareholders, targeting a 15% return on tangible equity from ongoing operations.”
In addition to the Direct Line brand itself, the group is also behind Churchill, Green Flag and Privilege.
The first half of the year saw the group record an operating profit of £224m.
Redmayne Bentley has been appointed as an intermediary.
Head of operations, Tim Archer, said: “Redmayne Bentley has been appointed as one of the intermediaries through which private investors may register and, once a prospectus is published, apply for shares, subject to the terms and conditions of the Offer. We are excited to be working with such a prominent UK company.”
Keith Williams, head of investment bank Altium’s Leeds office, said: “The timing of this IPO is not a huge surprise, given that RBS is being forced into selling Direct Line Group. RBS has attempted other routes but there have been limited opportunities among potential trade buyers. Private equity appears to have been unable to meet the pricing expectations, probably in part due to the limited amount of debt that could be put into the deal in order to satisfy the regulator.
“Given that, the divestment of RBS’s shareholding in ‘tranches’ through an IPO is a sensible option. This means Direct Line can sell a minority holding now and sell down the remaining holding during the course of 2013 and 2014. This route will also potentially maximise RBS’s proceeds from sale, allowing time for possible improvements in trading performance and general market conditions.”
