Insurer Royal & Sun Alliance Insurance Group said on Thursday it was selling its U.S. arm to Arrowpoint Capital, providing the company with a long awaited exit from its U.S. unit and pushing its shares up.
RSA said it was selling the business to a vehicle set up by its U.S. management team, for 158 million pounds, although RSA will provide the U.S. unit with a 151 million pounds capital injection as part of the disposal.
The second largest UK commercial insurer said in a statement the deal would be funded from the future performance of the U.S. operation.
But the capital injection, write off of U.S. net assets and other costs will lead to a pretax loss on disposal to RSA of 443 million pounds, it said.
RSA said it had given minimal representations and warranties as part of the disposal, but that it effectively represents a clean exit from the US.
It's absolutely the right transaction for shareholders, RSA's Chief Executive Andy Haste told journalists on a call. It's clean, it's certain and it brings finality to the U.S. exposure.
Analysts said they were surprised at the cost of exiting its U.S. unit, which would be more expensive than the market had anticipated, but were cheered that the company had managed to agree a clean break from its American arm.
RSA shares were trading up 3.3 percent at 149 1/4 pence at 08:44 GMT (9:44 a.m. British time).
Merrill Lynch analyst David Nisbet said in a note: The accomplishment of the US exit provides further evidence of the strength of RSA's management team.
RSA's U.S. operation has haemorrhaged hundreds of millions of dollars due to escalating claims. It was closed to new business in September 2003 and a strategic plan to wind the unit up and eventually sell it has been one of Haste's priorities.
Analysts have suggested a sale of the U.S. arm could make RSA an attractive bid target for rivals, such as AIG or Zurich Financial Services, who would be interested in acquiring its well established UK and Scandinavian non life businesses.
Haste refused to comment on whether the move would make it more likely to be sold.
Analysts said the prospect of RSA becoming a bid target was mostly included in its share price, which has risen nearly 11 percent since the beginning of June, outperforming the FTSE by the same amount during the period, according to Reuters data.
RSA proposes to cancel its New York Stock Exchange listing, its ADR programme and its SEC registration, which it expects would save it around 10 million pounds per year.
The deal requires the consent of regulators and its shareholders for the deal. It plans to hold an extraordinary general meeting in early to mid November to gain their agreement to the deal.