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Bidders whittle down in RBS' £6bn+ auction

There are thought to be around six to seven serious bidders in the running for Royal Bank of Scotland’s insurance operations (RBSI) as the deadline for the first round of bids closes tomorrow.

With private equity firms excluded, European and American insurers are among the leading pack, together with two Chinese firms.

Zurich Financial Services Group, Chinese insurer Ping An, Bank of China, Allstate, Travelers and Generali have all been linked with a bid. Interest from German insurer Allianz is believed to be on the wane after balking at the £6bn+ price-tag, while there are doubts surrounding American International Group’s interest following their recent investment losses, according to sources.

Last week, former frontrunner Berkshire Hathaway ruled itself out of the race which attracted around 15 expressions of interest when first announced.

However, private equity firms have been linked with a bid in the latter stages of the bidding process.

One source told The Insurance Insider that private equity firms may enter a joint bid with a corporate partner in the second round of bidding.

“What may be more likely to happen is for private equity to work in partnership with a corporate [bidder],” the source said.

Apax Partners, Blackstone, KKR and Texas Pacific are all thought to be interested in the RBSI operations.

Royal Bank of Scotland’s (RBS) is believed to have ruled out bids from private equity groups after growing concerns over the leveraged finance markets.

Some commentators also suggest RBS took the decision to avoid embarrassment in the event that the insurance division would later be sold on for a greater profit.

Two private equity firms contacted said they were not likely to complain about exclusion from the bidding process.

RBS share price fell recently after reports that Warren Buffett, chief executive of Berkshire Hathaway, had pulled out of the bidding process.

The sale of RBSI is part of plans announced by RBS last month to raise capital and refocus on its core banking business.

RBSI, which has around a 32 percent share in the UK motor insurance sector, is thought to be worth around £6bn, although more fanciful valuations have been reported.

Though the bank has often stated its preference to sell the division intact, competition concerns may rule out some interested insurers who are already active in the UK motor insurance sector. Some market analysts have suggested splitting up the units would attract more buyers.

Last month, William Hawkins analyst at Keefe, Bruyette & Woods, said: “In theory, we believe RBS Insurance could be worth more than £6bn.

“In practice, we believe that many insurers may baulk at the requirement of asking shareholders for equity capital to acquire a 32 percent share of the notoriously competitive UK motor market.”

In April, the bank launched a number of its insurers on aggregator panels, prompting suggestions that it may be keen to attract premium growth to drive up the sale price.

Until recently, RBS had been very protective of its insurance brands and has been reluctant to engage with aggregators.

Advising RBS in the sale is Merrill Lynch and Goldman Sachs.

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