Analysis & Comment

UK insurer Hastings agrees to higher than expected $2.2 billion cash offer

HELSINKI (Reuters) – British motor insurer Hastings (HSTG.L) agreed to a 1.66 billion pounds ($2.2 billion) takeover by Finland’s Sampo (SAMPO.HE) and South Africa’s Rand Merchant Investment (RMI) (RMIJ.J), the companies said on Wednesday.

The cash offer gives 250 pence a share to Hastings’ investors plus an interim dividend of 4.5p a share, delivering a higher premium than expected after the companies said on July 29 they were in talks on a possible offer.

Hastings shares, which had already soared 27% since the talks emerged, were up another 18% at 253p by 0742 GMT, topping the FTSE 250 midcap gainers and scaling a near two-year high. Sampo stock was down 1.8% and RMI edged 1% higher.

Sampo has been looking to expand into non-life insurance and beyond Nordic markets. RMI has owned over 29% of Hastings since 2017.

Last year, Sampo trimmed its stake in regional bank Nordea (NDAFI.HE), freeing up 1.2 billion euros ($1.4 billion) in a move that was expected to finance the company’s investment plans.

Analysts at KBW said the appeal of Hastings lay in its knowledge of pricing systems for motor insurance policies. “(The) driving force behind the acquisition is the potential upside coming from the technological know-how the UK insurer can bring to the table,” they said.

The terms of the offer, excluding the dividend, reflect a 47.1% premium to Hastings’ 170p closing share price on July 28, the last trading day before Hastings flagged the approach.

Once the deal goes through, Main Street, an entity owned by RMI and its unit OUTsurance, will hold a 30% stake in Hastings, while Sampo will have 70%.

Hastings, which had been struggling with tough competition and price pressures in the UK motor insurance market, has nearly 3 million live customer policies and a market share of 8.1%.

The UK company also reported a 31% jump in first-half adjusted operating profit to 78.3 million pounds, driven by strong policy growth and a fall in motor claims as Britons drove less due to coronavirus restrictions.

That profit boost chimes with results earlier this week from Britain’s biggest car insurer Direct Line (DLGD.L), which hiked its interim payout and set a special dividend after reporting better than expected first-half earnings on lower motor insurance claims.

Sampo by contrast posted a drop in second-quarter pretax profit to 407 million euros.

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