RBS to sell Direct Line, Churchill and Privilege for £3billion

Written by Editorial Team

20 October 2008 / by Rachel Mason

The taxpayer may not become the majority shareholder of Royal Bank of Scotland (RBS) if the firm can pull off a deal to sell its insurance arm to reinsurance group Swiss Re and private equity firm CVC.

RBS – currently in line for a Government bailout of £20billion, which would see the tax payer take a controlling stake of up to 60 per cent – has been trying for six months to sell its insurance operations, which includes Direct Line insurance, Churchill insurance, Privilege insurance and Green Flag breakdown cover.

It is thought that in the summer, when RBS first put its insurance business up for sale, it had hoped to achieve a value of £ 7 billion, but this latest deal has valued it at £ 6 billion. CVC and Swiss Re are expected to take a 51 per cent slice for £3billion.

The deal is a much needed cash injection and could mean that RBS will not need the full £20billion bailout from the Government.

However, it is thought that the Treasury is unlikely to forgo its purchase of special preference shares, which make up £5billon of the bailout – the remainder will see the Government underwrite a £15billion rights issue.

According to the Guardian, the CVC-Swiss Re bid is being directed by RBS’ former financial director Fred Watts. Watts quit RBS in 2005 after five and a half years and joined CVC in 2007.

RBS, directly and through Direct Line, Churchill, Privilege and other brands, is currently the second largest general insurer in the UK and is the UK’s largest car insurance provider.

Direct Line was founded in 1985 with £20billion of funding from RBS in order to sell insurance to motorists directly by phone. Green Flag was established in 1971 as the National Breakdown Recovery Club and rebranded as Green Flag in 1994. It was bought by Direct Line in 1999 for £220m.

Direct Line also underwrites Privilege, which was founded in 1996. Churchill was founded in 1989 and acquired by RBS in 2003 for £1.1billion.

© Fair Investment Company Ltd