On Friday, as part of the commitment made to the European Union
The Royal Bank of Scotland Group plc
) announced the initial public offering (IPO) of its insurance wing
- Direct Line Group. The bank was under obligation to the EU
regulators in exchange of the £45 billion ($72 billion) bailout
amount received during the 2008 financial crisis.
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Under the EU stipulations, RBS has to sell 50% of the insurance
wing before 2013, and the total division by 2014. The company has
planned to sell the insurance division in three parts; one in the
current year, other in the following year and the final one in
2014. Roughly 25% of Direct Line Group will be offered in the
initial share sale.
Direct Line is expected to be valued in the range of £2.5 billion
($4 billion) - £3.5 billion ($5.6 billion), probably the largest
public offering on the London Stock Exchange for a period of more
than one year. The IPO is anticipated to be completed in the
Goldman Sachs Group, Inc.
) will act as joint global coordinators, sponsors and book-runners
for the IPO.
) will act as a joint book-runner. The shares will be offered to
the general public and institutions through intermediaries.
Management at RBS believes that the insurance company has bright
prospects as a separate entity with its ability to provide
excellent service to the customers as well as delivering positive
returns to the shareholders.
However, many jobs will bear the brunt of this public offering as
the insurance firm aspires to realize targets in an effort to
develop its profitability as a separate entity. Direct Line has
declared that it would axe 900 jobs to achieve expense savings of
£100 million ($160 million) by 2014.
Europe has had modest IPO activity over the past year due to the
sluggish macroeconomic conditions and unwillingness of companies to
sell huge portions of stock at lower rates. Also, regulatory
uncertainty has put forward more challenges. Initial interest from
private equity firms was also unsuccessful. Despite these
uncertainties, RBS has adhered to its plan of selling the
The Royal Bank of Scotland currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating.