Flotation of Direct Line to go ahead

City Editor

Saturday 15 September 2012

PART-nationalised Royal Bank of Scotland has confirmed it is to go ahead with the stock market listing of its insurance business Direct Line, in one of the biggest stock market flotations of recent years.

MARKET MOVE: RBS has confirmed it is to go ahead with the stock market listing of Direct Line.

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Tim Sharp City Editor

Direct Line, previously known as RBS Insurance, is the biggest player in the UK motor and home insurance with 4.2 million and 4.3 million in-force policies respectively.

Brands such as Churchill and Privilege give it just under one-fifth of each market.

In the first tranche, at least 25% of Direct Line's shares will be sold to institutional investors and to private investors via intermediaries.As one of the conditions of RBS's £45 billion state bail-out, RBS promised to cede control of Direct Line by the end of 2013 and sell it completely by 2014.Paul Geddes, chief executive of Direct Line, said: "Our people have worked hard in recent years to transform the business in order to take advantage of our distribution, scale and market leading brands. "Our work to maximise these advantages is by no means complete and we have a clear strategy that spans distribution, pricing, claims and operational efficiency. "We look forward to being a listed company and are more committed than ever to provid-ing customers with excellent products and service levels, while seeking to deliver sustainable returns for our shareholders."Analysts believe the business could be valued at up to £3 billion.However, the failed flotation of Talanx, Germany's third-biggest insurer, earlier this week has cast a shadow over the sector.Mr Geddes was keen to emphasise that Talanx was different due to its large life insurance business.Regulatory uncertainty provides a further challenge for Direct Line's flotation. The Office of Fair Trading is considering whether to call for a full investigation of competition in the motor insurance market.If the first share sale, which is expected to complete in the next few weeks, is successful, 82% state-owned RBS is expected to pursue another next year.The sale comes despite interest in the business from a number of private equity firms who could yet step in if the float flops.Direct Line has more than 10,000 employees selling insurance products to more than 10 million customers across Britain and Europe. It will continue to use RBS information technology systems for a period but the business insisted yesterday that it was immune to the IT problems other parts of the group experienced earlier this year.Richard Hunter, head of equities at Hargreaves Lansdown, said: "This is set to be a large and significant flotation of a British company."Nic Clarke, analyst at Charles Stanley, said: "Obviously, the higher the valuation placed on Direct Line by investors the better for RBS. "However, we do not see the IPO [initial public offering] of Direct Line as a critical factor to our investment case. "Factors such as the strength of the UK economy, the group's weak income performance and the situation in Ireland have more bearing on our recommendation."

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Flotation of Direct Line to go ahead

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