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The Best Laid Plans of Mice and RBS

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Was Robby Burns thinking of the Royal Bank of Scotland (LSE:RBS) when he wrote that “the best-laid schemes o’ mice an’ men Gang aft agley?”  RBS is continuing to try to regain its footing after its £45 billion government bailout.  The bailout was not without obligations.  As it strategises to meet some of those obligations, things are not necessarily falling into place the way the bank has planned.  Such is the case with the mandated divestiture of its insurance arm, Direct Line.  RBS share price dipped below the 200p mark today and was at 197.80 at 1:00pm.  The stock has not traded this low since 20 December 2011.

The Apparent RBS Plan for Direct Line

European regulators mandated that RBS divest its insurance arm, now known as the Direct Line Group that includes the Churchill, Privilege, Green Flag and NIG brands.  In 2008 RBS made an attempt to sell the group to private-equity firms for a £7 billion asking price, but found no takers.

Then RBS announced that it was planning to meet the 2013 divestment requirement by selling a minority position in the Group at an initial public offering in September 2012.  Hoping that a bit more water under the bridge might bring more value to the Group, the bank has planned to off-load another portion in 2013 through the public sale of enough units to bring the RBS position below 50%.  Long term this plan seems to have the most potential upside for the bank.

Haste May Lay RBS Plans to Waste

Speculation that one or more private-equity deals were being readied was proven correct when it was announced on 21 July that Andy Haste, former CEO of the RSA Group, is attempting to put together a deal for the Direct Group in coordination with Blackstone, Bain, and Advent.  Although the details are still being worked out, reasonable speculation is that an offer in the vicinity of £3.0 billion should be forthcoming.  That would get the insurance group completely off of RBS’ books and would, most likely put Mr. Haste in the CEO or Chairman’s office, putting him in charge of a stand-alone that would immediately join the FTSE 100 when listed on the London Exchange.

A Simple Twist of Fate

Mr. Haste’s pursuit of the former RBS Insurance is a simple twist of fate originated by a shrewd businessman.  Back on 25 February this year, the Telegraph announced that Mr. Haste was considered the leading candidate to be appointed chairman of RBS Insurance as part of the bank’s preparation to float the insurance arm before year’s end.  Apparently, Mr. Haste sees greater potential in leading a buyout of Direct Line than in becoming chairman for the purpose of guiding the company through the process.  It is a brilliant turn of events that should permit Mr. Haste a great deal more operational leeway in eliminating the dysfunctional aspects of the Group and leading it to greater successes.

 

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