Oct. 15 (Bloomberg) -- CVC Capital Partners Ltd., Europe's largest private equity firm by assets, is in talks to take a controlling stake in Royal Bank of Scotland Group Plc's British insurance assets, two people familiar with the plan said.

The London-based buyout firm is one of three bidders negotiating to buy a 51 percent stake in the Churchill and Direct Line insurance units, the people said, declining to be identified as details are private. No agreement has been concluded, they said. The insurance units were valued at about 5 billion pounds ($8.7 billion) before the credit crisis escalated last month.

Stephen Hester, the new chief executive officer at Edinburgh-based RBS, plans to sell units after the bank received a 20 billion-pound government rescue on Oct. 13. CVC assembled a team seeking financial-services purchases last month, following rival buyout firms which have targeted the industry in the wake of the credit crunch.

``A partial sale would not be a bad idea at all,'' said Simon Maughan, a London-based analyst at MF Global Securities Ltd. ``It would give the buyer an option to buy the rest at a later date.'' RBS had been seeking a price that would have forced buyers to raise capital and ``no-one wants to do that in this market,'' said Maughan. He has an ``buy'' rating on RBS.

Buyout firms have announced $182.5 billion of takeovers in the financial-services industry this year, even after the cost of financing deals soared. The firms are betting they can pick up assets at a discount after banks recorded more than $641 billion of subprime-related writedowns and financial stocks plummeted.

Allstate Talks

Allstate Corp., the largest publicly traded U.S. home and auto insurer, was also negotiating to purchase the RBS units before the collapse of the financial markets, the people said. Rich Halberg, a spokesman for Allstate in Illinois didn't immediately return a call seeking comment.

RBS and CVC spokespeople in London declined to comment. RBS is in advanced talks with buyers to sell its insurance business, outgoing CEO Fred Goodwin said on a call on Oct. 13.

RBS may be pressured to speed up asset sales as a result of its government bailout, two bankers who declined to be identified said. All RBS assets, including its investment banking units, will be reviewed, Hester said.

Goodwin, 50, who oversaw more than $60 billion of acquisitions from 2000 to this year, was criticized by investors for making acquisitions that weighed on the bank's share price. He bought Cleveland-based Charter One Financial Inc. for $10.3 billion in 2004 and paid 23.6 billion pounds for London-based National Westminster Bank Plc in 2000, the largest acquisition in British banking history.

RBS, along with seven other banks including Barclays Plc and Lloyds TSB Group Plc, agreed to the government rescue plan this week, after their shares plummeted this week on concern about their ability to fund themselves.

To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net; Ben Livesey in London blivesey@bloomberg.net

Last Updated: October 15, 2008 12:03 EDT