RSA Insurance Group Plc agreed to sell a Canadian brokerage to investors led by Arthur J. Gallagher & Co. for C$500 million ($460 million) as the company narrows its focus after an accounting scandal.
Gallagher, the U.S. insurance brokerage that has been striking deals to expand in Australia and the U.K., will pay $400 million for an 87 percent stake in RSA’s Noraxis Capital Corp., the Itasca, Illinois-based broker said in a presentation on its website yesterday. Noraxis management will own the remaining 13 percent.
RSA Chief Executive Officer Stephen Hester, the former CEO of Royal Bank of Scotland Group Plc, has been seeking to sell assets and bolster capital at London-based RSA since taking over in February. He struck a deal in April to sell units to Poland’s PZU SA for about $498 million. The Canada sale is expected to add about 225 million pounds ($378 million) to net tangible assets and be completed within two months, RSA said in a separate statement.
The deal “represents a further development in RSA’s plan to focus the business and increase capital,” wrote Barrie Cornes, an analyst at Panmure Gordon & Co., in a note to clients. “RSA is doing all the right things, and mostly in the right order.”
Hester replaced Simon Lee, who quit in the wake of three profit warnings in the fourth quarter and a 200 million-pound capital injection into its Irish unit after an accounting probe.
Noraxis has more than 650 workers operating from 23 offices across Alberta, Manitoba, New Brunswick, Nova Scotia and Ontario, helping to sell commercial and personal insurance and employee-benefits services. The business generated almost C$125 million in revenue last year and is expected to add 7 cents to earnings per share in 2015 and generate 3 cents per share tied to tax credits, Gallagher said.
Gallagher rose 0.2 percent to 45.40 at 4:15 p.m. in New York. The broker has dropped 3.3 percent this year. RSA climbed 0.1 percent to 490.2 pence in London, extending its gain for the year to 21 percent.
CEO J. Patrick Gallagher announced a deal in April to buy brokering operations from Australia’s Wesfarmers Ltd. for more than $900 million. Last year he agreed to acquire Giles Group of Companies for 237 million pounds to expand in the U.K.
Gallagher said he plans to use the acquired businesses to expand further in their home countries through smaller purchases.
“Although there is certainly some risk of management distraction associated with AJG’s extensive and ambitious acquisition activity over the last year or so, we remain confidence in its management’s ability to successfully fund and integrate its numerous acquisition,” Meyer Shields, an analyst at KBW, wrote in a note to investors.
RSA was advised on the deal by Bank of America Corp. The law firms assisting the company were Paul, Weiss, Rifkind, Wharton & Garrison LLP and Stikeman Elliott LLP. Gallagher didn’t announce its advisers.