Canada’s largest fund managers are backing Intact Financial Corp. as the auto and property insurer makes an audacious play for British rival RSA Insurance Group PLC.
Intact and Denmark’s Tryg A/S are offering $12.4-billion for RSA in a takeover that would make the Canadian insurer the dominant domestic player and launch Toronto-based Intact into the British market. Three of the biggest domestic funds – the Caisse de dépôt et placement du Québec, the Canada Pension Plan Investment Board and the Ontario Teachers' Pension Plan – have committed capital to Intact’s offer, according to investment banking sources working with the Canadian insurer. The Globe and Mail is not identifying these individuals because they are not authorized to speak for Intact.
The same trio of funds helped pay for Intact’s expansion into the U.S. insurance market three years ago, and have been handsomely rewarded on the investment. On Friday, spokespersons for Intact, the Caisse, CPPIB and Ontario Teachers' declined to comment on the RSA transaction.
Why Intact is risking a $12.4-billion joint-takeover during a pandemic
Intact’s bid for RSA is the latest in a series of takeovers by Canadian companies that won financial support from Canada’s public-sector fund managers. A wide variety of companies – including Air Canada, Premium Brands Holdings Corp., CGI Inc. and SNC-Lavalin Group Inc. – have raised money from these asset managers to fund expansion plans.
If its offer for RSA is accepted, Intact plans to pay its $5.15-billion portion of the purchase price by borrowing money and selling stock. The company said in a press release that it will sell shares to institutional investors through a private placement, and three quarters of this stock is going to “cornerstone investors.” Intact did not disclose the identity of these institutions.
Intact will need to sell approximately $3.9-billion of stock to fund the RSA takeover, according to analyst Paul Holden at CIBC World Markets Inc.
Intact used a similar approach in 2017 to pay for the $2.3-billion takeover of Minnesota-based OneBeacon Insurance Group. To fund the acquisition, the insurer sold the Caisse, CPPIB and the Teachers' fund $340-million of stock in a private placement. Since then, Intact’s stock price is up by 60 per cent.
Investment bankers working with Intact said CEO Charles Brindamour and his team could only reach out to a handful of potential backers when they started negotiations with RSA in October, as British takeover regulations limit a bidder to negotiations with just seven institutional investors.
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Andrew Willis