Private equity firms in talks to acquire RBS’ Direct Line

Royal Bank of Scotland HQ in Edinburgh

Royal Bank of Scotland Group Plc (LON:RBS) may not get to list its unit Direct Line Insurance Plc as two consortia made up of leading private equity groups prepare to make a move on the business, the Sunday Times reported citing City sources.

RBS has been instructed by European Union regulators to sell Direct Line as compensation for its state-sponsored rescue in 2008. The UK lender is planning to float 30% of the business in September and has lined up 11 investment banks to assist with the process, with Goldman Sachs Group Inc (NYSE:GS), Morgan Stanley (NYSE:MS) and UBS AG (NYSE:UBS) assigned leading roles in the undertaking.

RBS is expected to file the required documents with the London Stock Exchange next month, the newspaper added.

However, the two private equity consortia are preparing to make their move at the end of July, potentially thwarting RBS’ plans. One of the groups comprises US private equity giants Blackstone Group LP (NYSE:BX) and Bain Capital LLC, while the rival bidding combo is made up of KKR & Co LP (NYSE:KKR) and UK-based Apax Partners Holdings Ltd and BC Partners Limited, the Sunday Times was told.

Direct Line, the company behind brands such as Churchill and Green Flag, is the number one UK car insurer in terms of policy numbers and the top home insurance provider, the article went on to add.

It has long been coveted by rival sector players and private equity groups although RBS’ attempt to offload the business in 2008 proved unsuccessful as bidders failed to match the asking price of GBP7bn (USD10.9bn/EUR8.9bn).

BC Partners also featured among the bidders then, joining forces with Apollo Global Management LLC (NYSE:APO). The auction also attracted US billionaire investor Warren Buffett and a consortium made up of CVC Capital Partners Limited and insurance group Swiss Re (PINK:SSREY).

Direct Line’s valuation has shrunk significantly since then although the company reversed its heavy 2010 losses to exit last year with profits of GBP454m, the Sunday Times said.

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