The emergence of CVC Capital Partners Ltd. as one of three bidders reportedly in talks with Royal Bank of Scotland plc for 51% of its insurance arm, originally put up for sale over the summer in an auction declared off-limits to private equity, is causing some annoyance among other buyout firms.
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Several private equity houses, including TPG Capital, Permira Advisers LLP and Apax Partners Worldwide LLP showed an interest in May when the business was first put up for sale for about £6 billion ($10.3 billion). Others including Blackstone Group LP and Kohlberg Kravis Roberts & Co. were also reported as likely bidders. But not only were they shown the door, analysts at the time suggested RBS had acted in order to cover itself against the likelihood of unfunded bids which would then unravel.
So there's a sense of grievance among some firms that they haven't been invited back for the latest round of discussions, although others have simply shrugged their shoulders and ascribed it all to fate. As one London-based private equity source put it, "We would spend the money on looking at it in this market. People aren't even doing due diligence on deals while there's such a slim likelihood of you getting the financing together."
But Royal Bank, which is now facing partial nationalization after overreaching with the buyout of Dutch bank ABN Amro Holding NV last year, now seems to have a more pressing need for cash.
Outgoing CEO Fred Goodwin confirmed in an analysts' call earlier this week that there were "interested parties" still involved in talks for the insurance business. Bloomberg and The Times of London have reported that private equity firm CVC Capital Partners and two other bidders -- one of them possibly Northbrook, Ill.-based Allstate Corp. -- were in talks for 51% of the business.
It's an interesting move. A controlling stake, but just half the business for a lower price -- presumably less than half what was being asked in the summer. That would help RBS raise at least some money, while still getting cash flow from what has been one of the bank's most reliable income streams.
It will be interesting too, to see who's been offering financial advice. Previously, the advisers were reportedly the now defunct Lehman Brothers. Inc. RBS never confirmed that and is refusing to comment again now. CVC and Allstate also declined to comment. - Jonathan Braude
