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Dorset Bidco recommended cash acquisition of Hastings Group

Dorset Bidco Limited a newly formed company jointly owned by a consortium comprising Sampo plc (LON:SAMPO) and Rand Merchant Investment Holdings Limited.

Summary

·    The Independent Hastings Directors and the directors of Dorset Bidco Limited (Bidco), a newly formed company jointly owned by a consortium comprising Sampo plc (Sampo) and Rand Merchant Investment Holdings Limited (RMI), are pleased to announce that they have reached agreement on the terms of a recommended cash offer to be made by Bidco to acquire the issued and to be issued share capital of Hastings Group Holdings plc (Hastings) not already owned or controlled by Sampo and RMI (the Offer). As at 4 August 2020 (being the last Business Day before the date of this Announcement), Sampo and RMI owned or controlled, in aggregate, 196,791,480 Hastings Shares, representing approximately 29.7 per cent. of Hastings’ issued share capital as at such date.

·    Under the terms of the Offer, Scheme Shareholders will be entitled to receive:

250 pence in cash for each Scheme Share

·    The Independent Hastings Directors have today announced that Hastings Shareholders will also be entitled to receive an interim dividend for the six-month period ended 30 June 2020 of 4.5 pence per Hastings Share (the Interim Dividend). Hastings Shareholders on the register of members as at the close of business on 2 October 2020 will be entitled to receive and retain the Interim Dividend without any reduction of the consideration payable under the Offer.

·    The terms of the Offer (excluding the Interim Dividend) represent:

o  a premium of approximately 47.1 per cent. to the Closing Price per Hastings Share of 170 pence on 28 July 2020 (being the last Business Day before Hastings announced it had received an approach that may or may not lead to an offer);

o  a premium of approximately 37.5 per cent. to the volume-weighted average price of 182 pence per Hastings Share for the three-month period ended 28 July 2020 (being the last Business Day before Hastings announced it had received an approach that may or may not lead to an offer); and

o  a premium of approximately 41.7 per cent. to the volume-weighted average price of 176 pence per Hastings Share for the six-month period ended 28 July 2020 (being the last Business Day before Hastings announced it had received an approach that may or may not lead to an offer).

·    The terms of the Offer (excluding the Interim Dividend) value Hastings’ entire issued and to be issued share capital at approximately £1.66 billion.

Information on the Consortium and Bidco

·    Sampo is a leading Nordic insurance group listed on Nasdaq Helsinki with a market capitalisation of approximately €17.6 billion on 4 August 2020 (being the last practicable date before the date of this Announcement). The Sampo Group is made up of the parent company Sampo and its subsidiaries If P&C Insurance, Mandatum Life and Topdanmark. Nordea, the Nordic banking group and Nordax, a leading Nordic niche bank, are Sampo’s associated companies.

·    If P&C Insurance is the leading property and casualty insurer in the Nordic region. It provides insurance solutions and services in Finland, Sweden, Norway, Denmark and the Baltic countries. Topdanmark is the second largest P&C insurance company and a major life insurance company in Denmark. Mandatum Life is a Finnish financial services company that provides wealth management, remuneration services and personal risk insurance. In addition to Finland, Sampo operates in all the Baltic countries. Sampo administers its insurance subsidiaries and is a major shareholder in Nordea and Nordax. Sampo has offered car insurance policies since 1920.

·    RMI is a South African financial services investment holding company founded in 1977 with its shares listed on the Johannesburg Stock Exchange Limited with a market capitalisation of approximately R 48.4 billion on 4 August 2020 (being the last practicable date before the date of this Announcement). RMI aims to be a value-adding, active enabler of leadership and innovation in financial services and currently holds an investment portfolio including its existing investment in Hastings and investments in some of South Africa’s premier insurance brands and in next-generation financial services and asset management companies.

·    RMI formed Main Street 1353 Proprietary Limited (Main Street), an indirect subsidiary of RMI, in 2015. A 49 per cent. interest in Main Street was subsequently transferred to RMI’s indirect subsidiary, OUTsurance Holdings Limited (OUTsurance). OUTsurance is an unlisted short term and long term insurance company founded in 1998 with operations in South Africa and Australia. Main Street currently holds 196,508,074 Hastings Shares representing approximately 29.7 per cent. of Hastings’ issued share capital as at 4 August 2020 (being the last practicable date before the date of this Announcement).

·    RMI and OUTsurance are aligned on all decisions in relation to their joint investment in Hastings and consider the investment to be strategically important to the portfolio overall. OUTsurance and Hastings share best practice on various aspects of the operation of short term insurance. For example, OUTsurance has shared its significant experience in management of local and offshore call centres with Hastings. In 2018, Hastings entered into an offshore call centre arrangement with OUTsurance to supplement the after-hours capacity of Hastings and improve customer service outcomes.

·    Bidco is a newly incorporated company registered in England and Wales, formed on behalf of, and jointly owned by, the Consortium for the purpose of implementing the Offer. It is intended that, at the Effective Date, Sampo’s and RMI’s entire indirect shareholding in Hastings will be held through Bidco. Sampo will hold 70 per cent. of the shares in Bidco and Main Street will hold 30 per cent. of the shares in Bidco.

Background to and reasons for the Offer

Sampo

·    Sampo has a strategic ambition to expand further into Property & Casualty (P&C) insurance, a segment where it has extensive experience and expertise. As part of this strategy, and considering its strong market positions in the Nordic markets, Sampo has been considering a geographic expansion beyond its current footprint.  Sampo believes that the UK, as the second largest retail P&C market in Europe, offers an attractive scale opportunity.

·    In this context, the acquisition of Hastings represents an attractive opportunity for Sampo to advance its strategy and accelerate its repositioning towards retail P&C insurance. Hastings is a leading motor insurer in the UK and has recently been diversifying into other P&C insurance products including home insurance. Both motor and home insurance represent large markets in the UK with growth potential for the Hastings business.

·    The acquisition of Hastings provides an attractively positioned platform in one of the most digitally advanced markets globally. The UK is characterised by its high levels of digital distribution with 75 per cent. of motor insurance policies sold through price comparison websites (PCWs). Hastings is one of the leading distributors of motor insurance policies through PCWs in the UK with differentiated digital capabilities in technical and retail pricing, anti-fraud and customer service.

·    The Sampo Board expects the acquisition of Hastings to be accretive to earnings per share and RoE from the first full year following completion. Sampo estimates the transaction will have a positive impact on earnings per share in the mid-single digits (%). Meanwhile, it is expected that Sampo’s solvency position will remain robust at around 175 per cent. (post the planned issuance of approximately €1 billion of T2 hybrid capital to part finance the Offer). Sampo Group financial leverage as of 30 June 2020 and pro forma for the transaction is expected to be around 33 per cent. Sampo does not believe that the Offer will lead to a change in the Sampo Group’s credit ratings subject to the planned financing structure. The Sampo Board do not expect the Offer to impact the Sampo Group’s dividend policy in the short term but is expected to enhance the dividend potential in the long term.

RMI

·    RMI has a long term investment horizon and focuses on building enduring value over many and differing market cycles. RMI’s investment style is anchored in its ethos of being a strategic and value adding shareholder in its portfolio companies. RMI has held indirectly over 29 per cent. of Hastings’ issued share capital since 2017 when it acquired the stake for 248 pence per share. RMI believes the UK P&C insurance market in general and Hastings in particular continue to offer growth and value creation potential.

·    The institutional knowledge that RMI has gained from its involvement in Hastings since its investment in 2017 and representation on the board of Hastings will underpin the strategic framework of the business going forward.

Sampo and RMI

·    Given the significant retail P&C insurance experience and expertise of Sampo, through its subsidiaries If P&C Insurance and Topdanmark, and RMI, through its ownership of OUTsurance and existing shareholding in Hastings, the intention is to combine this knowledge by forming a partnership that will drive the strategic direction of Hastings for the long term. Sampo and RMI intend to bring to bear their respective experience as long-standing owners and operators of insurance and financial services businesses in different geographies and different sectors to create long term value for the benefit of the Hastings business.

·    Sampo and RMI recognise that the UK motor insurance market is competitive and in recent years has been affected by challenging market dynamics including elevated claims inflation. Sampo and RMI believe that, under their ownership, Hastings will be able to further develop its agile and digital business model to create long term value.

·    Sampo and RMI intend for Hastings to continue to be operated on a standalone but unlisted basis. Sampo and RMI believe that a private partnership provides an optimal structure for Hastings to fulfil its potential and build long term value for its stakeholders. As a private company, Sampo and RMI believe Hastings will benefit from a more long term approach to decision making.

·    Sampo and RMI have identified certain areas of Hastings’ operations that they believe with their experience and under private ownership can be further developed, which include:

o  claims handling sophistication driving both lower claims costs and increased customer satisfaction;

o  expansion into home insurance driving growth and diversification;

o  increased customer retention driving greater cost efficiency and premium growth; and

o  optimisation of reinsurance strategy driving higher earnings at attractive return on capital.

·    Sampo and RMI believe that the Offer and operational improvements will deliver certain financial benefits to Hastings, including:

o  increased insurance risk retention providing for an attractive return on capital deployed;

o  loss ratio improvement as a result of leveraging Sampo and RMI’s underwriting expertise; and

o  expense savings as a result of removing costs related to the public listing.

Irrevocable Undertakings

·    Bidco has received irrevocable undertakings to vote or procure votes to approve the Scheme at the Court Meeting and to vote or procure votes in favour of the resolutions to be passed at the General Meeting (or in the event that the Offer is implemented by way of a Takeover Offer, to accept or procure acceptance of the Takeover Offer) from each of the Independent Hastings Directors who hold Hastings Shares in respect of their own holdings being, in aggregate, 2,174,773 Hastings Shares, representing approximately 0.33 per cent. of the issued share capital of Hastings, and 0.47 per cent. of Hastings Shares eligible to vote at the Court Meeting, as at 4 August 2020 (being the last practicable date before the date of this Announcement).

·    Further details of the irrevocable undertakings, including the circumstances in which they cease to be binding, are set out in Appendix III.

Recommendation

·    The Independent Hastings Directors, who have been so advised by Barclays, Fenchurch Advisory Partners and Numis as to the financial terms of the Offer, consider the terms of the Offer to be fair and reasonable. In providing their advice to the Independent Hastings Directors, Barclays, Fenchurch Advisory Partners and Numis have taken into account the commercial assessments of the Independent Hastings Directors. Barclays, Fenchurch Advisory Partners and Numis are providing independent financial advice to the Independent Hastings Directors for the purposes of Rule 3 of the Code.

·    Accordingly, the Independent Hastings Directors intend to recommend unanimously that Scheme Shareholders vote in favour of the Scheme at the Court Meeting and Hastings Shareholders vote in favour of the resolutions to be proposed at the General Meeting (or in the event that the Offer is implemented by way of a Takeover Offer, that Independent Hastings Shareholders accept such Offer) as the Independent Hastings Directors who hold Hastings Shares have irrevocably undertaken to do in respect of their entire beneficial holdings, amounting in aggregate to 2,174,773 Hastings Shares representing approximately 0.33 per cent. of the issued share capital of Hastings, and approximately 0.47 per cent. of the Hastings Shares eligible to vote at the Court Meeting, as at 4 August 2020 (being the last practicable date prior to publication of this Announcement). Further details of these irrevocable undertakings are set out at Appendix III of this Announcement. 

·    For the purposes of the Offer, Herman Bosman, a non-executive director of Hastings, is not an Independent Hastings Director, due to his position as CEO of RMI, and therefore has not participated in the consideration of the Offer by the Independent Hastings Directors or the decision of the Independent Hastings Directors to recommend the Offer as set out above.

General

·    It is intended that the Offer will be implemented by way of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act (the Scheme), further details of which are contained in the full text of this Announcement and will be set out in the Scheme Document. However, Bidco reserves the right, where permitted pursuant to the terms of the Cooperation Agreement and with the consent of the Panel, to implement the Offer by way of a Takeover Offer.

·    The Offer will be subject to the Conditions and certain further terms set out in Appendix I, including, among other things: (i) the approval of Scheme Shareholders at the Court Meeting and the passing of the resolutions relating to the Scheme by Hastings Shareholders at the General Meeting; (ii) the sanction of the Scheme by the Court; (iii) the Scheme becoming Effective no later than the Long Stop Date; and (iv) the receipt of certain required regulatory approvals from the FCA in the UK and the GFSC in Gibraltar and EU antitrust approval. In order to become Effective, the Scheme must be approved by a majority in number of Scheme Shareholders representing not less than 75 per cent. in value of the Scheme Shares held by Scheme Shareholders in each case present, entitled to vote and voting, either in person or by proxy, at the Court Meeting or at any adjournment of such meeting.

·    The Hastings Shares owned or controlled by RMI and Sampo (being 196,508,074 Hastings Shares and 283,406 Hastings Shares respectively, as at 4 August 2020, being the latest practicable before the date of this Announcement) will not be Scheme Shares and will not be acquired by Bidco pursuant to the Offer. It is anticipated that, upon the Offer becoming Effective, RMI and Sampo respectively will transfer such Hastings Shares to Bidco. RMI and Sampo will not be permitted to vote such Hastings Shares at the Court Meeting, but will be permitted to vote such Hastings Shares at the General Meeting.

·    Bidco reserves the right to reduce the consideration payable in respect of each Hastings Share under the terms of the Offer to the extent that the Interim Dividend exceeds 4.5 pence per Hastings Share. If any dividend, other distribution or return of capital is announced, declared, made, payable or paid in respect of the Hastings Shares on or after the date of this Announcement and before the Effective Date, other than the Interim Dividend, Bidco reserves the right to reduce the consideration payable in respect of each Hastings Share by the amount of all or part of any such dividend, other distribution or return of capital. If Bidco exercises this right or makes such a reduction in respect of a dividend, other distribution or return of capital that has not been paid, Hastings Shareholders will be entitled to receive and retain that dividend, other distribution or return of capital.

·    Further details of the Offer will be contained in the Scheme Document, which is intended to be sent or made available to Hastings Shareholders and persons with information rights along with notices of the Court Meeting and General Meeting and the Forms of Proxy as soon as practicable and in any event within 28 days of the date of this Announcement (unless a later date is agreed between Bidco, Hastings and the Panel). Subject to certain restrictions relating to persons resident in Restricted Jurisdictions, the Scheme Document will also be made available on Hastings’ website at https://www.hastingsplc.com.

·    The Scheme is expected to become Effective in late 2020, subject to the satisfaction or waiver of the Conditions set out in Appendix I.

·    Commenting on the Offer, Thomas Colraine, Chairman of Hastings, said:

“I am pleased to announce the recommended cash offer for Hastings which represents a very attractive proposition for Hastings shareholders with a significant premium in cash. This is in line with our focus of generating value for shareholders and reflects the quality of our business. Hastings has grown since its IPO in 2015 and is a leading motor insurer in the UK as well as having diversified into other products such as home insurance. Hastings is an agile and digitally focused player and together with the strengths of Sampo and RMI, I am confident the business will be well positioned in the future to ensure enhanced outcomes for our colleagues, customers and stakeholders.”

·    Commenting on the Offer, Herman Bosman, Chief Executive Officer of RMI, said:

“Having been the largest shareholder in Hastings since 2017, we remain excited about the prospects of the business and believe the company will thrive in a private environment. We are delighted to partner with Sampo, who we consider one of the most successful owners of P&C insurance businesses in Europe, in developing Hastings over the long-term. We strongly believe this transaction is in the best interest of all Hastings stakeholders including its customers and many talented employees.”

·    Commenting on the Offer, Torbjörn Magnusson, Chief Executive Officer of Sampo, said:

“The acquisition of Hastings is in line with Sampo’s strategic ambition to expand in P&C insurance. Hastings is a modern, innovative P&C insurer with leading digital capabilities in one of Europe’s largest P&C markets. We are excited to make this investment together with RMI, with whom we share a similar investment philosophy. We very much look forward to partnering with RMI and the Hastings management team and will bring all our expertise to bear to support Hastings in realising its full potential.”

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