Canada’s three biggest pension plans have confirmed they will back Intact Financial Corp.'s global expansion plans by agreeing to purchase $3.2-billion of the insurer’s shares as part of a major takeover.
Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board and the Ontario Teachers' Pension Plan are committing $1.5-billion, $1.2-billion and $500-million, respectively, to help finance Intact’s proposed takeover of RSA Insurance Group PLC. The three funds will buy subscription receipts for $134.50 apiece and each will earn an undisclosed commitment fee for its support.
Late Thursday Intact also announced it is raising $1.25-billion through a public stock offering priced at $134.50 per share. The company is considering issuing debt and preferred shares to fund the rest of the takeover.
Intact’s shares climbed 2.2 per cent Thursday, to close at $138.93, but they remain down about 5 per cent since the potential deal was disclosed last week.
The financings will only be completed if Intact succeeds in its bid for RSA. The Canadian company said last week it hopes to partner with Denmark’s Tryg A/S to jointly buy the U.K.-based insurer for $12.4-billion in cash. Intact’s share of the purchase price is $5.15-billion, marking it the largest takeover during CEO Charles Brindamour’s tenure – and the most expensive purchase by a property and casualty (P&C) insurer in Canadian history.
RSA is a storied insurer with substantial operations in Scandinavia, Canada and Britain. If the takeover goes through, the deal would solidify Intact’s position as the dominant Canadian P&C provider, as well as launch the Toronto-based company into the British market.
Tryg will acquire most of the Scandinavian business, but plans to co-own the Danish division with Intact.
When the proposal was first disclosed, Intact said it was lining up “cornerstone investors” to provide roughly three quarters of the necessary equity, which was estimated to total about $4-billion. Thursday’s announcement of the pension funds' support confirms a Globe report last week that they were at the top of the potential investor list.
The commitment fees the pension funds will earn are commonly paid to large private investors who support major financings. In essence, the fees are paid in return for their reputational support, which often helps to de-risk the deal in the minds of other investors.
Such fees are typically worth around 2 per cent of the investment – or about half the fee investment banks normally earn for underwriting share sales. Investment banks CIBC World Markets and Barclays Capital Canada are lead underwriters for the public offering and earning a 3.75 per cent fee, according to a term sheet obtained by The Globe.
In a statement, CPPIB’s Bill MacKenzie, its head of active fundamental equities, said supporting Intact’s proposed bid is an opportunity for the pension fund “to acquire an interest in a highly differentiated insurer with a track record of growth and outperformance.”
Karen Frank, Teachers senior managing director of equities, cited Intact’s “strong track record over many years” and said the Intact deal will “strengthen its leading position in Canada.”
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 Teachers' $340-million of Intact stock in a private placement. Since then, the insurer’s share price has climbed by just less than 50 per cent.
The equity component of the proposed RSA bid is much larger than the OneBeacon deal, but Intact’s operating performance has been particularly strong in 2020. There haven’t been many severe weather events and auto claims have softened owing to the COVID-19 pandemic. This strength has supported the company’s stock price and allowed Intact to take advantage of its premium valuation.
RSA, meanwhile, saw its shares fall 19 per cent since the start of the year before the proposed takeover was disclosed.
Intact is already the largest player in Canadian P&C insurance with an estimated 17-per-cent market share. Buying RSA Canada would add 5 per cent more.
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David Milstead
Tim Kiladze