IR BLOG
Acquisition of minority shares in Hastings – Q&A
Sampo has today signed an agreement with Rand Merchant Investment Holdings Limited (RMI) to acquire its ownership in Hastings.
Under the terms of the agreement, Sampo will pay GBP 685 million for RMI’s 30 per cent minority interest in Hastings and the option held by RMI to acquire 10 per cent of Hastings’ share capital from Sampo by May 2022.
The total acquisition price of GBP 685 million, or approximately EUR 806 million, will be funded with internal cash resources. Combined with the initial acquisition in November 2020, the agreement implies that Sampo will pay a total of GBP 1,851 million for 100 per cent of the share capital in Hastings.
Why did Sampo want to acquire the rest of Hastings?
Hastings is a high-quality company with leading digital capabilities and fits well in our P&C focused strategy. Since the initial acquisition in 2020, we have been very impressed by company’s performance and we are convinced that it’s a long-term winner in the UK digital motor & home insurance market. Hastings has a great track-record on profitable growth and there’s plenty more to achieve.
Full ownership will enable faster decision making and more flexibility around changes in capital structure. It will also be to share knowledge and technology freely across the group.
Why now?
We got an opportunity to acquire the full ownership from RMI sooner than expected.
Why didn’t Sampo buy the whole company already last year?
We felt that it was good to cooperate with RMI initially, to ensure continuity and to have a highly informed and capable operator with us. The initial transaction was very much a partnership with RMI and they were not a seller at that time.
Why is the valuation of the minority shares higher than the initial acquisition in 2020?
The increase in the acquisition price mainly reflects growth in Hastings’ book value, improved certainty over Hastings reserving position and increased in reserve strength, enhanced visibility on synergies and higher expected forward earnings.
How the acquisition will affect Sampo’s earnings?
Since Hastings profit and loss items are already recognized line-by-line in the Group’s financial reporting, the effect will be shown only in the Group’s net income. Based on consensus estimates, the deal would have an earnings accretion of approximately 4 per cent in 2022.
Is the acquisition more attractive than doing buybacks?
Yes. We see both greater earnings accretion and return on investment from 2023 onward.
How will the deal affect Sampo’s solvency and financial leverage?
The acquisition is estimated to have a negative 14 percentage points impact on Sampo’s Solvency II ratio and to increase financial leverage by approximately 1 percentage point.
Will the acquisition affect Sampo’s buyback program or the announced management’s proposal of an extra dividend?
The deal will not affect Sampo’s ongoing EUR 750 million buyback program or the previously announced management proposal for an extra dividend of at least EUR 2.00 per share.
In connection with the Q3 results, you estimated that Sampo would have excess capital approximately EUR 10 per share, including already announced and ongoing actions, as well as the current holdings. What is the figure after this acquisition?
Approximately EUR 8.5 per share.
Will Sampo make any changes to Hastings’ long-term strategy that was initially agreed with RMI?
There will not be any immediate changes to strategy, but obviously some things like knowledge sharing becomes easier.
Will the acquisition mean that Sampo intends do further acquisitions in the UK?
Our UK M&A ambitions are unchanged. As we have stated, we could consider only some smaller insurance portfolios, mainly in home insurance, that would supplement Hastings existing business.
Does the acquisition require any regulatory approvals?
No but we have obviously informed the regulator, as we have a good dialogue with them.
