Three easy steps
Danish insurer Tryg’s £7.2bn acquisition of RSA Insurance, alongside Canada’s Intact Financial, required equity funding of DKr37bn (US$5.9bn) representing around 60% of Tryg’s market capitalisation; it needed underwriters to guarantee the funds – without the usual MAC clauses – for 12 months from announcement; and involved a majority shareholder sensitive to dilution but without the funds to participate in full.
The typical M&A approach of debt bridging to equity was not an option because of Solvency II ratios, while UK takeover rules required the certainty of funds, so banks were on the hook for the DKr37bn rights issue from announcement of the takeover bid in November 2020. Ironically there was no insurance for the underwriters.
Handling major shareholder TryghedsGruppen and its 60% stake added further complexity with the shareholder wanting some certainty around its final stake and a substantial amount of additional equity needing to go through the market to raise funds for the foundation's participation.
After months of preparation a three-stage solution was developed, beginning with a DKr3.6bn accelerated bookbuild of existing shares completed just after the bid was made.
The rights issue launched in March and the final stage was to complete a secondary offering of DKr7bn in new shares on behalf of the foundation as soon as the shares went ex-rights, ahead of the start of subscription.
Selling new shares rather than rights guaranteed that portion of the deal and followed the precedent of Carlsberg and the Carlsberg Foundation when they pioneered the approach in 2008.
The rights issue was the largest in Europe since 2018 when it completed and is the largest transaction in the Nordic countries since that US$7bn-equivalent Carlsberg rights issue.
“It is probably the most complex and multi-faceted transaction that any of us [in the ECM team] ever worked on,” said Marina Shchukina, head of FIG ECM at Morgan Stanley, which underwrote the rights issue from the start with Danske Bank. The two were the only banks on both ABBs.
Yet the process was remarkably smooth, with Tryg shares trading up 4.4% from bid to rights issue announcement and 1.4% to the end of the subscription period. The ABBs were completed at discounts of 4.5% (November 2020) and 4.3% (March) and the rights issue ended with near-perfect take-up of 99.7%.
The syndicate was remarkably small for such a large financing. Danske and Morgan Stanley were global coordinators, and Citigroup, HSBC and Nordea were joint lead managers.
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