ROYAL Bank of Scotland is set to sell off its 50 per cent stake in Tesco Personal Finance to the supermarket giant in a deal believed to be worth up to £1 billion.
It is understood that Tesco has agreed to buy up the bank's half of the joint venture, which was set up between the two companies 11 years ago. The announcement of the sale is expected to be made at the retailer's annual general meeting this month
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Coming as pressure mounts on the bank over whether investors will take up a £12 billion rights issue, the sale is part of a number of disposals expected by RBS, which is likely to sell off its insurance arm, as well as train-leasing business Angel Trains.
The sale of Angel to Australian firm Babcock & Brown is expected to be announced this week, while a number of potential suitors have been said to be interested in the bank's insurance businesses, which include Churchill and Direct Line.
It is thought the bank, which has not officially committed to a sale of the businesses, is looking for a price of around £7bn.
But industry sources are not convinced that any of the suitors will want to pay out the high price for the insurance arm, which brings in around £500 million in profits a year.
Parties understood to have shown an interest include Swiss insurance giant Zurich, as well as private equity firms including Apax Partners and Kohlberg Kravis Roberts.
The sale of Tesco Personal Finance would see RBS continue to provide banking services to Tesco initially, until Britain's biggest supermarket applies for its own banking licence from the Financial Services Authority.
Tesco Personal Finance, which boasts more than five million accounts and offers services ranging from pet insurance to mortgages, is registered at St Andrew Square in Edinburgh and is run by RBS employee Robin Bulloch. Its latest set of accounts, for 2006, show it made profits of around £130m.
Separate weekend reports claimed that a group of institutional investors in RBS are scheming to replace chairman Sir Tom McKillop – and have even approached a number of senior City figures to ask them to consider taking up the post.
It is understood that investment house Schroders is involved in discussions over the issue, which could result in a boardroom coup, if enough investors supported the move.
RBS refused to comment, but it is thought that the bank is confident in the support of its investors, following the re- election of Sir Tom and chief executive Sir Fred Goodwin at its AGM last month. The deadline for shareholders to take up RBS' rights issue is Friday. But analysts fear that many investors may leave it until the last minute to make their decision – while some may not take it up at all.
Most analysts believe the bank is likely to achieve a 90 per cent take-up of the rights issue, although others have warned that up to 20 per cent of shareholders may avoid the offer. The issue is underwritten by UBS, Goldman Sachs and Merrill Lynch, meaning the bank will be certain to get its money, but share prices could fall further if a sizeable proportion of the stock fell into the hands of the underwriters, who may dump excess stock on traders.
Shares closed on Friday at 228.5p – down 7.4 per cent over the whole of last week and just 228.5p higher than the rights issue price of 200p.
Private shareholders, who are most likely to refuse to take up the offer, make up just 7 per cent of the total, while institutional investors, who are less likely to pull out, backed the idea when it was put forward by RBS last week.
The full article contains 639 words and appears in The Scotsman newspaper.
