Esure agrees £1.2bn takeover by Bain Capital; weather claims dent H1 profit

Esure said on Tuesday that it has agreed to be bought by private equity firm Bain Capital for 280p a share in cash, as it posted a drop in first-half pre-tax profit, partly on the back of adverse weather-related claims costs.

A day after confirming that it had received an unsolicited proposal from Bain, Esure said its independent directors believe the terms of the firm offer from Bain are compelling, acknowledge the quality and strong prospects of the business and deliver attractive value to shareholders.

The price represents a premium of around 37% to the closing price of Esure on Friday and 40% to the one month volume-weighted average price.

Chairman Peter Wood, who has agreed to reinvest £50m in the business, said: "I'm pleased to be announcing this transaction today, because it is a great outcome for shareholders, for the company, and for customers.

"As a private company and with Bain Capital's backing, Esure will be able to invest behind the innovation required to fully realise the opportunities in this market. I am pleased to be continuing as Chairman and am fully aligned with Bain Capital, who I believe will be a tremendous partner in the next phase of Esure's journey."

Esure also put out its interim results, which revealed a drop in pre-tax profit to £36.1m from £45.1m in the first half of last year as it took a £14m hit from adverse weather-related claims costs in the home and motor accounts.

Gross written premiums were up 12% during the period to £440.3m, driven by strong growth in the motor division and a stable performance in home, while in-force policies increased 8.5% to 2.449 million.

In light of the proposed acquisition, the board is not recommending the payment of an interim dividend this year, versus a 4.1p a share dividend last year.

Interim chief executive officer Darren Ogden said: "The first half of 2018 has seen continued growth in premiums and polices in a period impacted by exceptional weather costs.

"The motor account grew strongly, underpinned by the group's footprint expansion programmes which now account for over 400,000 in-force policies. In addition, the home account returned to growth in the month of June, aided by the group's investment in its underwriting and data capability. The group will remain disciplined in its rating actions as it targets 3 million in-force policies by 2020."

Ogden said the company remains well placed to continue delivering profitable growth in 2018.

Shore Capital said the first-half results were below expectations on all metrics, with pre-tax profit 13% below consensus.

As far as the offer from Bain is concerned, Shore said the company has traded above the offer price as recently as September 2017 but the significant downturn in the share price since, and the general market view weakening on the UK motor insurers suggest that investors will be willing to take the money offered.

"Overall the results are disappointing but that is of little consequence to the shares at the moment given the offer on the table. With around 5% upside to the offer price remaining after yesterday’s announcement, we would expect the gap to close as the likelihood of a successful purchase increases. If anything, the results miss makes the 280p offer price more attractive, in our view," said analyst Paul De’Ath.

Hargreaves Lansdown analyst Nicholas Hyett said the results were a bit of sideshow.

"A formal offer from Bain Capital at a sizeable premium to market price means Esure will in all likelihood be leaving the stock market soon. With scope to improve the esure and Shelia’s Wheels brands, as well as further improvements in underwriting, we can see the attractions for Bain. For shareholders, the deal means the benefits of those improvements will be landing in bank accounts a little earlier than expected."

RBC Capital Markets said the offer from Bain represents the best that Esure could expect for now, at lest until the UK motor market cycle turns.

"We see today’s firm offer as a good outcome for Esure shareholders. The results were weaker than expected, but we’d expect that the reserves set aside for the weather losses are likely to be highly conservative," said analyst Kamran Hossain.

At 1225 BST, the shares were up 3.9% to 277.60p.