Article date: 17 September 2004
RAC plc, the motoring and vehicle services group, announces thatit has agreed to buy out AXA’s interest in RAC FinancialServices, which was established in 2002, and to acquire the renewalrights of AXA Direct, AXA’s personal lines direct insurancebusiness which provides motor and home cover. The acquisition willenable RAC to control its financial services strategy and is animportant step towards developing a significant presence in thisarea.
The consideration will be satisfied by a cash payment of £29.8million on completion with the balance, expected to be no more than£10.7 million, linked to the successful renewal of the acquiredpolicy base. The transaction is being financed from bankingfacilities available to RAC.
RAC Financial Services currently has 140,000 motor and homepolicyholders under the RAC Insure brand and enjoys an 80% renewalrate. Twenty insurers, including AXA, sit on the RAC Insure brokerpanel.
AXA Direct provides motor and home insurance to 270,000policyholders in the UK. RAC has acquired the exclusive rights torenew these policies, which will then be operated under the RACInsure brand as broker and underwritten through the RAC Insurebroker panel.
In the year ended 31 December 2003, RAC Financial Servicesearned profits before interest and taxation of £4.2 million onrevenues of £16.1 million. RAC’s share of this was 43%. Inthe same period AXA Direct, acting as an underwriter, receivedgross written premiums of £94 million. RAC estimates that, had AXADirect been a broker rather than an underwriter, this businesswould have earned revenues of £22.7 million and incurred operatingcosts of £19.3 million on these premiums.*
RAC will take over some of AXA’s existing infrastructureand assets under the arrangement. Goodwill arising on thetransaction of up to £42 million will be written off over 7 years.Before amortisation, the acquisition is expected to be earningsneutral in 2005 and earnings enhancing in 2006.
The transaction is expected to complete on 11 October 2004.
Andy Harrison, Chief Executive of RAC,commented:
"This transaction marks a significant milestone in the developmentof our financial services strategy, which we will now control. Itsimplifies our insurance business and adds scale. We look forwardto continuing to work with AXA in a number of other areasthroughout the group."
Peter Hubbard, Chief Executive of AXA Insurance,said:
"Earlier this year we announced a revised business strategy whichresulted in AXA no longer actively promoting our personal linesdirect business. This transaction is a natural evolution of thisstrategy, making perfect sense for our employees, customers, RACand us. It demonstrates our commitment to being easy to do businesswith for our business-to- business channels and we look forward toan on-going strong relationship with RAC."
* Brokerage commission to be earned by RAC in relation to AXADirect business and the consideration payable by RAC to AXA willdepend on the level of renewals of the acquired AXA Direct policybase
For more information contact:
Group Finance Director, 07889 309988
Group Finance & Investor Relations Manager, 07764 624701
Corporate Communications Director, 07768 298636