ZURICH (Reuters) - Zurich Insurance Group (VX:ZURN) said that any offer it might make for British rival RSA (L:RSA) would likely be in cash.
The bid by the cash-rich Swiss firm for RSA Insurance Group could top $8 billion (5.13 billion pounds), a further example of consolidation in the sector as insurers look to diversify amid tighter regulations and toughening market conditions.
"Zurich Insurance Group Ltd confirms that it is likely that any offer, if made, will be solely in cash," Europe's third-largest insurer said in a statement a day after disclosing its interest in the British insurer.
According to analysts, Zurich would shell out $3 billion in surplus capital, issue up to $3 billion in debt, and seek to raise another $3 billion in equity to finance the acquisition.
A spokesman for the Swiss insurer didn't comment on specifics of financing should the deal, which analysts are broadly supportive of, come together.
"The potential acquisition of RSA is an attractive option for Zurich, in our view, assuming it can achieve a reasonable price," analysts with German bank Berenberg wrote in a note to clients.
Analysts at Jefferies said a deal with RSA would vault Zurich into the leader's seat in commercial insurance in Britain as well as access to the lucrative Swedish market.
However, a potential tie-up with RSA is fraught with risk for Zurich, a 45 billion Swiss franc ($46.65 billion) group offering a range of life and general insurance products, which has been a cautious predator of late due to a mixed record on earlier deals.
Zurich, which has pledged to pay out its excess cash by next year, has to convince investors that the merits of an RSA deal would prove greater than a pure cash payout. Investors sent the Swiss insurer's shares down 1.8 percent yesterday on the news. On Wednesday, the stock was 0.4 percent lower in a broadly higher European sector (SXIP).
RSA shares were down 1.9 percent to 518.5 pence at 0838 GMT, after rising more than 18 percent on Tuesday.
($1 = 0.9646 Swiss francs)