UK insurance to holidays group Saga plans $3.7 bln flotation

Reuters - UK Focus

* Saga says to raise 550 million pounds

* 25 pct free float gives $3.7 bln valuation

* To list in same FTSE sector as funeral provider (Recasts, adds quotes, detail on company)

By Freya Berry

LONDON, April 30 (Reuters) - Over-50s holidays to insurancegroup Saga has set out plans for a 2.2 billionpound ($3.7 billion) stock market flotation, seeking a sizeablesale to retail investors in one of London's biggest listings sofar this year.

Saga, which has grown from its origins as a travel companyin the seaside town of Folkestone to a major insurance player,said on Wednesday it was planning to raise a net 550 millionpounds ($927 million) to pay down debt.

The flotation - being trailed in a British TV ad campaignfronted by former soap opera star Larry Lamb - represents thelatest in a slew of listings which have pushed proceeds frominitial share offerings up 221 percent from the same period in2013, according to data from Thomson Reuters (Frankfurt: TOC.F - news) .

Saga's planned 550 million pounds float of 25 percent of itsequity would value the entire group at 2.2 billion pounds andwould cut its debt to around 700 million pounds.

It will also allow private equity owners Permira,Charterhouse and CVC (Taiwan OTC: 4744.TWO - news) to begin selling downtheir investment, while delivering a multi-million poundwindfall to some of its executives.

Saga said it made core earnings or EBITDA of 222.4 millionpounds in the year through January on underlying revenue of 1.2billion. A source familiar with the deal said that it couldtrade at between 18 and 20 times earnings on its launch.

The company's focus on the over-50s has led it into someunusual areas, including regular dieting tips and a datingservice. That has made its FTSE company classification tricky.

A company's allocated sector determines its comparablepeers, which plays a part in determining analysts' views of acompany's performance and the multiples it should be trading at.

But Saga's cross-sector stance was highlighted by a decisionto list the firm in the specialized consumer services sub-sector- putting it in the unlikely company of funeral provider Dignity, the only other main market member of that list.

"There is clearly a debate as to whether it gets classifiedin financials or whether it goes under consumer services," saida banker at a leading City firm. "Arguably there isn't a naturalhome within financials for it."

HIGHER MULTIPLES

Media reports had speculated that Saga was targeting ajuicier valuation by shedding its insurance label. Direct Line, the last major UK insurance company to float, istrading at 11.8 times earnings, against Dignity (LSE: DTY.L - news) 's 18.2.

However the banker added that unlike Direct Line, Saga ismore an insurance broker than underwriter. Insurance brokerstend to trade at far higher multiples - UK firm Jardine LloydThomson is currently at 22.7.

"It would be naïve to say that it (the multiple) isn't aconsideration, but at the end of the day I don't think thecompany wants to be squeezed into financials when it doesn't fitwith the heritage of the brand," the banker said.

The company is following in the footsteps of Royal Mail (Other OTC: ROYMF - news) and Direct Line with a sizeable retail offering. Thesize is yet to be confirmed, but Saga said private investorswould have to apply for at least 1,000 pounds of shares to beeligible.

"A substantial retail offering is central to our plans,"said Andrew Goodsell. "Saga is high loyalty, and it's a portalinto the world of people aged over 50 in the UK."

Goodsell said 700,000 of its 2.1 million customers hadexpressed an interest.

"These people behave like it's a mutual - it's theircompany," said a source familiar with the deal, adding that Sagawas unique globally for its focus on the over-50s. "Brands havefocused on young people, while these people (Saga) areunashamedly focused on the 'grey pound'".

The listing is being led by Bank of America Merrill Lynch, Citigroup (NYSE: C - news) , Credit Suisse (NYSE: CS - news) and GoldmanSachs. JP Morgan (Other OTC: JPYYL - news) and UBS (Xetra: UB0BL6 - news) are jointbookrunners, while Investec (LSE: INVP.L - news) is acting as joint leadmanager and Mizuho as co-lead manager.

($1 = 0.5936 British Pounds) (Editing by Jane Merriman and David Holmes)

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