NEW YORK/LONDON Direct Line, Britain's biggest motor insurer run by government-owned Royal Bank of Scotland (RBS.L), is a takeover target for private equity groups looking to pre-empt what would be one of the biggest initial public offerings in London this year.
Blackstone Group LP (BX.N) and Bain Capital LLC are working on a possible joint offer for Direct Line, a person directly familiar with the plans said on Sunday. Blackstone declined to comment while Bain did not respond to a request for comment.
Another group, comprising KKR & Co LP, Apax Partners LP and BC Partners Ltd, is putting together a rival offer, the Sunday Times reported earlier, quoting city sources as saying both groups were planning to make moves at the end of the month.
KKR, Apax, BC Partners and RBS did not respond to a request for comment.
European regulators have ordered RBS to sell or float Direct Line by the end of 2013 to counterbalance the competitive advantage it received from a British government bailout, which left it 82 percent state-owned.
The buyout interest is boon for RBS, which is in the process of rebuilding its balance sheet and has said it wants to list Direct Line in the fourth quarter. Analysts have estimated it could be valued at around 3 billion pounds ($4.66 billion).
Tungsten, the British buyout vehicle co-founded by financier Edmund Truell, had said in May it could bid for Direct Line but Truell said earlier this month that he was not close to any deal to buy RBS's insurance unit.
On Friday, sources told Reuters RBS had added eight banks to help with Direct Line's IPO. The public offering of a minority stake is being run by Goldman Sachs, Morgan Stanley and UBS, who are acting as joint book runners.
Founded in 1985, Direct Line also trades under the Churchill and Privilege brands and owns the Green Flag breakdown recovery service.
RBS needed a 45 billion pound bailout in 2008 at the height of the financial crisis as its acquisition of Dutch bank ABN AMRO in 2007 pushed it close to collapse.
RBS' lengthy turnaround process has made the timetable for any sale of Britain's stake in the troubled bank uncertain, prompting some speculation that the government may consider selling some of the stake at a loss at first.
(Reporting by Greg Roumeliotis in New York and Neil Maidment in London; editing by Gunna Dickson)