* RBS prices Direct Line IPO at 160-195 pence per share
* Values Direct Line at 2.66 bln stg at mid-point
* Direct Line to raise up to 975 mln stg in IPO
* UK motor insurers face 2 year competition probe
* CEO gets annual pay package worth up to 3.8 mln stg
LONDON, Sept 28 (Reuters) - British anti-trust regulators
will investigate the car insurance market over fears consumers
are being overcharged, casting a cloud over the planned
flotation of industry leader Direct Line which looks set to be
valued at the lower end of expectations.
Shares will be offered at between 160 and 195 pence per
share, giving the business a market value of 2.66 billion pounds
($4.31 billion) at the mid-point of the range, Direct Line's
owner Royal Bank of Scotland said on Friday.
Analysts had expected Direct Line, which also trades under
the Churchill and Privilege brands, to fetch between 2.5 and 3.5
billion pounds in what is London's biggest initial public
offering for over a year.
RBS will sell between 25 percent and 33 percent of its
shares. If priced at 195 pence, RBS could raise as much as 975
million pounds At the mid-point of the price range and
mid-point of the percentage of shares to be sold, Direct Line
said it would receive proceeds of 755 million pounds after fees.
RBS, 82 percent government-owned after receiving a bailout
during the 2008 financial crisis, was told to sell Direct Line
by EU regulators as a condition for taking state aid.
The bank set the price range for the offering hours after
the government's consumer watchdog ordered an anti-trust probe
of the motor insurance market on the grounds that ineffective
competition was forcing up costs for consumers.
The Office of Fair Trading (OFT) referred the industry to
the Competition Commission for an inquiry that could take up to
two years, saying the market may have features that "prevent,
restrict or distort competition."
The probe could "put a spanner in the works" of the IPO,
Shore Capital analyst Eamonn Flanagan wrote in a research note.
Edinburgh-based RBS has been under political pressure to
secure a good price for Direct Line to reduce the British
taxpayer's current loss of 22 billion pounds on the 45 billion
pounds the government pumped into the bank to secure its future.
REPAIR COST CONCERNS
A successful sale would be a boost for RBS, under
investigation for its role in a global interest rate rigging
scandal and for possible breaches of sanctions on Iran, and
under fire at home after a computer systems failure caused havoc
for millions of customers.
The OFT's concerns centre on how insurers provide
replacement vehicles and repair services to customers involved
in accidents they do not cause.
Insurers of drivers who are not at fault refer them to car
hire firms and repair garages which charge more than the market
rate in return for a fee, the watchdog said in a provisional
finding in May..
That pushes up the claims bill for insurers of at-fault
drivers, ultimately inflating consumers' insurance premiums.
"Competition appears not to be working effectively in the
private motor insurance market," OFT Chief Executive Clive
Maxwell said on Friday.
"The insurers of at-fault drivers appear to have little
control over the bills they must pay, and this may be leading to
higher costs for them and ultimately higher premiums for
motorists."
Competition regulators could order changes that would make
it harder for insurers to boost profits through fees for
ancillary services such as replacement vehicles.
Income from such fees accounted for about 30 percent of
Direct Line's operating profit in the first half of 2012, Shore
Capital estimated.
PROBE EXPECTED
The anti-trust probe had been widely expected after the OFT
provisionally decided to refer car insurers to the Competition
Commission in May. Direct Line said it could not predict with
certainty what impact the probe would have on the group.
One of RBS's 25 biggest investors told Reuters the
investigation could weigh on Direct Line's stock market
valuation.
"This is just what the Direct Line float wanted," the
investor said sarcastically. "There was already a lot of
downward pressure on the Direct Line price. It only looked OK at
the bottom of the range, even before this latest twist."
The prospectus for the IPO shows that Chief Executive Paul
Geddes and Finance Director John Reizenstein will be awarded
potentially lucrative long-term share awards.
Geddes' total remuneration package is worth up to 3.8
million pounds each year. It includes a basic annual salary of
760,000 pounds, an annual bonus worth up to 1.3 million pounds
which he has chosen to take in shares and an award of shares
worth up to 1.5 million under a long term incentive plan.
Reizenstein has a package worth up to 2.1 million pounds.
Shares in rival motor insurer Admiral, which makes
about 60 percent of its profit from ancillary products, closed
down 3 percent, making it the biggest FTSE 100 faller. RBS
shares were up 0.2 percent.
Goldman Sachs and Morgan Stanley are running
the offering, and are joint bookrunners with UBS. The
shares are being offered to retail investors as well as
institutions although retail buyers will need to make a minimum
application of 1,000 pounds.
$1=0.6176 British pounds)
