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LONDON -- The shares of Royal Bank of Scotland (LSE: RBS ) (NYSE: RBS ) slipped 1 pence to 305 pence during early London trade this morning after the bank announced late last night that it would sell more shares in Direct Line Insurance (LSE: DLG ) .
RBS confirmed it would offer 229.4 million shares -- equivalent to 15.3% of Direct Line's share capital -- to institutions via an 'accelerated bookbuild' process.
Direct Line's shares fell 4 pence, or 2%, to 206 pence during early trading, indicating RBS could raise about 470 million pounds from the disposal. The sale would take RBS's remaining stake in Direct Line to just below 50%.
RBS said the process could involve selling a further 22.9 million shares depending on sufficient institutional demand.
RBS is essentially a forced seller of Direct Line, having agreed to dispose of the insurer as part of the commitment made to the European Commission following the bank's taxpayer-funded bailout.
RBS sold 35% of Direct Line at 175 pence a share last year via a flotation and must sell the remainder before the end of 2014.
Within its annual results last month, Direct Line declared a maiden 8 pence per share dividend and implied the payout could have been 12 pence per share had the business operated separately from RBS throughout all of 2012.
Direct Line's results also showed underlying net earned premiums falling 5% to 3.7 billion pounds and underlying operating profits advancing 9% to 461 million pounds.
Based on those results, Direct Line is valued at less than 10 times profits and offers a possible 5.8% dividend income.
Of course, whether that 5.8% income, RBS's decision to sell more shares -- as well as the general outlook for the insurance industry -- actually combine to make Direct Line a buy remains your decision.
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