AbbeyNational makes pounds 1.4bn ScotAm offer

Scottish Amicable's plans for a stock market flotation hit the buffers yesterday as Abbey National launched a surprise takeover offer worth up to pounds 1.4bn, prompting speculation of a bidding war among rival suitors.

Abbey's offer trumped analysts' estimates of the value of the mutually owned life company, leading many to suggest that a takeover of ScotAm was a racing certainty.

ScotAm executives, including Sandy Stewart, the chairman, plus Roy Nicolson and Paul Bradshaw, the chief executive and deputy, were yesterday locked in emergency meetings with advisers SBC Warburg in a bid to avoid falling into Abbey's hands.

However, Charles Landa, insurance analyst at SG Strauss Turnbull, described Abbey National's offer as a "no-brainer" for Scottish Amicable's 1.1 million policyholders who are eligible to vote on the deal: "This offers cash up front, without having to wait several years for it."

It also emerged that three investment trusts investing in Scottish Amicable with-profits policies could hold the key to a potential special meeting of rebel policyholders if ScotAm does not enter into serious talks with Abbey or other bidders.

Abbey's offer for ScotAm involves an immediate payment of at least pounds 400m in cash or shares, more than five times the pounds 75m the life office was proposing to make available in bonuses to policies.

In addition, Abbey said it would be willing to make a further investment of between pounds 700m and pounds 1bn to buy the embedded value of the ScotAm life fund. This would be based on detailed actuarial calculations.

ScotAm was quick to denounce the bid as both "vague" and "inadequate" and said it intended to press ahead with its two-stage plans.

Mr Stewart said: "If we have on the table a firm offer which is quite clearly likely to be more beneficial to policyholders then we have to consider it. At this stage the bid doesn't meet our requirements."

ScotAm's own proposals, which it insisted last night would still be put to members in a proxy postal vote within the next few days, involve a pounds 350m cash injection by Swiss Re, the reinsurer, plus a further pounds 45m from its jointly owned venture capital arm Securitas.

In return for the pounds 75m, policyholders are expected to abandon mutual status.

A flotation in three to five years' time would net policyholders between pounds 200m and pounds 400m more. ScotAm's directors would receive share bonuses worth up to pounds 14.4m.

Charles Toner, deputy chief executive at Abbey National, said: "We would be willing to go into detailed talks on our offer, which we believe is better than the uncertainty of ScotAm's own flotation proposals in three to five years' time.

"We believe ScotAm is a good company, with room for improvement. We have shown that we can provide commercial discipline with our takeover five years ago of Scottish Mutual."

Scottish Mutual, he added, has quadrupled its funds under management to pounds 8bn, while its 1996 results show an 81 per cent increase in total new premium income.

Mr Toner said the two life companies' proximity, in or near Glasgow, meant there was scope for close collaboration between them. He stressed that ScotAm's new offices in Stirling would stay open. No redundancies were planned.

Roman Cizdyn, insurance analyst at Merrill Lynch, said: "This has been very cleverly done by Abbey National. The offer is up front and it appears to come close to the valuation that ScotAm had placed on the company in several years' time. If I were ScotAm I would be wondering if there will be a white knight coming to the rescue."

Among potential rivals named by analysts are Prudential and Allianz, the German insurance giant. A Pru spokesman said the company was watching developments "with interest".

Alan Richards, a director at First Marathon, a new corporate finance house, said: "ScotAm will find it very difficult to get round this one. What one should bear in mind is that it is vulnerable to policyholder pressure. It only needs 50 to call a meeting and demand that that the matter be put to a vote."

The meeting would have to take place within 28 days, even if ScotAm ballots members on its proposals.

Mr Richards added that the required 50 names could come from among the 5,000-plus policies held by a number of with-profits endowment investment trusts, including BZW, Kleinwort Benson and Scottish Value Management. Kleinwort's corporate finance arm is advising Abbey National in its takeover bid.

Abbey National's offer for ScotAm is the second in in which it has appeared to be publicly pitted against directors of a mutual company before policyholders were given a chance to vote on the deal. Last year, it succeeded in its pounds 1.4bn bid for National Provincial.

Comment, page 23

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