A&L to bid for insurer

Alliance and Leicester is gearing up to launch a multi-billion pound takeover of a life insurance company - a much larger acquisition than previously thought - in a bid to outflank its banking rivals and enhance the value generated from its 5.5 million customers.

On Friday Alliance chief executive Peter White said the bank would either find an acquisition in the UK or return a portion of its pounds 800m cash pile to shareholders, after reporting slightly depressed interim pre-tax profits of pounds 178m after taking into account the cost of converting from a building society. It ruled out any "foreign adventures".

Any acquisition would not be limited to the pounds 600m to pounds 800m range. "Their ambitions run bigger than that," a source said.

The company is thought to be considering targets valued at between pounds 1.5bn and pounds 3bn, which would put life and general insurance companies such as Guardian Royal Exchange, Britannic and United Insurance in the frame.

"At the analysts' meeting there was a definite indication that an acquisition of the size of Birmingham Midshires [taken over last week by the Royal Bank of Scotland in a pounds 630m deal] was not on the cards. They told us they are thinking bigger," said one banking analyst.

Were it to proceed with this strategy, Alliance and Leicester would consider issuing shares to fund the acquisition, which would allow institutions to increase their shareholdings.

So far institutions have been frustrated by the tendency of Alliance members who qualified for shares on conversion to plc status to retain their holdings. The company estimates that 70 per cent of its shares are still held by account holders.

John Caine, head of corporate communications for Alliance and Leicester, said the bank was not going to limit itself in its ambitions, but refused to elaborate on possible takeover targets.

"We have not put a timetable on on the acquisition, and we will not overpay. Other than that, we are keen to explore all options," Mr Caine said. He said the bank would choose its target carefully as any merger or acquisition would nullify its five-year statutory protection from takeover under the Building Societies Act.

The implication of this would be that it could be that even a small acquisition could expose the bank to an unwelcome suitor. "It would be imprudent of us not to go for a big acquisition to protect ourselves," he said.

Mr Caine said the share buyback, mooted at analyst briefings on Friday, would be a last resort: "We have only been a public company for 17 weeks. To say to our investors, sorry, we can't think of anything to do with your money, so have it back, smacks of a pretty weak strategy."

Meanwhile Halifax is also expected to put insurance companies on bid alert when it confirms it too plans acquisitions to spend some of its pounds 3bn cash pile when it announces interim results next Thursday.

Halifax,which floated on the stock market in June, is expected to report pre-tax profits of pounds 770m for the first half of 1997. This would represent an increase of 18.5 per cent, taking into account a one-time charge of pounds 88.1m in the first half of 1996 to cover conversion costs.

Since building societies are required to have a stronger capital base than banks, Halifax became a public company with about pounds 3bn more in capital than it needs. That could grow to almost pounds 5bn by the end of 1998 if it does not find ways to reduce the capital.