CU seeks pounds 322m to aid French purchase: Rights issue will supplement share placings and borrowings in raising pounds 1.5bn price for Groupe Victoire

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The Independent Online
COMMERCIAL Union, Britain's biggest composite insurer, is to make a one-for-eight rights issue at 475p, raising pounds 322m - less than some market rumours had suggested - to help finance its Fr12.5bn ( pounds 1.5bn) acquisition of Groupe Victoire, the French insurer.

Placings of shares with Societe Generale, the CU shareholder that introduced it to Groupe Victoire, and Compagnie de Suez, Victoire's parent, will raise pounds 111m and pounds 70m respectively. The rest of the money will come from new borrowings of pounds 797m and internal funds of pounds 200m.

CU said the acquisition would modestly dilute earnings in 1994 and 1995, while gearing would rise from 12 per cent to 54 per cent.

The insurer also revealed that first-half pre-tax profits rose from pounds 66m to pounds 181m. The shares closed 11p higher at 563p.

John Carter, chief executive, said the deal brought the group well-placed companies in an attractive market. He said it would be 'a major step in furthering our strategies of increasing the proportion of the group's business represented by life operations and improving the spread of our life and general insurance businesses'.

The proportion of CU's income from life insurance will climb from 32 per cent to just under 40 per cent.

The French market will account for almost half the enlarged group's life assurance income and 16 per cent of general insurance premium income.

Groupe Victoire's main subsidiaries are Abeille Vie, France's sixth-biggest life assurer, with a 5 per cent market share, and Abeille Assurances, the eleventh- biggest general insurer, with a market share of 3 per cent.

Peter Foster, group general manager, said the timing of the acquisition was ideal. The French insurance market was at a low, and beginning to enjoy increases in premium rates. Pension reform due in the next 12 months would boost the growth of the French life assurance market, which had expanded by 20 per cent a year for the past decade.

Groupe Victoire made pre-tax profits of Fr292m in 1993, with investment income of Fr683m and Fr486m in profits from the life business offsetting an underwriting loss of Fr877m. Mr Foster said the underwriting result would improve in 1994.

There would also be savings from merging the administration and investment functions of the Victoire companies with L'Epargne de France, CU's existing French insurer. Groupe Victoire's senior management would stay, overseen by Tonyl Wyand, a CU executive.

Mr Foster said CU had been in contact with Groupe Victoire since 1988. The price it would pay was based on its own estimates of the French insurer's net assets, with about Fr2.9bn of goodwill.

The purchase price would be adjusted to reflect changes in asset values between 31 December and 30 June, and would be slightly lower than Fr12.5bn.

Brian Shea, insurance analyst at Salomon Brothers, said: 'CU is paying a fair price for a company of this size and scarcity value.' He said Groupe Victoire would benefit from being part of an international insurance group rather than a subsidiary of Suez, a broad holding company.

The group's near-trebling of operating profits in the first half was due mainly to an improvements in general insurance results in Britain - swinging from an underwriting loss of pounds 57m last year to a pounds 26m profit this year - and a 10 per cent rise in life profits to pounds 64m.

The biggest disappointment was a fall in North American profits from pounds 30m to pounds 17m because of bad winter weather.

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