Friends grabs L&M for pounds 744m

News analysis: This time a mutual was predator, not prey, in the savings industry shake-up

THE SOUND of the late Freddie Mercury belting out "Another one bites the dust" must have been ringing in a fair few ears yesterday after savings and pensions group London & Manchester fell to a pounds 744m agreed bid from Friends Provident.

The takeover of L&M is just the latest manifestation of the trend towards consolidation which has seen a spate of mergers and takeovers, culminating in the pounds 2.8bn takeover by the Prudential of Scottish Amicable last year.

What is curious about yesterday's deal, however, is that this time it is not a listed company snapping up a mutual, but the other way round.

The chairman of Friends Provident, David Newbigging, insisted yesterday that a mutual was a business like any other and had just as much right to grow by acquisition - provided it could demonstrate the benefits to its owners, its policyholders.

But behind the well-honed patter about complementary distribution and economies of scale, the real motive for the deal was clear. In this kind of market, with the likes of Sir Peter Davies at the Pru and Mike Blackburn at the Halifax poised to strike at the first sign of weakness, it is - as one City analyst said yesterday - a case of "you are either predator or prey".

The knee-jerk reaction in the City was to mark the whole life sector up by 4 per cent in the hope that after this deal, takeover activity would resume.

Both the Pru and Sun Alliance, prior to its merger with Royal Insurance in 1996 are believed to have had Friends in their sights. Mr Newbigging and his chief executive, Keith Satchell, clearly do not intend to hang around and wait for the knock on the door at the dead of night.

For all its cuddly image, which its pounds 1bn ethical fund has done much to cultivate, Friends has been on the deal-making trail before. Mr Newbigging himself joined as a result of an earlier deal - the takeover in 1993 of National Mutual - while earlier this year Friends caused a minor sensation in Edinburgh's staid financial community when it acquired 63 per cent of Ivory & Sime, one of the most venerable names in that city's fund management industry, albeit much diminished in stature of late.

Whatever else it may do, yesterday's deal certainly delivers in terms of scale. With pounds 30bn under management, the group will remain in 11th position in the UK in asset terms but has substantially closed the gap on Scottish Widows ranked above it.

Some job losses are inevitable. The talk yesterday was of around 700, mainly at L&M's head office in Exeter. But the overlaps are not huge. L&M brings some corporate pensions business which Friends will want to grow and an estate agency chain which is doing useful business in the South of England.

The top brass will share around pounds 1.5m from the deal, having decided some time ago that it was pointless to swim against the tide. The savings market is expanding rapidly thanks to increasing affluence and a growing, not unreasonable fear on the part of a steadily ageing population that the state will not be there to provide for a comfortable retirement.

The Government's efforts to encourage more people to save through Individual Savings Accounts (ISAs) and stakeholder pensions ought at first sight to benefit operators like London & Manchester, which have traditionally thrived through personal contact with the poorer saver. But the harsh reality is that the old-fashioned door-to-door salesman is looking decidedly old hat in this age of phone and supermarket banking.

David Hubbard, L&M chairman, realised earlier this year that despite strong growth in its current business, in the longer term the group was too small to hold its own against the muscle of the supermarkets and the phone-based sales operations such as Direct Line and Richard Branson's Virgin Group. The group was also in a weak position after a record pounds 525,000 fine from the Personal Investment Authority for failing to act swiftly enough to deal with almost 6,000 cases of alleged pensions mis-selling.

L&M decided a while ago that although it was happy with its rate of business growth, its days as an independent company were numbered. Better to seek a suitor now, when there was a chance of remaining in control of the process, rather than later when circumstances might force its hand.

In recent months the group has talked to at least three potential bidders, including at least one from overseas. But in the end Friends was the one able to offer the price and the least painful fit.

The offer has been recommended, but it is by no means a done deal. Three of L&M's largest shareholders, Schroders, Perpetual and M&G, were consulted on Monday, and came away believing the board had done their best.

By close of trade yesterday, with Perpetual having sold its 8 per cent stake in L&M, Friends had 14.1 per cent of the company in the bag. The smart money said that a counter-bid was possible, but unlikely.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
filmPoldark production team claims innocence of viewers' ab frenzy
Life and Style
Google marks the 81st anniversary of the Loch Ness Monster's most famous photograph
techIt's the 81st anniversary of THAT iconic photograph
News
Katie Hopkins makes a living out of courting controversy
people
News
General Election
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

Ashdown Group: Head of Client Services - City of London, Old Street

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders