GRE battle hots up as RSA joins fray

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The Independent Online
THE BATTLE for Guardian Royal Exchange, the insurance group, intensified yesterday after rival insurer Royal & Sun Alliance confirmed it is in talks about a potential pounds 3.5bn cash and shares offer for the group.

In a statement issued partly to quell speculation that the group was preparing a pounds 2bn rights issue to fund the deal, RSA, which is being advised by bankers NM Rothschild, said the discussions were to "explore the possibility of achieving an agreed offer," but insisted "there is no certainty that such an agreement will be reached."

The move took the stock market by surprise, triggering a sharp fall in Royal Sun Alliance shares. Analysts said launching a bid for GRE runs contrary to everything Royal's embattled chief executive, Bob Mendelsohn, has been saying about his plans for the group.

Matthew Wright, at Daiwa Europe said: "We knew RSA was looking for a deal in 1999 but GRE? This was not the one we expected." Bankers said the entry of Royal smacks of panic on the part of Mr Mendelsohn, believed to be concerned that, with the group's market value having fallen to pounds 7bn, it is vulnerable to a hostile bid.

The fact that after months of rumour at least one party has officially declared its hand came as extremely welcome to GRE's board, which has been fighting to convince a sceptical market that there is genuine interest in the group. GRE's shares rose 15p to 369.5p.

The surprise entry of Royal into the battle turns the tables on Sun Life & Provincial, the UK arm of French insurance giant Axa, whose unsolicited bid approach last year prompted GRE to put itself up for sale.

All eyes are now focused on whether Sun Life, whose 350p- a-share offer was rejected as too low, will not come back with a higher bid.

Bankers said that with Royal believed to have offered around 385p a share, Axa will have to offer at least pounds 4 to stay in the game.

"The French have made it clear that they do not want to overpay. But they have made it clear that they want to get into the UK, and they realise that it is not every day that a business like GRE gets put on the block," said one.

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