Some 625,000 Clerical Medical members will get pounds 111m of special bonuses added to their policies plus an allocation of pounds 160m to increase with-profits asset shares which will boost subsequent bonus calculations.
Clerical Medical policy holders must have taken out a with-profits policy by midnight 22 March, and must hold it until the deal is completed, which is expected to be the end of this year. For the holder of a typical pounds 30,000 with-profits endowment policy which has been in force for 15 years, the special bonus will amount to pounds 2,172.
The Halifax had to beat off strong competition from Abbey National, NatWest Group and Sun Alliance to clinch the deal with what analysts regarded as a full price. But the push into the life insurance sector was regarded as making sound strategic sense. "Halifax has 17 million customers, almost none of whom buy long-term savings products with the Halifax brand. It is very slanted towards the short-term savings market and wants to get a more even spread of business," said Hugh Pye, analyst at BZW.
Jon Foulds, chairman of the Halifax, which reports its 1995 results today, said the purchase offered "excellent opportunities" for the converting building society's aim of being the "biggest and best personal financial services business in the UK". He expressed confidence that the "acquisition will enhance the earnings of the Halifax and therefore the value of shares to be distributed to members upon flotation in 1997". Mr Foulds said it is "very unlikely we shall make another major acquisition before converting to a plc".
The acquisition of Clerical Medical brings a well-known insurance brand name to Halifax, as well its strong presence among Independent Financial Advisers, which is the one distribution channel where Halifax is absent. "This is an important gap which will be filled by the deal," Mr Foulds said.
In common with many other big banks, building societies and general insurers, Halifax has been keen to buy into the life and pensions market because it believes that, despite the current difficulties, it offers considerable long-term growth potential.
The combination of an ageing population and pressures to reduce welfare spending is placing greater demands on personal saving and investment. "Having had a great run on home ownership over the past 30 years, the balance is switching back from mortgages to thrift, in the shape of sophisticated savings and investment products. Clerical Medical gives us another distribution channel for this," Mr Foulds said.
Clerical Medical said it contacted 40 potential buyers last summer after a strategic review concluded that its best option was to give up its 170- years independence and seek a strong parent. "When we looked ahead and endeavoured to see what we needed to support members' interests, we were concerned that at some point in the future we may be constrained by lack of capital," said Michael Hamilton, Clerical Medical's chairman.
Halifax was eventually selected because, he said: "in financial terms its offer was the most attractive, and it also embraced a cultural heritage in tune with our own." The insurer, which will become a subsidiary of a newly formed Halifax holding company, will retain its own identity and be renamed Clerical Medical Investment Group. It will retain its top management, and Halifax said it expected no redundancies as a direct result of the deal.
More mutual life company acquisitions are expected in the market, with Friends Provident and Scottish Amicable among the most likely targets. "I think over the next two years, eight or nine mutuals will want to be plcs or part of plcs," said Stephen Dias, analyst at Goldman Sachs.
Clerical Medical policyholders will vote on the proposed deal at an EGM in June.
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