Inchcape sells insurance arm to Aon for pounds 160m

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The Independent Online
Inchcape, the international motor and distribution group, yesterday completed its restructuring programme by selling its Bain Hogg insurance broking business to Aon Corporation of the US for pounds 160m.

The deal surprised the City, which had been expecting Bain Hogg to be demerged, but the reaction was nevertheless positive. The price being paid by Aon, which made an unsuccessful approach for Bain Hogg a year ago, is about pounds 30m higher than the value analysts were placing on a demerged Bain Hogg.

In addition, Inchcape will avoid having to spend the pounds 20m restructuring provision for Bain Hogg announced alongside its interim results last month. It also avoids having to make a net cash contribution of pounds 13m to recapitalise the business.

Inchcape will incur a pre-tax exceptional loss on the sale of pounds 195m, mainly through the writing back of goodwill. But this loss will be largely offset by the pounds 180m exceptional profit the group will make from last week's pounds 380m sale of its testing services division to a group led by Charterhouse Development Capital.

Philip Cushing, Inchcape's chief executive, said: "The value gleaned for shareholders from this deal is considerably greater than had we gone down the demerger route."

The deal was brokered by the US investment bank Morgan Stanley, which has acted in the past for both Inchcape and Aon, the world's second biggest insurance brokerage.

Patrick Ryan, chairman and chief executive of Aon, flew into London a fortnight ago and began working on the deal from a suite in the Savoy Hotel.

Meanwhile, however, Inchcape continued with preparations for a demerger even after the two sides had sat down to serious negotiations in the middle of last week.

Even as the two teams were working through the night on Monday to finalise the deal, Inchcape was having 36,000 copies of the listing particulars printed in case the sale to Aon fell through and it had to fall back on a demerger.

Bain Hogg was formed in April 1994 when Inchcape bought Hogg Group for pounds 176m and merged it with its own Bain Clarkson division to form Britain's biggest insurance brokerage and the 11th largest in the world. Bain Hogg employs 4,000 people world-wide. Operating profits last year were pounds 28.7m on turnover of pounds 234.6m. There is about pounds 6m of cash in the business, which Aon will inherit.

The proceeds of the sale will be used to cut Inchcape's borrowings. The Bain Hogg and Testing Services sales will reduce gearing from 74 per cent to 5 per cent.

Patrick Ryan, chairman and chief executive of Aon, said the acquisition of Bain Hogg would provide it with the platform to develop in Europe, the Far East, Latin America, the Caribbean and Africa.

The disposal programme leaves Inchcape with its main motor vehicles distribution business, principally for Toyota cars, the shipping services business and soft drinks, office equipment and consumer and industrial products distribution arm.