The deal involves shareholders in Fenchurch swapping 1,000 of their own shares for 628 in Lowndes Lambert, which is to be renamed Lambert Fenchurch. The news sent shares in Lowndes 7.5p higher to 116p, while Fenchurch added 9p to 70.5p.
The link-up, foreshadowed in a statement last week that said the two groups were in merger talks, is part of a growing consolidation trend in the sector in the wake of last year's marriage of the two US giants Aon and Alexander & Alexander. Aon has also recently picked up Bain Hogg from Inchcape and last month Lloyd Thompson and JIB, two second-line brokers, announced their own pounds 300m merger.
Lambert Fenchurch expects to be able to generate pounds 5m of cost savings from the merger in a full 12 months, at an exceptional cost of pounds 11m in this year's figures. But David Margrett, the Lowndes chief executive who will take on the same role in the new group, denied the move was defensive, saying it offered "very significant income growth opportunities which we believe will lead to earnings enhancement".
Lowndes shareholders will end up with 72 per cent of the enlarged company, while the company will fill the two top management slots, with Sir Robert Clark, the group's chairman, as well as Mr Margrett retaining their roles. But Mr Margrett dismissed any suggestion that Lowndes would be in the driving seat. "This is truly bringing together the two senior executive teams. Obviously we are the bigger firm, but there are some existing jobs going to the other side."
Analysts said the merger was a reaction to both declining insurance rates and increasing consolidation in the UK market. Roman Cizdyn at Merrill Lynch said this was a defensive move "and very much a reaction to what the industry leaders are doing, particularly Aon".