L&G said that after debt repayment, the net proceeds of the sale would be retained to further its organic growth. "Legal and General Australia is a business with many strengths which has performed well in recent years," said L&G's chief executive, David Prosser. "However, consolidation is taking place in the Australian marketplace and we believe that our shareholders are best served by exiting that market."
Colonial said it would pay A$892m (pounds 350m) for Legal & General Australia. Finance analysts and brokers suggested the purchase was expensive, but Colonial's group managing director, Peter Smedley, said the buy would be earnings-per-share positive within a year, and lead to major cost savings. Colonial had paid 2.5 times book value, compared with insurance industry average for takeovers of 1.8 times, analysts said.
Colonial, a former mutual group, listed on the Australian stock exchange in May last year. The purchase lifts Colonial two places to become Australia's third largest insurer in terms of annual premiums.