Members to profit by pounds 1,400 on Norwich Union debut

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The Independent Online
Norwich Union looks certain to make a sparkling stock market debut today, handing the life insurer's new shareholders substantial paper profits likely to average about pounds 1,400.

Analysts and City bookmakers expect the shares to end first dealings up to 60p higher than the 290p strike price announced yesterday.

That will provide instant profits for all Norwich's new shareholders but especially for those former members who were allocated shares at 265p in the oversubscribed pounds 2.4bn offer. The 25p a share discount they were given ensured high demand for the half of the offer reserved for members. Applications were scaled sharply back yesterday, although about half of applying members will receive all the shares they asked for.

Allan Bridgewater, chief executive, said yesterday: "We are delighted at the tremendous response from our members and from institutional investors. I believe this is an endorsement of the strength of the Norwich Union brand and the prospects for the business going forward."

The appetite of investors for the shares, which saw queues forming to beat last week's heavily advertised deadline for applications, had already forced a clawback of shares worth pounds 400m from the institutional offer to satisfy members' demand.

That enlarged members' offer was 3.9 times subscribed and only applications for pounds 1,500 worth of shares or less will receive a full allocation.

Higher bids will be scaled back, with the highest possible applications of pounds 100,000 receiving 9 per cent of the shares applied for.

A similar scaling back was applied to the non-members' retail offer, which was also heavily over-subscribed. The institutional offer was even more popular, with professional investors applying for shares worth pounds 12bn. They will receive just a tenth of that amount and some will get no shares at all.

Unsatisfied demand from those institutions, former members and other retail investors has more or less guaranteed a first-day premium for the 871 million shares sold in the pounds 2.4bn offer. Profits from early dealings are over and above the value of pounds 1.3bn free shares, which if expectations for today's trading are met, will net the average member pounds 1,400.

The minimum 300 shares that 1.8 million with-profits members have received would be worth pounds 1,050 at 350p a share. The society's 1.1 million non-profit policyholders received 150 shares each, worth just over pounds 500 at that price.

As with the recent Halifax and Alliance & Leicester flotations, buying from tracker funds will keep upward pressure on the shares until they enter the FTSE 100 index in September. With an estimated market value of pounds 6bn, Norwich Union is guaranteed early entry into the market's top flight.

Analysts believe a fair value for the shares is around 330p and have said they would not look excessively stretched at a price of up to 380p.

The price at which institutions bid for shares in last week's bookbuilding exercise was at the top end of the 240p to 290p range indicated by the company.

Today's flotation creates the third-largest quoted insurance company behind Prudential and Royal & Sun Alliance, representing around a fifth of the value of the life assurance sector. Although the life business is seen as Norwich's key strength, it is also the country's fourth largest general insurer.

Profits are on an upward path, with Salomon Brothers forecasting an improvement from last year's pounds 567m pre-tax profit to pounds 631m in the year to December.

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