Millennial worries scupper Britannic's bid for United

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BRITANNIC, THE door-to-door insurance group yesterday decided not to go ahead with talks about a pounds 1.6bn merger with its rival, United Assurance, after failing to get the reassurance it was seeking about United's state of preparedness for the Year 2000 bug.

United had declined to give the detailed answers Britannic was seeking on the bug unless Britannic committed itself to formal due diligence, which Britannic was reluctant to do. Earlier this year United admitted to problems with a new IT system it had introduced and is now suing Unisys, the supplier. However, the group insists its legacy systems are able to cope with the millennium.

Shares in both groups fell sharply yesterday on disappointment at the failure to conclude what the City believed to be an obvious marriage. Britannic was forced to go public on its interest in a merger with United last month, after informal soundings it had taken with the group's shareholders were prematurely leaked.

Yesterday in a statement designed in part to keep its options open, Britannic confirmed that "exploratory discussions" had taken place "between the respective financial advisers of Britannic and United Assurance". However, it added: "These discussion have now been terminated."

Britannic, which is still keen on the idea of creating a new pounds 3bn insurance group, wants to leave the door open to a renewed approach, once United's preliminary results are published early next year.

This is likely to yield further information about the IT problems, as well as other issues on which Britannic wanted clarification before committing itself. These include the readiness of United's sales force to cope with new, tougher Financial Services Authority regulations and the state of discussions with the FSA about unlocking "orphan assets".

United, which City sources say has had abortive talks with vulture funds about a break-up bid, has been holding out for at least 480p a share, a price Britannic's chief executive Brian Shaw believes will be hard to sell to shareholders given the group's problems. United shares were down again yesterday, by 14.5p to 380p.

Said one analyst yesterday: "Clearly there is a reason why the shares are trading at below embedded value even with the bid speculation."