NatWest in race to seal L&G deal

Pressure mounts on bank to close pounds 10.7bn deal
IN THE face of a Stock Ex-change inquiry into how news about the deal broke prematurely on Thursday, National Westminster Bank was racing yesterday to put the final touches on its agreed pounds 10.7bn bid for Legal & General.

The City has generally hailed the logic of a tie-up between Britain's third largest bank and fourth largest insurer. But tensions over who will run the combined business - and the possibility of a rival bidder surfacing - have put NatWest under pressure to get the deal done fast. "It all makes sense," said Thomas Rayner, an analyst at SG Securities. "But if it isn't done in the next few days, anything could happen. It could all fall apart."

The market hedged its bets on Friday. While L&G shares jumped 9 per cent to 205.25p, NatWest shares tailed off 68p to 1,143p. "The price NatWest is offering L&G is a very full one," said Mr Rayner. "If a rival bid came in, I'm not sure they could go much higher."

The boards of NatWest and L&G each met over the weekend to review the proposed link-up. Smoke signals coming out of both camps suggested an announcement could come as early as tomorrow.

If the deal does go ahead, NatWest chairman David Rowland and chief executive Derek Wanless are expected to retain their jobs. L&G chief executive David Prosser is expected to assume command of the bankassurance group's UK retail operations.

"Prosser's position goes to the heart of the deal," said a person close to the talks. "Banks have not done particularly well in selling insurance products. This is because bankers have been in charge of insurance products that have not been that well designed. Under David Prosser you'll see assurance-led retail banking. You'll see new products. All this could create a great deal of value."

City analysts endorsed Mr Prosser's prowess. "L&G has an excellent record in recent years in terms of sales growth," said Chris Rathbone, an analyst at Williams de Broe. "They've done well on the investment management side and they have a multiple and good distribution strategy."

The City also approves of Mr Rowland, the suave, steely insurance broker who resuscitated Lloyd's of London after billions of pounds of reinsurance losses in the early 1990s.

Analysts note that Mr Wanless has long wanted to pull off a signature deal as NatWest chief executive, and after the sell-off of most of NatWest's investment bank two years ago will be particularly keen to make things work.

According to experts forecasting the consolidation of the European financial sector, the deal was not supposed to happen. A year ago they were looking for cross-border mergers between banks. They have also looked for a merger between NatWest and Barclays, until the consensus grew that the Government would not allow it on competition grounds.

The same experts raise the possibility, as one put it, of "the A's" - German insurer Allianz, French insurer Axa, or Dutch insurer Aegon - making a counterbid.

But people close to the talks judge this unlikely because a foreign bidder would likely have to mount an all-cash bid to win over City institutions. NatWest is expected to make a cash and stock offer. The bank is expected to raise between pounds 3.5bn and pounds 4bn by selling bonds and launching a rights issue to cover the cash portion of the bid.

Talks between NatWest and L&G were initiated four weeks ago by Mr Rowland, according to people close to the deal.

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