1,700 jobs face axe as Aviva unveils £1.1bn swoop for RAC

The RAC motoring business was today set to become part of insurer Norwich Union after backing a £1.1 billion takeover that could threaten up to 1,700 jobs.

The RAC motoring business was today set to become part of insurer Norwich Union after backing a £1.1 billion takeover that could threaten up to 1,700 jobs.

Norwich Union owner Aviva said the proposed tie-up with RAC would create a "powerful new force" in the UK insurance and motoring services industry.

However, the deal will come at a cost to the combined UK workforce of 24,000, which Aviva said it planned to reduce by 1,700 through the removal of dual roles and the use of administrative offices overseas.

The board of RAC, which announced yesterday it had received an approach, has unanimously backed the proposal, which now requires the approval of shareholders. It is still possible that a rival offer could materialise.

The tie-up will provide Norwich Union's general insurance subsidiary with access to RAC's 2.2 million individual roadside members and an additional 4.5 million corporate customers.

The two companies already have a relationship as the RAC has provided services to Norwich Union's own branded roadside assistance service. The deal will also realise the potential of the RAC brand in insurance and financial services, an area the motoring company recently said it was looking to expand in.

Although it is traditionally known for its roadside recovery service, the RAC's portfolio of businesses ranges from the BSM driving school to travel insurance and vehicle leasing.

It has about 275,000 motor and home policyholders under the RAC Insure brand, while its business services arm includes Lex vehicle leasing - a joint venture with HBOS offering contract hire, fleet management and car finance services.

Today's move comes less than a year after rival the AA was bought by a private equity consortium for £1.75 billion.

The RAC was a private members' club for nearly a century until it was bought by listed car hire company Lex for £437 million in 1999, resulting in £34,000 windfalls for its 12,000 full time members.

Aviva said about 900 jobs were expected to go through the combination of support functions, with another 800 lost through the offshoring of office jobs.

The combined number of staff involved in today's proposed acquisition is about 24,000, including Norwich Union Insurance sites at Norwich, Worthing, Sheffield, Perth, Glasgow and Liverpool.

The company anticipates cost savings of at least £80 million a year from the deal in 2006. It will retain the RAC and BSM brands.

Aviva is the world's fifth-largest insurance group with its Norwich Union Insurance business holding a 14 per cent share of the UK general insurance market.

Today's deal was announced as Aviva said worldwide operating profits rose 25 per cent to £2.34 billion in 2004.

Chief executive Richard Harvey said the figures showed Aviva was "thriving" with the takeover offering potential to "create significant value" for shareholders.

He added: "It enhances the strategic position of Norwich Union Insurance and accelerates its growth plans in a changing market place."