Cox in talks to buy rival motor insurer Highway

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The Independent Online

Cox Insurance Holdings, the motor insurer, yesterday revealed it was in talks to buy out its smaller rival Highway.

Cox Insurance Holdings, the motor insurer, yesterday revealed it was in talks to buy out its smaller rival Highway.

The company said it was in early discussions on an all-share deal for Highway, a motor insurer with a market value of about £76m. The talks are thought to have started last month.

Cox will be able to make significant cost-savings from consolidating with Highway. In the wake of a £125m loss from the 11 September attacks on the World Trade Centre, Peter Owen, its executive chairman, pulled the company out of writing high-risk commercial insurance such as nuclear, property and aviation policies. Its liabilities were ring-fenced and the company underwent a significant restructuring.

It raised £73m in April 2002 to set up its motor business and losses of £241m in 2001 were turned into a profit of £42.7m. It is now the eighth largest motor insurer in the UK but has long been seen as a potential takeover target, as has Highway.

Highway, too, has undergone a radical change, exiting the Lloyd's of London market to set up on its own. It has always been a pure motor insurer, and found the Lloyd's market expensive and risky.

Highway's shares closed up 4p at 37.5p, and analysts believe Highway should be able to demand a small premium on its share price for the business. It reported its full-year results yesterday, which disclosed a pre-tax profit of £21.9m, up from £1.1m in 2002. Premiums almost doubled to £249m, from £134m, and the board said its outlook for this year was good. It will pay a final dividend of 1.68p per share.

In December 2002, Peter Wood, the insurance entrepreneur who created Direct Line, backed a management buyout of Cox that valued the business at up to £300m. The bid was rejected by Mr Owen as undervaluing the business, which is now valued at £271m.

Cox said yesterday a decision on whether to take over Highway would depend on completing due diligence.

Cox said the "preliminary discussions" with Highway aimed to "explore the business rationale for combining their respective businesses."

It has called in the investment bank Goldman Sachs to handle the deal while Highway is being advised by Lexicon Partners.

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