Equitable blow is Axa takeover cue

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By Melanie Bien

By Melanie Bien

23 January 2000

Axa Sun Life is eyeing up Equitable Life as a takeover target after Friday's surprise Court of Appeal ruling made the old mutual insurer vulnerable to a bid.

The Court of Appeal ruled that Equitable's decision to reduce final bonuses for 90,000 guaranteed annuity policyholders was unlawful. The shock judgement overturned last September's High Court ruling that Equitable had been within its rights to adjust its value.

"The venerable old life assurer may have made itself vulnerable to being bought out," said Peter Quinton, managing director of The Annuity Bureau, an independent annuity specialist. "The first time this went to court there were rumours that it could be taken over, which died down. But they are starting to surface once again."

Any rival insurer making a bid for Equitable would need a large capital base to cover the mutual's liabilities, particularly the estimated £1bn needed to meet the cost of terminal bonuses and guaranteed annuities.

Analysts predict that Axa is the front-runner, especially as chief executive Mark Wood has long admired Equitable for its strong brand name and good client base - weighted towards professionals such as accountants, doctors and dentists, who are considered to be at the high end of the market.

"We are an acquisitive group and are more likely to bid for a life insurer than anything else," agreed an Axa Sun Life spokesman.

Policyholders were promised annual returns of 11 per cent plus a terminal bonus that could work out at a third of each individual's total pension fund. In trying to wriggle out of paying guarantees, the life assurer has alienated thousands of customers and must now undertake an exercise in damage limitation.

Many customers will feel that Equitable has destroyed their trust, by backtracking on promises made. Warburg Dillon Read analyst Roger Hill said the news severely weakened Equitable's chances of fighting off a predator.

"Equitable always comes top of the desired list," he said. "It is an attractive franchise and there has been lots of interest."

Equitable has announced that it will challenge the judgment in the House of Lords.