Hostile bid from Australia threatens Lloyd's merger insurance merger

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The Independent Online

Attempts by Limit, the Lloyd's insurance underwriter, to pull off an agreed all-share merger with rival Wellington were thrown into disarray yesterday after QBE, Australia's fourth-largest insurer, made a £320m hostile cash bid for the group.

Following the approach, which caught Limit completely off guard, the board has agreed to open talks with QBE in an attempt to secure a higher offer. The Limit board is, however, insisting on pursuing its merger plans with Wellington in the meantime. Limit has also asked HSBC, its advisers, to see if there is any interest elsewhere in a higher bid for the group.

QBE's offer comes more than six months after an earlier £500m bid by QBE for Limit, which was rejected last September. Since then Limit's shares have continued to slide.

After the rebuff, the Australian group bought Iron Trades, the UK's fifth largest employer liability insurer, for $283m last December.

The Limit board said yesterday it still believed the deal with Wellington was the best option, despite the fact that shareholders controlling some 30 per cent of the company have indicated their support for the QBE bid.

QBE's advisers Merrill Lynch have also approached Wellington for information under rule 20.2 of the Takeover Code, but have refused to respond to Wellington's requests to explain the nature of its interest in the group.

In a statement to the Stock Exchange yesterday, Limit said it believed the QBE offer significantly undervalued the group. It pointed out that the offer of 120p a share was well below the year-end net asset value of 160.1p. Limit also claimed that the merger with Wellington would create cost savings equal to half of the combined 1999 earnings of the merged group. However, it accepted that "certain of its institutional shareholders would welcome in the short term a cash offer for their current Limit shares." The shares closed up 37p at 117.5p.

But analysts said that with little obvious appetite among institutions for Limit's merger with Wellington, that deal was effectively dead. Since the Wellington deal was announced in late March, the market capitalisation of the two groups had fallen from £370m to £320m. Limit's shares had fallen 10 per cent while Wellington's had lost 20 per cent.

Ian Agnew, Wellington chairman, said last night he believed the merger with Limit would "create an impressive independent Lloyd's and international insurance business".

Undertakings in support of the deal had already been made by shareholders representing 40.9 per cent of Wellington's capital. But Mr Agnew said that Wellington would withdraw its support for the merger if it became clear that it was no longer in shareholders' best interests.