Nationwide Mutual surprises City with £1.03bn Gartmore purchase

Gartmore, the fund management group, has been sold to Nationwide Mutual, America's sixth-largest life insurance group, for £1.03bn.

The price tag, which is substantially more than the £600m first mooted when Gartmore was put up for sale last September, came as as a surprise to the City, as did the identity of the buyer. Although Ohio-based Nationwide is the third-biggest seller of 401(K) tax-free retirement plans in the United States and had been looking to for a foothold into the European long-term savings market for some time, it is little known in the UK and had not featured in most lists of prospective buyers.

Gartmore was put up for sale last autumn by its previous owners National Westminster Bank in an attempt to fend off a hostile bid from the Bank of Scotland. Royal Bank of Scotland, which won the battle for NatWest last month, has continued the auction process.

The fund manager had been expected to go to CGU, which helped foot the bill for RBS's NatWest bid. Nationwide also fended off stiff competition from others, believed to have included Italy's Unicredito, Credit Suisse First Boston, Robeco, the Dutch co-operative bank, and Old Mutual, the South African life insurance group.

RBS shares rose 26.5p to 880.5p in a sharply falling stock market yesterday, in recognition of what City analysts called a "pretty full price".

Staff are expecting to hear shortly about details of a new long-term incentive plan to lock them into the business.

Paul Hondros, the head of Nationwide's existing fund management operation Villanova Capital will join Gartmore's board. He dismissed suggestions that Nationwide had overpaid, saying that the price reflected both the quality of the operation and its scarcity value. "We looked long and hard. We passed on firm after firm. Then Gartmore came on the market. We first looked at them in November. The more we saw of them the more we liked. We think we paid a pretty fair price."

Nationwide, which has $115bn of assets under management, will start work immediately on completion of the deal to come up with Gartmore products to market in the US.