Standard Life, Europe's largest mutually owned insurance company, has rejected takeover proposals from several suitors including Resolution Life in favour of an independent stock market flotation that would trigger windfall payments to almost 2.5 million members and value the business at up to £5.5bn.
All the approaches received by Standard were worth less than the value members would realise from a demutualisation and subsequent flotation, Sandy Crombie, the chief executive, insisted yesterday.
Nearly 4.5 million Standard policyholders will receive details of the insurer's proposals this week after one of the largest postal projects ever managed by the Royal Mail. More than 2.4 million policyholders are eligible to vote on the demutualisation, with the insurer requiring the backing of 75 per cent of members who return their ballot papers for the proposals to take effect.
Standard expects to have a market capitalisation of £4.8bn-£5.5bn when it floats in July, including £1.1bn in new capital the insurer plans to raise if it can convince investors of its recovery. Members have until 28 May to vote on the proposals, with the result to be announced at a special meeting in Edinburgh on 31 May. Assuming Standard wins the vote, eligible members will receive free shares worth an average of £1,700, though the figure is skewed by some very large windfalls for long-standing members and those with sizeable policies. A small number of corporate members will receive shares worth more than £100,000.
All eligible members will receive a basic distribution of 185 shares in Standard, which its advisers, Merrill Lynch and UBS, expect to be priced at 240p-290p when the company comes to market. The vast majority will also receive an additional shareholding, the size of which will depend on how long their policies have been held and the size of the plans.
Standard said about half its members would receive shares worth £490-£1,000, substantially less than the windfalls of £6,000-£7,000 policyholders stood to receive if they had voted for demutualisation in 2000, the last occasion on which they were balloted.
Six years ago, Standard fought bitterly to stay mutual, fighting off a campaign led by the Australian member Fred Woollard. Mr Woollard said yesterday the smaller windfalls on offer this year vindicated his campaign. "I think it is very sad for all the policyholders that the value of the company has shrunk so badly in the last six years," he said.
While a stock market collapse in 2001 and 2002 would have substantially reduced the value of a demutualisation if members had voted in favour of the proposals six years ago, Mr Crombie admitted the company had subsequently been forced to restructure after a disastrous period for investment returns. "Demutualisation and flotation will unlock value for eligible members and give us access to external capital," he said.
Figures released alongside the demutualisation proposals showed the extent of the insurer's recent problems. Standard lost £340m in 2004, after a period during which it paid large commissions to independent financial advisers to acquire new business.
In January 2004, shortly after replacing Iain Lumsden as chief executive, Mr Crombie said the company would cut commissions and shift to higher-margin products. Standard said yesterday the strategy had begun to pay off, with a £152m profit last year after a shift to single premium business and the launch of products such as the company's successful self-invested personal pension.
However, the independent insurance analyst Ned Cazalet said the jury remained out on whether Standard had turned the corner.
In the meantime, Standard remains vulnerable to bidders, though Sir Brian Stewart, the chairman, said: "We are determined not to allow other parties to take advantage of our members".
Last night, AIG of the US, AXA of France and Allianz of Germany, which have been linked with bids for UK life insurers, refused to comment on speculation they could be interested in a deal. Aviva also refused to comment.
The demutualisation in numbers
2.4 million Members eligible to vote on the deal and receive windfalls, making this the second-largest demutualisation in history behind Halifax, which had 9 million members at the time it demutualised in 1995.
3.77 million Documents, each weighing 300 grammes, that the Royal Mail will deliver to members this week. The total mailing will weigh 1,131 tonnes, the equivalent of 70 articulated lorry loads.
£158m Cost of the demut-ualisation process, excluding fees and commissions to be paid to advisers during the flotation.
£1,700 Value of the average windfall members will receive compared with between £6,000 and £7,000, the windfalls members stood to receive in 2000, the last time they voted on demutualisation.
£100,000+ Value of the largest share distributions under the proposals, which will go to a small number of pension fund trustees and individual policyholders.
£5.5bn Estimated maximum market capitalisation Standard will achieve when it floats on the stock market. Includes £1.1bn of new money it hopes to raise from investors.
£152m Profit before tax attributable to shareholders in 2005, up from a loss of £340m in 2004.
£1,362,000 The chief executive Sandy Crombie's pay and bonuses during 2005, up from £606,000 in 2004.
75% Proportion of 'Yes' ballots required from voting members for the demutualisation to go ahead.Reuse content