Takeover approach from Catlin sends Wellington stock up 17%

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The Lloyd's of London insurer Wellington Underwriting revealed it had received an unofficial cash and shares offer from larger rival Catlin yesterday, sending its shares up 17 per cent to a five-year high.

The group confirmed market rumours yesterday afternoon, after its shares had put on more than 7 per cent. In a short statement, the company said discussions with Catlin - founded by Stephen Catlin in 1984 - were ongoing, and that shareholders would be updated in due course.

"The board will need to be satisfied, inter alia, that the business plan for the enlarged group is likely to deliver greater value to Wellington shareholders than Wellington's standalone strategic plans," it said. "In the absence of an offer which satisfies this requirement, Wellington will continue to work towards the delivery of its stated strategic objectives as set out in its interim results for the six months ended 30 June 2006."

The statement reignited hopes of consolidation in the Lloyd's sector, bumping up the shares of several other underwriters, such as Hiscox, Chaucer, Atrium and Kiln.

Wellington has been considered a potential takeover target since it was pushed into the red by a string of heavy hurricane claims at the end of last year. But investors have long speculated that consolidation is overdue.

Last year, Amlin held takeover talks with Chaucer, which were subsequently abandoned. Weeks earlier, Chaucer had made a bid for its smaller rival Highway. Two years ago Michael Wade launched a company backed by Warren Buffet, with a view to kickstarting consolidation in the sector. However, the project was abandoned.

Gerald Farr, a Seymour Pierce analyst, said a Wellington-Catlin tie-up could bring significant savings: "There is likely to be a big overlap in terms of the two top lines but I don't think that either of them is a big enough player for a merger of the two to mean an automatic loss of business."

Shares in Wellington closed up 17 per cent at 113.75p, giving the company a market value of £554m. Shares in Catlin also rose, climbing 2 per cent to 497.5p, for a value of £814m.