Revised deal could end stalemate on Refuge merger

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Refuge's planned pounds 1.4bn merger with United Friendly, which has been bogged down for weeks over rows with institutional shareholders, appeared to be making some progress towards a conclusion last night.

Britannic and Prudential, which have 10 per cent and 6 per cent stakes respectively in Refuge, said they would back a revision to the deal that resolves a dispute over the value of so-called orphan assets.

Orphan assets - a surplus on life funds - are a common problem for insurance companies, both in terms of valuation and in attributing ownership to them.

Refuge now plans to issue a new security which aims to put a value on the orphan assets. Each Refuge shareholder will receive three new securities for every one Refuge share, which will be convertible into ordinary shares of United Assurance - the intended name of the merged company.

However, a shadow is still cast over the merger by Perpetual, the fund manager and a big shareholder in Refuge, which says it has yet to make up its mind about the revised deal.

Neil Woodford, a senior fund manager at Perpetual who robustly objected to the original merger terms, was unavailable for comment yesterday.

While he was said to be encouraged by Refuge's new approach to the orphan assets, he apparently still harbours some reservations. Sources close to Perpetual said he would probably make a firm decision on whether or not to sanction the revised deal later this week.

Paul Dayus, assistant investment manager at Britannic, said he had always understood the logic of the merger. "We believe these new terms... have addressed a potential problem," he said.

John Cudworth, chief executive of Refuge, said the special securities would have a life-time of six years which could be extended for another two years.

"I am confident that the issue of the new security satisfies the concerns raised by our major shareholders and I look forward to the completion of the merger," Mr Cudworth said.

The new securities will not be listed but will be transferable and Mr Cudworth thought itpossible that some of the large market makers may be prepared to make a market in the shares.

Refuge, which has so far had only a tiny amount of acceptances for the deal, will call an extraordinary general meeting for later this month to vote on the merger and the issue of the new securities.

Most of United Friendly's shareholders have accepted the deal.

Refuge's interim results, also released yesterday, showed ordinary periodic premium business rose 14 per cent in the first half of 1996, reaching pounds 7.9m. Industrial business, though, fell 6.1 per cent.