Royal & Sun dismisses CGU merger talk

ROYAL & SUN Alliance, the insurance group, yesterday dismissed suggestions that it needed a merger following reports it was being targeted by rival CGU.

Both companies declined to confirm or deny whether they were in talks over a possible pounds 10bn offer for RSA. Such a merger would create a global insurance group with a market capitalisation of pounds 22bn.

"It is RSA's strategy to become a global business by acquiring parts of businesses which get us to a certain size," said a company spokesman, Malcolm Gilbert.

"[A merger] would not be about us growing by acquisition. We are in a new phase following last year's merger. Insurance companies are not like manufacturing companies and progress takes time. The City understands that."

RSA said it would make an announcement to the stock exchange only if its brokers advised it to do so following a significant rise in its share price.

CGU yesterday said it was looking to grow its life insurance and savings businesses, and improve the quality of its insurance products.

Both groups were formed from recent mergers and are headed by strong personalities, making any recommended offer unlikely.

Bob Scott, who moved from General Accident to become CGU's chief executive upon its merger with Commercial Union last year, is dubbed "Hurricane".

Bob Mendelsohn, Royal & Sun Alliance's chief executive, was installed to revive the group following the departure its deputy chairman and chief executive in 1997.

The insurance business is undergoing a wave of consolidation. CGU was previously said to be eyeing up a deal with Scottish Widows, the life insurer which last week agreed a takeover by Lloyds TSB.

RSA last week acquired a Swedish insurance company for pounds 136m. A CGU-RSA tie- up would create a global insurer with almost 100,000 employees.

RSA's shares closed up 6.5p at 540.5p on Friday. CGU's closed down 14p at 920.5p. The shares have fallen from over 800p since its merger in 1996 following a series of disappointing results.

The City is concerned that the integration process has not been successful.

The lacklustre performance of the shares suggests the City does not see it as a takeover target.