Scottish Widows mulls pounds 4bn stock market float

SCOTTISH WIDOWS, the mutually-owned pensions and life assurance group, is considering a stock market flotation which could value the business at pounds 4bn and mean a windfall distribution of shares worth an average of pounds 2,100 to its 1.9 million policyholders.

The group has been working with Morgan Stanley, the investment bank, to evaluate its options. Widows has one of the best brand names in the long-term savings market and has rebuffed past approaches from Lloyds TSB, Prudential and Royal Bank of Scotland, with which it has close ties.

However, Widows' top management believes the group is big enough to go to the market on its own and would prefer the flotation route. On current valuations the group would easily make it into the FTSE 100.

Lawrence Urquhart, Widows chairman, said at the group's annual meeting in Edinburgh last week that mutuality was not a restrictive form of corporate structure, and the group intended to remain mutual as long as it served the interest of its policyholders. However, in what some see as a significant change in tone from previous declarations of support for mutuality, he added: "A company's corporate structure is a means to an end, not an end in itself."

As well as Morgan Stanley, Widows has also been advised by SBC Warburg, which did some preparatory work for Widows on demutualisation in 1996 about going to the debt markets as an alternative to flotation.

One banker said yesterday: "Morgan Stanley has been working with the Widows board about the prospects of doing something that will introduce more capital and provide some kind of transparency and commercial discipline. Whether or not it opts for demutualisation, the structure issue is going to be topical in view of the decision of the Bradford & Bingley to convert and the likelihood of the AA going the same way."

He added that the discussions were at an early stage and no final decision has been taken.

Widows is one of the best capitalised institutions in the sector and under no pressure to do a deal. However, with mutuals as far afield as South Africa, Canada and Australia all rushing to convert, Widows and its fellow Scottish mutual, Standard Life, are starting to look increasingly isolated.

The group has also been seeking to buy an established asset management group to bolster its investment position but has clearly been hampered by its mutual structure.

Orie Dudley, the ambitious American brought in to shake up Widows' investment side two years ago, has said that he wants the group to increase it assets under management from pounds 33bn to pounds 100bn over the next few years and believes that an acquisition may be necessary to achieve that.

The recent upset at the Bradford & Bingley building society, where members voted against the wishes of the board to convert, has also added to the pressure to look again at the question of remaining mutual. Many in the industry believe that it is in the interests of the Widows board to act while the group is relatively strong financially and can dictate its own terms for surrendering mutual status.

One investment banker said: "Mutuality does not mean very much when you are that big and 95 per cent of your policyholders are outside Scotland. Standard Life is also going that way and may want to pre-empt Widows."