Sun Alliance drops its designs on CU

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The Independent Online
SUN ALLIANCE, the UK's largest general insurer, has abandoned its possible ambitions to acquire the rival Commercial Union insurance group, with the sale of a block of 60 million shares for around pounds 280m.

Sun Alliance retains a token stake of 0.77 per cent in its rival. Sun Alliance moved into Commercial Union in a significant way in 1989 when it acquired a 13 per cent stake from Adelaide Steamship, the Australian retail group.

At the time Sun Alliance said the acquisition was 'a sound long-term investment,' and that it did not intend to make a full bid.

In the City yesterday analysts felt that Sun Alliance's disposal had been prompted because the group had failed to transform the investment into its overall objectives of a a full takeover.

Sun Alliance paid an average price of 465p a share for its original Adelaide stake and sold at an implied price of 467p a share.

Part of the sale was prompted by the rising status of Commercial Union, whose management has made a substantial improvement.

By contrast Sun Alliance has been hit by its involvement in domestic mortgage indemnity business, which insures mortgage lenders against losses on their sales of repossessed properties. Sun Alliance reported pre-tax losses of pounds 97.9m for the six months ending June, compared with pounds 114.1m at the halfway stage in 1991. Losses on domestic mortgage indemnity business were estimated at pounds 108m.

Commercial Union reduced its losses in the first six months of this year from pounds 26.3m to pounds 18.1m.

The block of 60 million shares has been disposed of throughout the market rather than passed to a single buyer. Cazenove and Smith New Court, the securities group, carried out the disposal.

Sun Alliance said that the proceeds of the sale would go towards reducing short-term borrowings. Sun Alliance shares rose 10p to 273p, while Commercial Union was unchanged at 489p.

When Adelaide Steamship acquired its stake, it was widely thought in the City that the deal had been done to flush out another buyer.

Adelaide Steamship's approach was believed to have been modelled on the approach by Sir Ron Brierley, the New Zealand entrepreneur, when he invested in Equity and Law, another British insurance group, resulting in a full takeover of Equity & Law by a large French group.