BAT eyes life insurance targets

BAT Industries has considered buying the life insurance companies National Provident Institution, National Mutual Life or Scottish Equitable to beef up its provision of financial services products to independent financial advisers (IFAs).

The company identified the three groups last year as part of plans to shore up its main Eagle Star brand in the pensions market. But the tobacco to insurance giant is understood to have later cooled to this acquisition- led policy after market research showed IFAs were keener to deal with investment managers than life offices. The group has also been put off by the high value of around pounds 2bn currently being put upon Scottish Amicable by competing offers for the mutual insurance group.

The three target groups are named in a strategic review drafted by BAT in the run-up to the launch last July of British American Financial Services, the umbrella under which the insurance to fund management operations are now grouped. That saw BAT, headed by Martin Broughton, the chief executive, unveil plans to use its Threadneedle fund management operation to spearhead its attack on the IFA market. The first retail funds under the Threadneedle name are due to be launched in the third quarter, with a range of unit trusts.

Michael Prideaux, head of public affairs at BAT, said he could not comment on information that had been "improperly obtained". He went on: "British American Financial Services has ambitions in the IFA sector, there is no secret about that. The IFA sector is the fastest growing part of the market, where we are under-represented. We have got some quite interesting plans for dealing with that. Whether an acquisition forms part of that or not remains to be seen."

The risks of overpaying in that area were readily apparent, he said. They remained interested in a building society he added, "but it is not worth paying a great price to get into the business. You can end up getting bigger, but not necessarily better."

Late last year it was reported that BAT had been in talks to merge its Eagle Star and Allied Dunbar insurance operations with Commercial Union as a prelude to demerging the financial services business. Those talks appear to have come to nothing, but many in the City believe BAT may still be on the look out for an acquisition to give critical mass to BAFS, prior to spinning it off. Splitting the group in two is seen as a way of dealing with the growing clamour for the tobacco side to settle the long-running court battles over smoking-related diseases in the US.