Hostile bidders target mutuals

CITY merchant banks are running slide rules over Britain's huge mutual insurance companies, advising hostile bidders on how they could appeal to policyholders directly over the heads of management.

Most middle-ranking mutuals with assets between pounds 4bn and pounds 14bn, including Clerical Medical, Scottish Amicable and Friends Provident, have been in sale or merger talks, with the fragmented industry ripe for consolidation in tough markets.

But progress has been slow, and the City thinks an all-out war is possible if interested parties, which include NatWest, the Halifax, GE Capital of the US and French insurer Axa, become frustrated. Any such move would follow Abbey National's pounds 1.3bn assault on the National & Provincial building society last year.

"Some of these boards are too comfortable and complacent. The most likely hostile scenario is if someone is abruptly turned away," said one corporate finance director at a top merchant bank.

Liverpool Victoria, Britain's biggest friendly society - a different type of mutual - with pounds 3.4bn of assets, was the centre of such talk last week. It was suggested that it might either attract an offer or splash out its pounds 650m cash pile on an acquisition. Shares in quoted insurers Refuge and London & Manchester raced as a result but LV dismissed the idea.

"The concept that someone could asset strip LV is ridiculous. The Friendly Societies Commission wouldn't allow it. We also don't want to roll the dice with some big deal. The reality is Refuge and L&M are not affordable," said chief executive Roy Hurley.

On Tuesday, Norwich Union is likely to disappoint policyholders with a fall in bonuses and no news on its possible pounds 2bn plus float, announced last October.

Norwich Union has one of the sector's highest costs, and analysts think flotation would be tough. However, the sale of its non-life business for up to pounds 500m might be an attractive alternative.

Sheer size, though, may save its pounds 33bn of assets from a bid. "It's too big. No one can swallow a pounds 2bn deal for a company like that. But they need to do something," said one takeover specialist.