Countrywide and Friends in £275m savings alliance

Countrywide Assured, Britain's biggest estate agency chain, yesterday struck a £275m deal with Friends Provident to sell its insurance policies while announcing it was quitting the savings business to focus on growing its real estate operations.

Countrywide will acquire the life insurer's network of 104 estate agencies for £21m, as part of the deal, taking its market share to about 8 per cent.

Christopher Sporborg, Countrywide's chairman, said: "It's a win-win situation for both of us. We are giving up the manufacture of life products and are concentrating on our core strength, which is distribution."

The 15-year agreement tying Countrywide to Friends Provident is expected to generate total payments of about £250m, in addition to a £25m lump sum payment upfront.

Mr Sporborg said the company would use the "significant" extra free cash flow to fund acquisitions and share buy-backs, and to raise the dividend, starting with a £20m programme to repurchase 5 per cent of its stock.

Friends Provident said that in addition to selling its mortgage-related protection policies it hoped to sell other life, pension and investment products to Countrywide's 168,000 mortgage clients. The deal is expected to enhance the group's earnings in 2003.

The life insurer added that in the wake of the City regulator's plans to depolarise the market for financial advice it would seek further tied distribution deals.

Analysts welcomed the move by Countrywide. Robin Savage, at WestLB Panmure, said: "This is a deal which shareholders should be delighted with."

Countrywide also reported a 56 per cent jump in half-year pre-tax profits to £35.8m, helped by the runaway rise in house prices. Profits at its estate agency division, which comprises more than 700 branches, soared by 146 per cent to £15.5m, while its margins rose from 6.8 per cent to 14 per cent.

Harry Hill, the managing director, said that despite the near 20 per cent rise in house prices the rate of increases was slowing down. "We guess that the rate will stay low and that house prices will move ahead by 10 per cent next year."

Falling stock markets hit the group's life assurance division, where the key industry benchmark of achieved profits plunged to a loss of £9.1m against a £12m profit a year earlier after policyholders stopped topping up their policies. Countrywide increased its interim dividend by 17 per cent to 2.05p.

The group's shares ended up 1p at 153.5p. Shares in Friends jumped 2.5p to 154.75p.