Old Mutual in £3.2bn takeover talks with insurer Skandia

The South African insurance group Old Mutual confirmed yesterday it is in talks to buy the Swedish insurer Skandia, which has a fast-growing life business in the UK.

The South African insurance group Old Mutual confirmed yesterday it is in talks to buy the Swedish insurer Skandia, which has a fast-growing life business in the UK.

The company, which is listed in London and Johannesburg, said discussions with Skandia - valued at about £3.2bn - were at an early stage.

The tie-up would create a group valued at more than £8bn and would mark a new chapter for Old Mutual, which has no business in Scandinavia. For the past three years it has been looking to acquire life funds in Britain to build up its small operations here, but has struggled to find the right target. It has been more successful at expanding in the United States as it seeks to lessen its reliability on its core but relatively mature South African market, which accounts for three-quarters of group profits.

A deal with the Swedish insurer would finally provide the "third leg" Old Mutual has been looking for. Jim Sutcliffe, its chief executive, has said the company has a war chest of £1bn, and so it would have to issue new equity and possibly debt to fund a Skandia bid. Analysts were sceptical about the mooted price of 50 Swedish kronor (£3.70) a share, reported in a Swedish newspaper, and suggested that Skr40-45 was more likely. Skandia shares rose 20 per cent to Skr41.9 yesterday.

Some analysts and fund managers failed to see the merits of a takeover of the troubled Swedish company. Many said it was unlikely that Old Mutual would hold on to Skandia's Swedish operations, which have been losing market share since a scandal over excessive bonuses and management perks forced out its top management in 2003. It was also involved in the "market timing" investigation by US authorities, who examined the buying and selling of mutual funds by Skandia's US business, sold to Prudential Financial in 2003.

Skandia's recent "distress valuation" has made it a takeover target, with speculation fuelled by stakes being bought by the acquisitive Icelandic bank Kaupthing, the Swedish venture capital fund Cevian Capital and the US investor Carl Icahn. Other insurers with UK operations, such as France's Axa, Friends Provident and Zurich Financial Services, might also be interested in Skandia's UK business, valued at £1.5bn.