Royal London wins bid battle for Scottish Life

Royal London, the mutual life assurance company, yesterday clinched victory in the hard-fought bid battle for Scottish Life, with an agreement to pay £1.1bn for the Edinburgh-based mutual insurer.

Royal London, the mutual life assurance company, yesterday clinched victory in the hard-fought bid battle for Scottish Life, with an agreement to pay £1.1bn for the Edinburgh-based mutual insurer.

The deal will trigger windfalls for Scottish Life's 220,000 members and some other with-profits policyholders who are not members. The payout will be a minimum of £500 for members, but the average windfall will be £4,000 overall.

In securing the deal, Royal London has seen off advanced offers from the friendly society Liverpool Victoria, GE Capital and at least one other bidder.

Scottish Life, which was advised by Morgan Stanley, said yesterday it decided to take up Royal London's offer after considering the bids over the weekend and after further discussions with interested parties that went on late into the night on Sunday.

While it is understood that some bidders offered more than Royal London's price of £1.1bn, a Scottish Life spokesperson said: "We chose this because it was a clear offer. Some of the others were related to performance."

However, analysts questioned whether Royal London had paid too much for Scottish Life, and said that the Colchester-based mutual might find it hard to make the deal pay.

Under the terms of the purchase, Royal London values Scottish Life's existing business at £409m and its residual reserves at £286m. On top of that it is paying £405m for goodwill.

Mike Yardley, chief executive of Royal London, denied that the goodwill sum was too high. He said: "Goodwill is not just about future business but also possible business, which we believe will increase dramatically with the capital injection we are putting in."

He also added that speculation that the deal would leave Royal London open to bid attack was unfounded. "I believe that strong businesses going forwards are ones that position themselves well strategically. We have done this."

Royal London, which now mainly sells policies through home visits, will gain access to Scottish Life's independent financial advisor network.

Scottish Life's chief executive, Brain Duffin, said his company gained "access to capital", which would allow it to enter the group stakeholder pension market, although it would not sell individual policies.

The two said the combined company would have £30bn of assets under management and the possibility to cross-sell products to 3 million customers.

However, Royal London may also face criticism from its members as the £1.1bn price tag will be paid from its reserves to non-members of Scottish Life as well as to members.

All Scottish Life members will receive a basic pay-out of £500. Those with qualifying with-profits polices will receive an addition to the reversionary and terminal bonus. Scottish Life members will have to vote on the deal at an extraordinary general meeting next year.