Sun Life leaps as Axa opens talks on full buyout

Shares in Sun Life & Provincial surged yesterday after Axa, the world's biggest insurer and Sun Life's controlling shareholder, said it was in talks with the non-executive directors about a possible offer for the 43.7 per cent of the group it does not currently own.

Shares in Sun Life & Provincial surged yesterday after Axa, the world's biggest insurer and Sun Life's controlling shareholder, said it was in talks with the non-executive directors about a possible offer for the 43.7 per cent of the group it does not currently own.

The company, which took over Guardian Royal Exchange last year to become Britain's third-largest general insurance group, said the statement was prompted by a rise in its shares over the past few days which had led to speculation that such a move was afoot.

However, it insisted that the talks were at a "preliminary stage" and there was "no certainty that any agreement would be reached".

Analysts believe that an offer would have to be pitched at at least 450p a share to succeed. Sun Life shares rose 129p yesterday to close at 457p. But some were sceptical about whether the talks would succeed.

Roman Cidzyn, an analyst at Merrill Lynch, said: "I would be surprised if they did. The fact that Axa can offer UK listed paper via Sun Life has meant that have been able to make acquisitions in the UK in a way that other continental European insurers have not. I can't see them wanting to give it up."

He said that with the collapse in Sun Life's share price, Axa had to look at a buyout. The shares have fallen 62 per cent over the past two years, reaching a three-year low of 256p last week - putting the group in danger of being ejected from the FTSE 100 index. But, with the shares back above £3 before the announcement yesterday, the pressure has already eased.

Axa has adopted a similar corporate structure in other key markets. In the United States it is the controlling shareholder in Equitable, a quoted life insurance company, and in Australia it owns a majority of National Mutual. It also has a majority stake in Donaldson, Lufkin, Jenrette, its New York-listed investment bank.

However, it is seeking to move to a single global insurance brand, using its sponsorship of the FA Cup to boost the profile of the Axa brand at the expense of Sun Life.

The non-executive directors are Lord Douro, the chairman, Strone Macpherson, Sir Christopher Mallaby David Nash and Nigel Stapleton.