Resolution in bid to buy Abbey life funds

Published on Thursday 4 May 2006 01:49

RESOLUTION has entered exclusive talks with Abbey National to create a £4 billion life insurance giant based in Glasgow - a move that could threaten hundreds of jobs across the city.

The "closed book" specialist - which recently had a tilt at Standard Life - said it wanted to buy the entire UK and offshore life businesses owned by Abbey, which includes the historic brands Scottish Mutual and Scottish Provident. The move was long expected of the fast-growing Resolution, which would be catapulted into the FTSE 100 if it secured the deal.

The combined firm would manage life funds of 67bn - up from the 38bn already controlled by Resolution under the former Britannic Asset Management arm in Glasgow. The Abbey Life businesses would also bring access to holders of four million policies, and just under 2,400 Glasgow employees.

Abbey bought Scottish Mutual in 1992, adding Scottish Provident eight years later in a 1.8bn deal. Both were part of a run of companies to lose their mutual status, leaving only Standard Life - currently working towards a July flotation valuing it at 4.8-5.5bn.

Specialist firms such as Resolution and Pearl have been keen to buy closed funds at a discount, cut administrative costs and profit from economies of scale.

Though policyholders must be concerned over consistency of investment management and the quality of attention paid to underlying portfolios, the predators claim they deliver greater returns. Policyholders, they say, benefit from higher bonuses and easy access to independent financial advisers.

Neither party would comment on the potential deal, other than to confirm the exclusive talks. But Hugh Scullion, a regional officer of private sector union Amicus, said there was concern about the workforce. "We will not tolerate any compulsory redundancies," he said. "Amicus is seeking an urgent meeting with Abbey for clarification of its future direction."

Abbey was bought by Spanish bank Santander for 8bn in 2004, and has since slashed overheads by cutting 4,000 jobs across the UK. Analysts have long noted that Scottish Mutual and Scottish Provident were non-core to the overall business. But the bank has always insisted that they were not being touted for a sale.

The most recent decision to retain control came in February, after the completion of a strategic review by the since departed industry veteran Paul Bradshaw. But it is understood Santander has recently been approached by numerous potential buyers.

Sources at smaller rival Pearl Group, owned by entrepreneur Hugh Osmond, said the battle was not over yet. "If invited, Pearl would be interested in participating," the source said.

Resolution shares rose 5 per cent or 32.5p to 662.5p. Man Securities analyst Peter Eliot said a successful deal would add 100p to the group's share price. "This does not come as a surprise to us," he said. "We have said that Resolution was ready to do a big deal and that Abbey's funds were one of the most likely candidates."

He added that the mooted 4bn price-tag was at the top end of expectations but sources close to Resolution noted that not all of Abbey's life arm is closed to new business - inflating the value. Scottish Mutual closed to new business in 2002. But parts of Scottish Provident and Abbey National Life remain open.