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Legal & General boss Tim Breedon today cast doubt on the wisdom of takeovers in the insurance sector, calling into question the strategy of Clive Cowdery's Resolution.
Cowdery made a fortune buying ailing insurers and closing them to new business – turning them into so-called “zombie” firms in the process. He is trying to do something similar with his new Resolution vehicle, and may soon acquire Friends Provident. He will look to bolt on other firms later.
Breedon said life insurers are such complex ventures that mergers tend to be bureaucratic nightmares which take years to work through offering few gains to investors or customers.
“The benefits of consolidation are small. There are very few cost synergies or revenue synergies,” he said.
“It is just impossible to take business you have written in the past and transfer that activity to someone else's production line. Everyone's products are different.”
Some analysts think L&G is a plausible target for Cowdery.
“I cannot comment on what Mr Cowdery has in mind,” said Breedon. “But our view is that organic growth is the way forward. Market mergers are the wrong type of growth.”
L&G today reported half-year profit of £31 million – a big fall from the £391 million of last year – which largely reflects balance-sheet caution by the insurer. It has written down £351 million due to “negative investment variances”.
On the more closely watched measure of profit, L&G made £657 million, up 12%. That makes it possible for the insurer to pay an interim dividend of 1.11p, costing it £65 million – half the level of last year's payout, but in line with City forecasts. In trading, shares were down 4.0p to 61.2p.
Reader views (3)
So Alana and Alan think that L&G should disappear (both of you please learn how to spell properly) simply because it is boring.
Presumably she would prefer to invest in exciting companies that are rumbustious and take significant risks. Did your portfolios consist of Northern Rock, RBS, HBOS and so forth? Owning shares in those companies would certainly have given you sleepless nights besides large losses.
If that is the criteria on which you judge a company then you are both idiots of investors.
Equally would anyone notice or care if either of you disappeared or were rebranded? I doubt it.
- William, London, UK
ALANA IS RIGHT, LEGAL & GENERAL MUST BE THE PERFECT TAKE OVER TARKET.
- Alan Green, Woodford Green
L&G are one of the most boring FTSE companies. - This makes them PERFFECT fodder for a takeover, would any1 even notice or care if they disapeared and were re-branded. Unlikely. They have a terrible marketing image.
They have clearly already been subject to a takeover bid in the past, a few months ago, rumours were spread which lead to a massive fall in the company shareprice. This was clearly designed to instigate a takeover. Luckily L&G management skill managed to avoid it then. But who knows about the future ey!?
- Alana Cunningham, London
