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NatWest to bid $17B for L&G
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September 3, 1999: 5:10 a.m. ET
U.K. banking group plays catch-up with bid for life insurer; offer due next week
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LONDON (CNNfn) - Britain's National Westminster Bank announced Friday it's in talks to buy U.K. life insurance and pensions group Legal & General which could lead to an bid valued by analysts at around $17 billion.
Legal & General, Britain's sixth-largest insurer, has been surrounded by bid talk for several months. NatWest had also made it clear in recent weeks that it wanted to beef up its underperforming asset management business.
NatWest's move was prompted by the $11.2 billion takeover in June of another insurer, Scottish Widows, by Lloyds (LLOY), Britain's largest bank.
Analysts acknowledged the strategic logic of NatWest's move, but warned that it may be overpaying to boost its small existing fund management business.
NatWest's planned bid for L&G, estimated to be worth 210 pence a share, mostly cash, would value the deal at 10.6 billion pounds ($17 billion). The offer, expected to be officially launched next week, would represent a premium of around 20 percent on L&G's closing price Wednesday.
John Kirk, banking analyst at Fox-Pitt Kelton in London, said the deal was essentially a defensive one following the Lloyds/Scottish Widows transaction. He also warned that the price could destroy value at NatWest, with return on investment pulled back to 5.5 percent compared to its existing 6.6 percent cost of capital.
Legal & General will give NatWest access to a range of low-cost pension and savings products which have proved popular following U.K. government initiatives to shift the burden of pension provision from the state to the private sector.
NatWest's retail network would provide a good distribution network for the products, said analysts.
Legal & General (LG) shares jumped 10 percent to close at 192.5 pence in London Thursday. NatWest (NWB) was off 2.4 percent at 1,211 pence following a widespread sell-off in banking stocks.
NatWest sold the bulk of its investment banking business in 1997. The bank had been pursued by Barclays, the U.K.'s second-largest bank, but a deal risked being shot down by regulators because of their dominance in banking services for small businesses. 
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