UK mutual insurer Standard Life has rejected an all-share merger proposal from an unidentified suitor, it said today, as it vowed to press ahead with Britain's biggest initial public offering for five years.
Europe's largest mutual insurer, which has about 95,000 Irish policyholders, said it had received a number of approaches, including requests to take a significant shareholding in the business, but had turned these down as well.
Standard Life, set to become the fifth largest UK-listed life insurer, has been seen as a possible target for a takeover even before its expected market debut in July, though analysts have said that high valuations in a sector fizzing with merger speculation could dampen deals.
Competition in UK life insurance market is cut-throat, with most of the main players reporting a decline in the profitability of new policies last year as they were forced to cut prices to maintain market share.
The Edinburgh-based firm, detailing its 2005 results and demutualisation plans for the first time, said it aimed to raise £1.1 billion in its flotation, giving a potential market value of £4.8 billion to £5.5 billion. This was based on a likely price range of 240-290 pence, which advisers said would have been the range had the shares been traded on April 13.
That market value would make Standard Life the fifth largest UK-listed life insurer, behind Aviva, Prudential, Old Mutual and Legal & General but ahead of former mutual Friends Provident.
If its members approve the demutualisation and listing plan at a meeting on May 31, Standard Life would be London's largest debut since telecoms firm Orange in 2001. Three-quarters of voting members have to approve the plan for it to go through.
The money raised in the flotation will be used to expand its UK business and support capital adequacy, the insurer said. The proposal to demutualise and float will cost Standard Life around £158m, aside from commissions, fees and expenses involved in the listing, which will be met from the new capital raised through the stock offering, it said.
In a detailed breakdown of its results, Standard Life said it had swung to profit and boosted new business, helped by a review of its strategy which started in January 2004. It posted a pretax profit of £152m for 2005 under IFRS accounting standards, compared to a loss of £340m in its 2004 financial year.
The insurer shocked rivals and customers two years ago when it announced plans to go public, saying tougher regulatory capital requirements and a declining market for with-profits products forced it to turn to the stock market for cash.
Standard Life today sought to woo policyholders with generous windfall payments and to calm fears that with-profit returns would be eroded with a listing. It said half its 2.4 million eligible policyholders stood to reap windfall share payments worth more than £1,000 from the flotation, while the remainder would get £500-1,000.
The insurer also confirmed reports it planned loyalty bonuses to encourage retail shareholders to hang on to their shares rather than sell to third-party investors. One free share will be given for every 20 shares held during the 12 months from the listing date, it said.
