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Wednesday, June 23, 1999 Published at 13:10 GMT 14:10 UK

Business: The Company File

Lloyds TSB buys Scottish Widows

Scottish Widows is one of the strongest brand names in the industry

British banking and insurance giant Lloyds TSB is buying Scottish Widows, the country's sixth largest life assurer, for about £7bn ($11.2bn).

The deal will create the UK's second largest provider of life insurance and pensions after the Prudential.

The acquisition could mean windfall payments of up to £6,000 for policy-holders in Scottish Widows.

BBC Scotland business reporter Hayley Miller
The mutual, based in Edinburgh, is regarded as having one of the strongest brand names in the industry.

Lloyds, which has climbed to the top of the European financial services industry with a string of acquisitions, has for months been looking for the next deal to maintain its earnings momentum.

The company is reported to have had difficulty finding the right deal at the right price.

[ image: Lloyds TSB wants to maintain its earnings momentum]
Lloyds TSB wants to maintain its earnings momentum
Scottish Widows has 1.6 million policyholders and manages funds worth £33.7bn. It also has a strong presence in the growing independent financial advice market, where Lloyds is relatively weak.

Until recently Scottish Widows had pledged to remain mutual.

But its Chairman Lawrence Urquhart has hinted that the group is reviewing its future.

In May, Scottish Widows was reported to be considering a £4bn stock market flotation.

The group responded to that speculation by restating its commitment to mutuality.

The exact amount that the policyholders will now receive will vary, depending on the amount of money invested and the length of time they have been saving with Scottish Widows.

More profits at Lloyds

Lloyds TSB said that the deal would increase its profits this year, and expected savings of £60m after three years.

[ image: The headquarters will stay in Edinburgh]
The headquarters will stay in Edinburgh
But it did not expect major job cuts.

"This is not a cost-cutting or a job-cutting story - this is a growth story," said Lloyds TSB Finance Director Kent Atkinson.

The headquarters of the combined pensions and life insurance group, which will have £80bn under management, will be in Edinburgh.

Mike Ross welcomes the deal
It will be run by Mike Ross, the Chief Executive of Scottish Widows, who said the deal would provide "greater competitive advantage, greater growth prospects and the establishment of a much larger business, within the Lloyds TSB Group."

By mid-morning, Lloyds' shares were up 14p to 935p on the London Stock Market.

But there was some concern among dealers about the high price Lloyds TSB had paid for its acquisition.

"People have been waiting for this and they will probably be satisfied it's a UK deal," said one market maker.

"But there could be some nerves over the price and there have been some sellers of Lloyds around in the market."

The merger is bound to increase speculation about the future of the UK's other mutual insurance companies, like the Equitable and Friends Provident.

Political reaction

Politicians in Scotland have been reacting to the deal.

The Liberal Democrats' Enterprise and Lifelong Learning spokesman George Lyon, MSP, said: "The proposed take-over of Scottish Widows is an indication that Scotland's booming financial services sector continues to go from strength to strength under devolution."

The SNP's John Swinney, MSP, said the loss of control over the Scottish financial sector from within Scotland was a matter of "enormous regret".

"The process of consolidation and globalisation in the financial services sector is now a fact of life," he added.

"However, the failure of Scottish Widows to build what could have been a formidable Scottish based financial services group is a missed opportunity."

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