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Sunday, September 5, 1999 Published at 13:44 GMT 14:44 UK

Business: The Company File

Exchange investigates Legal & General share trades

There may be other suitors waiting in the wings

The London Stock Exchange is investigating possible insider trading in Legal & General shares the day before talks between the two companies were announced.

The National Westminister Bank confirmed to newspapers that an investigation was taking place.

Legal & General hasn't received any bid approaches other than that from the NatWest around three weeks ago, chief executive David Prosser has said in a separate interview.

Prossers' comments follows speculation that other banks might be keen to bid for the life assurance company.

NatWest will have to convince fund managers that it is not paying too high a price for life assurer Legal & General (L&G) after its share price continued its fall on Tuesday.

NatWest shares have fallen 9% since Friday's news of the plan to create one of the country's largest financial institutions.

NatWest is the UK's third largest bank, and L&G the fourth largest insurer.

Sir David Rowland, NatWest chairman: Cannot give redundancy figures yet
The bank values L&G at £10.75bn ($17.27bn), or 210 pence per share. NatWest will pay L&G shareholders 85 pence in cash and the rest in new NatWest shares.

However, the offer is flexible, and L&G shareholders who want only cash or just shares will have their wish granted.

On Friday, L&G shares closed at 205.25 pence, sharply boosted after the news of the deal had spread through the market.

The deal will see NatWest shareholders control about 75% of the company, while L&G's own the remaining 25%.

Job fears

The two companies predict to make annual cost savings of at least £130m before tax by the end of 2002.

NatWest and L&G employ 77,000 people, and job cuts are likely, especially at the combined head office and at its fund management division.

Britain's biggest finance trade union, UNIFI, said it would "condemn job losses if they were compulsory", but added that "NatWest have been good in the past".

Union representatives are due to meet management on Wednesday.

Getting into the bancassurance business

The NatWest bid is the second big UK bancassurance takeover. Less than three months ago the UK's largest bank, Lloyds TSB, said it would buy mutual life and pensions group Scottish Widows for £7bn.

David Rowland, chairman of NatWest, called it a "vital strategic move by NatWest".

He said that Legal & General was a group with "strong management, a great record and excellent prospects".

Negotiating under pressure

The boards of both companies had met until late into Sunday night to finalise the details of the deal.

The two sides were under pressure to complete the takeover as quickly as possible after news of their talks leaked in the City on Thursday.

BBC Business Correspondent Rory Cellan-Jones: "The city should have known"
This led to Legal & General shares rising sharply late - a rise which has prompted the London Stock Exchange to launch an investigation into possible insider dealing.

NatWest and Legal & General confirmed on Friday morning that they were in talks.

Top jobs

NatWest chairman David Rowland and chief executive Derek Wanless will retain their positions in the enlarged group.

Adrian Graves from the National Association of Bank Customers
But Martin Gray, head of NatWest's retail operations, will retire.

His job will be taken over by L&G Chief Executive David Prosser, who will be deputy chairman and responsible for retail banking.

More mergers expected

The move is expected to spark a fresh wave of merger activity with fellow potential targets, such as Norwich Union, seeing share prices rising sharply on Friday.

NatWest had been expected to take the plunge into the round of consolidation currently taking place in the UK financial sector.

It had already indicated its intention to move into the fast growing, but highly competitive pensions and investment market.

Pecking order

The merger with Legal & General will create a banking and investments group worth £33bn.

The new company would leapfrog Barclays in the UK bank pecking order but still remain behind HSBC and Lloyds TSB.

Legal & General's low cost pensions, policies and bonds will be sold via NatWest's 1,724 branches representing 6.5m customers, creating a domestic bancassurance operation rivalled only by Lloyds which took over Scottish Widows in June for around £7bn.

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