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The BBC's Peter Morgan
"This is not a done deal"
 real 28k

CGU's Chief Executive Bob Scott
"We will restructure our business throughout the UK"
 real 28k

Monday, 21 February, 2000, 14:21 GMT
CGU and Norwich Union merge





CGU and Norwich Union have agreed a 19bn merger, creating the UK's biggest insurance group - but 5,000 jobs will go worldwide.

The move is aimed at forming a company powerful enough to take on the world's biggest insurers, such as France's Axa and Germany's Allianz.

The merged group expects cost savings to involve the loss of up to 5,000 jobs (4,000 in the UK) out of a total workforce of 70,000 (about half in the UK).

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It will be called CGNU, although it will continue to use the Norwich Union name in the UK, and will have its head office in London.

Policyholders are unlikely to notice any change in the immediate future, although the new company will eventually have the muscle to launch highly competitive products.

The life assurance business will be based at CGU's premises in York and the general insurances in Norwich, suggesting that job losses in the Norfolk city will be less than had been feared.

CGU says it will retain its 2,000 staff in Scotland, half of which are based at its premises in Perth.

Roger Lyons, general secretary of the MSF union, said he was determined that integration was dealt with through natural wastage or voluntary severance.

He said: "Compulsion is completely unacceptable and will be resisted in every way possible."

CGU in driving seat

The all-share deal totals about 19bn. CGU shareholders will hold 58.5% of the group and Norwich Union shareholders 41.5%.

The merger will result in cost savings of at least 250m a year within 18 months.

Analysts say they do not expect the new group to encounter regulatory problems. It would have about 19% of the UK general insurance market - 25% is considered the regulatory danger point.

CGU chief executive Bob Scott told the BBC the merger was prompted by "rapid changes in financial services worldwide".

He said he wanted to improve the products and services offered to customers.

Getting bigger

Norwich Union is the UK's fourth-largest general insurer. It demutualised and floated three years ago, and is currently valued at about 8.4bn on the stock market.

Bob Scott: CGU chief executive New chief: CGU's Bob Scott
However, many analysts felt it was too small to survive as an independent business, particularly with its low-key international operations.

CGU was the result of a merger two years ago between Commercial Union and General Accident. It is valued at 10.4bn.

The new company will be the fifth-largest in Europe.

CGU chief executive Bob Scott will take on the same role in the new group, while Norwich's chief executive Richard Harvey will be deputy.

It is intended that Bob Scott will retire by June next year, at which time he will be succeeded by Richard Harvey.

Consolidation

The deal is the latest step in the continuing consolidation in the banking and insurance sectors.

As well as the deal which created CGU, Royal & Sun Alliance was the result of a merger, Lloyds TSB has taken over Scottish Widows and Royal Bank of Scotland finally won control of NatWest.

But with the creation of new insurance giants, many smaller players are likely to reconsider their strategies to try to ensure they do not get left behind.

And there is still the possibility that Norwich Union shareholders could reject the deal. Some analysts have said they get nothing from it and could do better to see if another company makes a more favourable offer.

Separately, CGU unveiled results for the year to 31 December which showed it made an operating profit of 771m, down 4m from a year earlier. The total dividend is 38 pence, up 8%.

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See also:
21 Feb 00 |  UK
How staff deal with mega mergers
21 Feb 00 |  Business
Insurers braced for shake-up
21 Feb 00 |  Business
Paying the price of a merger
17 Jan 00 |  Business
Do mergers ever work?
11 Feb 00 |  Business
Banks braced for more mergers
31 Jan 00 |  Business
NatWest takeover battle
14 Sep 99 |  The Company File
Italian insurance giant in merger bid

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