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Tony Craze, Christows stockbrokers
"This is a deal Norwich Union shareholders should reject"
 real 28k

Monday, 21 February, 2000, 10:49 GMT
Paying the price of a merger

Norwich Union HQ In or out? Staff wait to learn their future

One of the driving forces behind any merger - including that involving CGU and Norwich Union - is the desire to cut costs.

One of the best ways to achieve savings is by shedding staff, and this latest merger is no exception.

About 4,000 people will lose their jobs in the UK, with most of the redundancies likely to come in areas of duplication - asset management, public relations, information technology and technical divisions such as actuarial and underwriting.

The fear is that most of those cuts will hit Perth and Norwich, the main offices for CGU and Norwich Union respectively.

Perth Perth has already seen one round of job cuts
That would be a second blow for Perth, which was the global headquarters of General Accident until the merger two years ago which created CGU.

More than 7,000 people are employed by Norwich Union in its home city, where it is by far the biggest employer.

But Bob Scott, chief executive of the new company - called CGNU - was keen to allay concerns about any one community being badly affected.

"The job losses will be spread right across the UK. There is absolutely no way they will fall unevenly on any major centre where we have big workforces," he told the BBC.

"We will restructure our business throughout the UK and the change in employment will be right across our whole business."

Saturated market

What will the merger mean for those policyholders who all taken together will be paying 27bn in premiums to the new company?

In terms of insurance, probably not much. But the new business will have the muscle to develop products in the more lucrative field of long-term savings.

"The insurance market is quite saturated so they might be looking at areas where they are under-exposed," says Kathleen Hennessy of Moneywise magazine.

"They are trying to push a new brand and it can take a long while for that to sink into the public consciousness, so some good products would help.

"But in the long run, mergers are quite costly, and it might be they try to pay for it by raising prices."

Powerful player

However, what the merger does create is a powerful player both in the UK and abroad - that will increase competition and could ultimately mean tangible benefits for the consumer.

All this is presuming the merger does go ahead, a decision that rests with the shareholders.

Norwich Union has had 1.3m since its demutualisation in 1997. But this deal offers them no cash and to make matters worse, the share price fell sharply on Monday in the wake of the announcement.

Some analysts believe the shares will rise if the merger goes through.

But Tony Craze of Christows stockbrokers thinks Norwich Union deserves better.

He says the company has performed very well recently and shareholders should benefit from that.

"Sit back and enjoy it - somebody else may come along and offer some cash at a higher level," he advises.

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See also:
21 Feb 00 |  Business
Insurers braced for shake-up
20 Feb 00 |  Business
CGU and Norwich Union merge
17 Jan 00 |  Business
Do mergers ever work?

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