Demutualise or be taken over, NFU Mutual warned
14 December 2001
Demutualise or be taken over, NFU Mutual warned
By Robert Harris
NFU Mutual, farmings biggest insurer, is facing renewed pressure to demutualise amid accusations that it is eroding members capital by subsidising new non-farming business.
Potential bidders could force a vote on the issue as soon as next spring, and hope to attract farmer backing with the promise of one-off windfall payments worth thousands of £s.
A report in a recent issue of Insurance Times says a consortium of five investors has warned the board of NFU Mutual to consider demutualising, or face a hostile takeover bid.
John Caine, chairman of City public relations firm, GCI Financial, represents the group of five wealthy investors. Although he denied issuing an ultimatum to the board, he told farmers weekly that it ignored requests for a friendly meeting.
His group will meet early in the new year to put together a hostile bid unless the company decides to demutualise of its own accord. That is not as unlikely as it seems, he added. NFU Mutual has retained Dresdner Kleinwort Wasserstein, the investment bank, which has a history of advising mutuals.
"This is a clear indication to me that NFU Mutual intends to demutualise voluntarily. If that were the case we would be quite happy – farmers need to get a windfall before the companys capital is further eroded."
He maintained that the insurer is using capital, much of it farmers money, to capture new markets outside agriculture, undercutting other insurers in the process. New customers, rather than existing ones, benefit, claimed Mr Caine.
NFU Mutual is the UKs 10th-largest insurer, and includes about two-thirds of UK farmers on its books. It manages about £8.5bn of assets, and is an obvious attraction to fund management companies seeking to consolidate their position.
But the firm denied it had received an approach. "We have had no contact, and no bid has materialised. We are not in talks with anyone," said a spokesman.
There are no plans for an in-house conversion either, he added. "All our discussions with Dresdner Kleinwort Wasserstein have reinforced our commitment to mutuality."
He also denied claims that NFU Mutual was selling insurance to non-farming customers at knockdown rates through its subsidiary, Avon Insurance. "It is run to make a profit, and for many years has returned substantial dividends."
The mutual status serves members well, he maintained. Bonus schemes reduced premiums and topped up life insurance to the tune of £200m during 1999 and 2000.
Widespread reports that members would receive £25,000 as windfalls, should mutualisation occur, have been dismissed as "totally fanciful" by the company.
It would take £21bn to pay all 850,000 members that amount, ten times more than some potential bidders have said NFU Mutual is worth, the spokesman said. *