Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

BAT investors welcome demerger plan

Lea Paterson
Monday 13 October 1997 18:02 EDT
Comments

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

Investors in BAT yesterday reacted enthusiastically to the group's confirmation that it planned a pounds 22bn to pounds 24bn merger of its financial services arm with Zurich Insurance. The confirmation also triggered a wave of merger speculation in the insurance sector. Lea Paterson reports.

Shares in BAT Industries, the giant tobacco and financial services group, leapt by more than 10 per cent yesterday to close at 609p as the City absorbed the news that it planned to split itself in two and merge its financial services business with Zurich Insurance, the Swiss financial services company. Shares in Zurich Insurance jumped by 5 per cent to 633 Swiss francs.

"The demerger is something people have been looking for for some time," said one analyst. "BAT shareholders should be pretty happy."

BAT, which owns UK insurers Eagle Star and Allied Dunbar, said its shareholders would own 45 per cent of the newly merged business via an independent UK holding company. Zurich shareholders, via a Swiss holding company, will hold 55 per cent.

The deal was welcomed by analysts on two fronts. First, they hope it will boost the value of BAT's tobacco arm, currently thought to be on about eight times earnings, a figure Simon Willis of Charterhouse Tilney reckons to be "fairly lowly". The demerger will lead to increased transparency at BAT, which, according to Trevor Moss at Flemings, should "highlight the undervaluation of the tobacco business".

Second, the City reckons the deal will yield commercial synergies. Zurich will be able to retail its fund management products through Farmers, BAT's insurance subsidiary in America, which has a 14,000- strong sales force. Reinsurance is another area of overlap. "Eagle Star Re and Zurich Re combine well," said Mr Moss.

Speculation also focused on whether US tobacco litigation was behind BAT's decision to split its businesses. It has been suggested that if BAT has to pay damages, profits from its financial services division could be at risk under the company's current structure. Most analysts, though, doubt this is a driving force behind the deal. BAT channels its US tobacco business through subsidiary Brown & Williamson.

Confirmation of BAT's plans and news that Generali, the Italian insurer, had bid for AGF, the French insurer, buoyed shares in the insurance sector. General Accident and Commercial Union were viewed in the City yesterday as the two most likely candidates to forge deals.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in