Outlook: Satchell flexes muscles and overpays

IT'S NICE to see the trend of recent years being reversed and a mutual insurer bidding for a proprietary one. Perhaps mutuality isn't dead after all. In one leap the big three mutual life companies - Standard Life, Scottish Widows and Equitable Life - are transformed into the big four. Even so, the question ought to be asked whether or not Friends Provident is overpaying for London & Manchester, and apart from that of simply getting bigger, what the purpose of this takeover is.

On the first score, Friends is certainly paying a very full price; the stock market would be wrong to assume Britannic, or any of the others that might seem to make a better fit, is prepared to bid more. L & M has been hawking itself around all this year. Having spoken to three or four prospective suitors, this was the best price it could come up with.

On the second question, Keith Satchell, chief executive of Friends, stresses the benefits of putting together his own direct sales force with L & M's home services business, the staff of 800 it employs to go from door to door collecting premiums. In truth, however, these are quite different businesses, appealing to widely different income groups. It is not clear the synergies, or the scope for cost cuts, are that great. There does seem to be logic in merging the two corporate pensions operations, which tap into different areas of the IFA market, but whether that is of itself enough to justify the bid premium, is a moot point.

Certainly if Friends was a proprietary company, Mr Satchell might have had difficulty in selling this deal to his own shareholders. As it is, he doesn't really have to answer to anyone. The bull market in equities has given him the capital necessary to do this deal, he doesn't have to consult his policy holders and there's even a limit on what regulators can do to interfere in his deal making.

Friends has itself long been thought a potential target for a proprietary company, and it's hard to resist the conclusion that this takeover is essentially defensive in nature. Life assurance, as much as any sector, has entered a bid or be bid for phase, so Mr Satchell can hardly be blamed for wanting to get his shots in early. In many respects, it's good to see a mutual flexing its muscles in this way and showing a bit of ambition. This is Mr Satchell's second big takeover, the first being Ivory & Sime.

All the same, mutuality is no protection against the consequences of overpaying, and if that is indeed what Mr Satchell is doing, then policy holders won't thank him for it.