Sun Life to join Footsie after shares soar

Sun Life & Provincial will enter the top 100 companies in the UK next week with a market capitalisation of pounds 3.3bn following the completion of a merger between its two main subsidiaries, Axa Equity & Law and Sun Life, and a dramatic outperformance of the market since flotation last year.

Chief executive Mark Wood said much of the rise in share price, to 419p compared with 307p on flotation, was due to tracker funds scrabbling to buy the small free float of shares available to outside investors. Parent company Axa UAP owns 72.4 per cent of the equity but plans gradually to sell its stake until it is left with a 65 per cent share.

The share price rose 8p yesterday on the back of pre-tax profits up 17.2 per cent to pounds 121.4m. The company boosted its interim dividend to 3.8p from a pro forma 3.34p at the time of flotation and predicted a full-year payout of 11.4p.

Mr Wood confirmed the company would have to shed some of its 7,500 staff as it restructured. Most are expected to leave voluntarily but some compulsory redundancies may be considered.

He said: "We have given ourselves two years to achieve the bulk of cost savings. Given our current staff turnover and the changes we have planned we hope there's no need to impose compulsory redundancies on any scale.

"But if we find ourselves with a very small team of specialist people in a location and can't come to an agreement, then we may have to look at that."

The merger of Axa Equity & Law and Sun Life has generated fears, especially among staff at Axa, that they may be forced to leave or switch to a different role.

Low morale is understood to have affected new business figures, leading both Sun Life and Equity & Law to be left behind in the selling bonanza enjoyed by rivals in the first half of this year.

Sun Life, usually one of the country's most popular offices among independent financial advisers, sold less regular premium business between January and June than it had in the first half of 1996.

The Equity & Law side of the business saw more robust sales with a rise of 10 per cent in premiums to new policies. But it fell behind other life offices which saw sales of life assurance and pensions booming by as much as 30 per cent.

Sun Life and Axa Equity & Law will operate as one company but with two brands. Sun Life will keep its name while Equity & Law will become Axa Life.

UAP Provincial, a general insurance subsidiary which used to be part of Sun Life, will merge with Axa's general insurance broking arm, Axa Insurance, by 1 January 1998. The company has announced it will bring out new products, including pensions and life assurance, by January for Axa Life.

Parent company Axa UAP now claims to have overtaken Fidelity Investments as the largest asset manager in the world, with pounds 293bn under management.

Lord Douro, Sun Life & Provincial's chairman, said: "Following the acquisition, completed on 9 September, the imperative for the enlarged group is to build on the considerable skill of our operating companies.

"We are making good progress in integrating the businesses and are confident of realising the value of the resulting savings and efficiencies. We view the future with confidence and enthusiasm."

The merger is structured as a reverse takeover, with French parent Axa taking UAP's stake in Sun Life & Provincial, which in turn buys some of Axa's operations.

Sun Life's with-profits fund will now be closed to new business, leaving it with free assets worth hundreds of millions. However, Mr Wood squashed speculation that some of this might be handed out to policyholders. "We don't regard ourselves as a windfall office," he said.