Lloyds TSB Acquires Scottish Widows in a £7 Billion Deal

Strategic Insights -

Lloyds TSB has agreed to acquire Scottish Widows' Fund & Life Assurance Society in a £7 billion deal, creating the second-largest life insurance, pensions, and mutual fund provider in the UK. The acquisition will strengthen Lloyds TSB's position in all major distribution channels for long-term savings and provide a better position for the new stakeholder pensions being designed by the UK government. The combined market shares of Lloyds TSB and Scottish Widows will amount to 6.3% in life insurance, 9.1% in pensions, 5.9% in unit trusts, and 7.2% overall.

Key Takeaways:

  • The acquisition is valued at £7 billion, making it one of the largest deals in the UK financial sector.
  • The combined market shares of Lloyds TSB and Scottish Widows will be a significant player in the UK life insurance, pensions, and mutual fund markets.
  • The acquisition will strengthen Lloyds TSB's distribution channels, adding independent financial advisers (IFAs) to its existing bank channels.
  • Robert Yates, an analyst with Fox-Pitt, Kelton, believes the acquisition is a good fit that rounds out Lloyds TSB's distribution channels and makes them a close No. 2 after Prudential.
  • The acquisition is expected to immediately boost Lloyds TSB's per-share earnings by 3% to 4% and yield a return on investment of about 6%.
  • Scottish Widows had net premiums written of £1.86 billion and capital and surplus of £4.77 billion at year-end 1998, with net income of £376.6 million for the year.
  • The acquisition should provide a stable source of earnings for Lloyds TSB, although it is unlikely to yield significant cost savings.

Statistics:

  • The acquisition is valued at £7 billion.
  • The combined market shares of Lloyds TSB and Scottish Widows will be 6.3% in life insurance, 9.1% in pensions, 5.9% in unit trusts, and 7.2% overall.
  • Scottish Widows had net premiums written of £1.86 billion at year-end 1998.
  • Scottish Widows had capital and surplus of £4.77 billion at year-end 1998.
  • Scottish Widows posted net income of £376.6 million for the year.
  • Lloyds TSB's existing insurance, pension, and unit trust business posted a pretax profit of £982 million in 1998.

Sources:

  • "Lloyds TSB to Acquire Scottish Widows in £7 Billion Deal" by Brendan Noonan, A.M. Best Company, Inc., 1999.
  • A.M. Best Co. data on Scottish Widows' financial performance.
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