Lloyds Banking Group could undertake the biggest life sector flotation in history as analysts and advisers question whether corporate buyers for Scottish Widows will surface.
Last week, reports suggested the life and pension provider could be sold off for between £5bn and £7bn as Lloyds Banking Group chief executive António Horta-Osório undertakes a review of the business.
Lloyds has labelled talk of a potential sale as “pure market speculation” but sources within Scottish Widows have confirmed that offloading the business is a possibility as the bank looks to focus on its core operations.
Cicero Consulting account director Ben Stafford says: “The pressures on Lloyds are huge, ranging from the Government as a stakeholder to recommendations the Independent Commission on Banking will make in September.
“The chief executive at Lloyds will have to look at what actions can feasibly be taken before September and a sale of Scottish Widows could be one of them.”
Last week, Money Marketing reported the prevailing view of analysts that an initial public offering is the most likely outcome for Scottish Widows.
Analysts believe a public listing, which would be the biggest of its kind in the sector and the first since Standard Life’s £4.65bn flotation in 2006, would deliver the best price for the bank’s life arm.
Investec insurance analyst Kevin Ryan says: “When there is a sale – and there will be a sale, I am sure – the issue for Lloyds is that it needs to get a good price and the most likely way to get a good price is to IPO it and create some excitement.”
Other potential options open to Lloyds are a sale to another life company, a sale to a foreign-owned business looking to consolidate in the UK or a sale to a non-insurer, such as a bank.
Experts say the continued retreat of foreign-owned providers from the UK and the implications of Basel III make the final two options unlikely. A sale to another life company remains possible, with both UK life insurance cons-olidation vehicle Resolution and closed-book provider Phoenix Life weighing up a bid for Widows.
But Syndaxi Chartered Financial Planners managing director Robert Reid says Resolution could be reluctant to enter a bidding war while still in the midst of integrating Friends Provident, Axa’s life and pension business and Bupa Health Assurance under the Friends Life banner.
He says: “I do not think Scottish Widows would be a good fit for Resolution, simply because it would be a huge organisation to integrate and Clive Cowdery already has a lot on his plate. If he takes on Widows as well, he will end up with indigestion.”
Raising equity will be an issue for any potential private sector buyer, according to Ryan. He says: “The issue for someone like Resolution is that if they wanted to buy it they would have to raise pure equity.
“But who is going to underwrite a £7bn rights issue? There is nobody out there with cash swilling about.”
If Resolution decides to pursue a deal, founder Clive Cowdery is understood to be keen to retain the Scottish Widows brand. It remains unclear what might happen if closed-book provider Phoenix bought the company.
Lucian Camp Consulting principal Lucian Camp says: “The Scottish Widows brand is a strong one. It is one of the few brands in the life sector that has some equity and adds a significant amount of money to the value of the business.”
The uncertainty surrounding a potential sale of Scottish Widows also follows an exodus of senior figures from the company, raising potential problems over when successors will be appointed.
Chief executive of general insurance and former Scottish Widows chief executive Andy Briggs is replacing Trevor Matthews as chief executive at Friends Life, executive director Archie Kane has retired and managing director of life, pensions and investments Phil Loney has been appointed Royal London chief executive.
Royal London head of communications Alasdair Buchanan says: “The danger of not replacing the senior management team at this stage is it makes it difficult to have a plan B if the sell-off does not take place.
“With a big deal like this, there is no guarantee that it will happen. Even if Lloyds decides it wants to dispose of Scottish Widows, you cannot guarantee it will get the price it wants.”
A Lloyds spokesman says replacements will be announced “in due course”.