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. Last Updated: 07/27/2016

Lloyds Buys Scottish Widows for $11Bln




LONDON -- Lloyds TSB Group PLC, Britain's biggest retail bank, said Wednesday it was buying mutually owned life insurance and pensions group Scottish Widows for pounds 7 billion ($11.11 billion).


The deal, expected to be completed early next year, will create Britain's biggest bank insurance group and the second-largest provider in the life, pensions and mutual fund market behind Prudential Corp. PLC. Lloyds - Europe's most profitable bank - said the acquisition would enhance its earnings per share from the first full year after completion and said it expected annual cost savings of pounds 60 million within three years.


But company's shares fell 2.5 percent to 901 1/2 pence by midday on worries the deal would not create the same cost savings as past Lloyds' acquisitions.


Lloyds will make an initial estimated pounds 5.7 billion cash payment to Scottish Widows' members with a further pounds 1.3 billion to be paid out later. Each of Scottish Widows' 1.6 million members will receive an initial cash windfall of pounds 500.


Analysts said the deal underlined the consolidation pressure now facing Britain's life and pensions groups whose margins are being squeezed by government plans to introduce a new type of low-fee pension, known as the stakeholder pension.


"It puts pressure on some of the other life players to consolidate," said Fox Pitt Kelton analyst Andrew Ritchie.


But major insurers Standard Life and Equitable Life said they had no plans to change their mutual status.


Lloyds has been hunting for either a life and pensions or a banking acquisition for more than year.


It has underperformed the FTSE 100 share index by 5 percent over 1999 on fears it was struggling to find an acquisition that did not dilute its bumper return on equity of 33 percent last year, the highest in Europe for a bank.


Fund managers said the deal made sense but the acquisition did not change the basic shape of Lloyds' business.


Lloyds said it would still be on the lookout for further acquisitions despite being tied up in completing the purchase.


"This is not the end of the story, and we remain a very ambitious group hungry for further expansion," chairman Brian Pitman said at a news conference. He did not rule out a deal with a British retail bank, and said Lloyds was still interested in European or U.S. acquisitions.


Tim Sykes, analyst at Credit Suisse First Boston, said the deal brought Lloyds one of the best life insurance brands, opened prospects of cross-selling of products and a strong presence in independent financial adviser business.


But analysts returning from a meeting with company executives to discuss the acquisition said they had doubts over the price, income gains and the weight of the deal.


Some feared it would struggle to find the significant cost savings to match those extracted from its two previous takeovers of TSB Bank and building society Cheltenham and Gloucester.


Scottish Widows will be the brand for all life, pensions and unit trust operations of the enlarged Lloyds group, which would have over pounds 80 billion in assets under management.