Promina Surges On Takeover Talk

Sydney Morning Herald

Thursday October 12, 2006

Jessica Irvine

THE much anticipated consolidation of Australia's insurance industry again captured the attention of sharemarket traders yesterday with rumours bank-insurer Suncorp-Metway was preparing a bid for the nation's second-largest home and vehicle insurer, Promina Group.

Promina shares surged 12 per cent to a record high of $6.82 yesterday morning on speculation of an impending bid at $7.50.

Valuing the company at $7.7 billion, it would be the biggest financial sector takeover since Commonwealth Bank swallowed Colonial in 2000 for $9.6 billion.

Insurance shares have reacted violently in recent months to any whiff of a takeover bid.

Suncorp itself has been touted as the most likely target, and such speculation has driven its share price up 19 per cent in the past four months.

Determined not to go quietly, chief executive John Mulcahy revealed last month the combined bank and insurance company had assembled a high-level team to assess potential acquisitions.

"We have a very small team at the centre of the organisation, highly skilled to analyse all the potential M&A opportunities that may or may not occur," he said.

Analysts said yesterday that an acquisition of Promina could create synergies for Suncorp on the insurance side.

"In theory it would generate some synergies, but whether that would justify the speculated bid price is questionable," Deutsche Bank's banking analyst, Ross Brown, said.

An analyst at Wilson HTM, Brett Le Mesurier, agreed that the suggested bid price was ambitious.

"If the rumour was right, then the amount of synergies that Suncorp would need to identify would be very high," he said.

A Suncorp spokeswoman, Natasha Schmid, refused to comment on whether Suncorp was preparing a bid. "As you would expect, we do not comment on market speculation," she said.

Similarly tight-lipped, a spokesman for Promina, Alexander Drake, refused to say whether the company had received any approaches.

"We're not making any comment," he said.

Promina is increasingly seen as a more likely takeover target than rival Insurance Australia Group. IAG, through brands such as NRMA Insurance, already controls about 40 per cent of the general insurance market in Australia and any takeover or merger would attract the attention of the competition regulator.

But analysts continue to view Suncorp as a potential target for a major bank, which could take it over and then sell off its insurance business.

A bid for Promina would not change this, according to Mr Le Mesurier.

"I think, perversely, it would make them more attractive," he said, explaining that a bank would now stand to gain a more substantial insurance business.

Deutsche's Mr Brown also said a bank bid for Suncorp was not impossible.

"Suncorp is a more palatable option for a major bank given the Queensland banking exposure provides much larger synergies as well as a large strategic position in one of Australia's fastest-growing states," he said.

"But recent share price gains by Suncorp make this less likely," he added.

Promina shares pulled back to close 6 per cent, or 38c, higher at $6.48. Suncorp shares fell 5c to $22.30.

© 2006 Sydney Morning Herald

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