Leader

Michael Hawker, chief executive of Insurance Australia Group (IAG), appears to be stuck between a rock and a hard place (see News, page 4). He’s under pressure from his shareholders to enter into negotiations to sell the business to QBE, but believes that, as yet, he hasn’t had a formal bid to consider. QBE appears to have made public an approach that values the company at around £3.84bn, IAG shareholders want at least £4bn.

At the time of writing Hawker’s position was a clear but diplomatic one, especially as IAG has announced two profit warnings already this year. “We have had private discussions with QBE and they have chosen to put them into the public domain to engage us,” says Hawker. QBE meanwhile is saying that it has extended its self imposed deadline to IAG to acknowledge and consider its approach. In effect what QBE has done is to put the responsibility for putting the merger proposal to IAG shareholders in the hands of the IAG board. QBE deems its approach to be a friendly merger and must be excited by the prospect of buying one of Australia’s biggest companies to dominate Down Under in the personal lines space. But with IAG’s share price still stagnant there is now an expectation on Hawker to cut a deal, and this is why the haggling has begun before, in Hawker’s eyes, a formal bid has even been made. So what does all this mean for the UK market? Any IAG deal is not a UK-driven acquisition, but it would enable QBE to build on its own proposition in the UK through IAG’s Equity group and its private motor business, Hastings and Advantage. While analysts have been quietly questioning why IAG expanded into the UK in the first place, what QBE would do with these businesses remains to be seen. QBE has a reputation for getting the best out of its acquisitions and, should this deal go ahead, its options are to either sell off the UK businesses, invest to attempt to turn them around or make more acquisitions globally. If the next wave of consolidation is to come in the insurer space, as balance sheets across the board begin to come under scrutiny, then we may just see QBE being even more aggressive in the UK than many first anticipated. IT