Old Mutual in bid talks with Skandia

SOUTH African insurance group Old Mutual confirmed today that it is in talks to buy Swedish insurer Skandia. Old Mutual, which is quoted in London, said discussions remain at an early stage. Skandia shares were suspended in Stockholm.

News of a possible deal comes just a day after Old Mutual said that acquisitions were no longer a key part of the group's growth strategy. Comments by finance director Julian Roberts marked a u-turn in the company's outlook which, for three years, has been focused on finding the right strategic target.

The company's heavy dependence on South Africa, which continues to account for about 75% of group profits, has always been seen in the City as a strong reason for acquisitions.

'Diversification is important and it would be preferable to see it come from one big deal rather than lots of smaller ones,' said one analyst, echoing sentiments by chief executive Jim Sutcliffe who revealed in February that the company had as much as £1bn to spend on deals.

Skandia may prove rather larger than that. The company has a market value of £2.6bn in Sweden and a combined Old Mutual-Skandia group would be worth as much as £8bn.

Institutional investors are thought unlikely to oppose an Old Mutual bid for Skandia though the reaction in the City was somewhat less positive ? shares in Old Mutual dropped 7¼p to 122p on the news this morning, their biggest fall for over a year.

Old Mutual was linked with the sale last summer of Royal SunAlliance's closed life fund, which eventually went to Resolution Life Group for £850. Old Mutual said at the time, however, that extensive outsourcing by RSA meant many of the potential synergies ? and cost savings ? had gone.