Cowdery eyes AXA synergies

RESOLUTION will need to extract annual cost savings of more than £500m from AXA UK to make its takeover of the French behemoth’s British life and pensions business worthwhile, the investment bank Goldman Sachs predicted yesterday.

Shares in Resolution, entrepreneur Clive Cowdery’s insurance consolidation project, were suspended after it confirmed its intention to pay £2.75bn for AXA’s UK protection, annuities and pensions units. Resolution said it would merge the operations with those of Friends Provident, the life company it bought last summer, cutting overheads and slashing sales and marketing departments.

The proposed deal is to be funded with a £2bn rights issue, £500m of deferred consideration notes to AXA and a small amount of bank debt.

Analysts at Goldman Sachs said the strategic merit of the tie-up was that it would give Resolution scale to compete with other large players in the sector.

“That said, it could prove challenging to extract large cost and revenue synergies from such an acquisition, and we note the two businesses are not in close [geographic] proximity, which could make integration difficult,” the analysts warned.

Goldman Sachs estimated Cowdery would have to squeeze £520m of enterprise value savings from AXA UK to make the transaction value neutral for shareholders. Of those, £73m would come through sales synergies, while the rest would have to come through cost-cutting, the bank said.

In a statement, Resolution chief executive John Tiner said: “This acquisition would build strong momentum in Resolution’s life assurance consolidation project and provides a range of options for further activity.”