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Bids, Mergers and Takeovers

Just Retirement-Partnership Assurance to merge

11 August 2015 07:30

The boards of Just Retirement Group and Partnership Assurance Group have reached agreement on the terms of a recommended all-share merger to create JRP Group.

The merger is to be effected by means of a court-sanctioned scheme of arrangement of Partnership Assurance. The merger is expected to result in Just Retirement shareholders owning approximately 60% of the combined group and Partnership Assurance shareholders owning approximately 40% (disregarding the impact of any capital raise).

Under the terms of the merger, Partnership Assurance shareholders will be entitled to receive 0.834 new Just Retirement shares for each Partnership Assurance share held.

Based on the closing price of Just Retirement shares of 199p, the merger represents an indicative value of 166 pence per Partnership Assurance share and values the entire issued and to be issued ordinary share capital of Partnership Assurance at approximately £668.5m.

The boards of Just Retirement and Partnership Assurance believe that the merger will deliver significant strategic and financial benefits for the Combined Group:

Strategic benefits: - Scale to grow in attractive segments. The Combined Group's larger capital base will enable a broader defined benefit proposition and enhance the Combined Group's perceived strength of covenant, opening up opportunities in the attractive defined benefit scheme de-risking segment.

- Consumer champion. The Merger will strengthen the competitive position of the Combined Group in the UK retirement income market, expected to lead to improved customer outcomes compared to the products currently offered by larger incumbent insurers. - Accelerate new product launches. Combining the specialist management teams and expertise of Just Retirement and Partnership Assurance will also enhance the Combined Group's ability to develop and accelerate new product launches in the evolving retirement income market. This is of critical importance given the greater expectation of new products among customers following the freedom and choice introduced by the 2014 pension reforms. - Outstanding intellectual property. The combination of Just Retirement and Partnership Assurance's mortality datasets and underwriting expertise will facilitate improved risk selection and greater reserving accuracy, leading to better value solutions for customers across the entire product range. - More efficient distribution. In both the UK defined benefit de-risking segment and retirement income market, the streamlining of sales functions will lead to a more efficient distribution model for the Combined Group. Overseas expansion will be facilitated through combined international expertise. Financial benefits: - Synergy potential. The combination of the two businesses is expected to create the potential for significant synergies supporting meaningful EPS accretion for Just Retirement Shareholders and Partnership Assurance Shareholders on a fully phased basis.[1] The Just Retirement Board expects the Merger to result in pre-tax cost savings of at least £40 million per annum. These synergies are expected to be implemented following completion of the Merger with the full run-rate being achieved in 2018 (the third year following completion) and are expected to require one-off integration costs of £60 million over two years. The Just Retirement Directors also expect these synergies to have a positive impact on embedded value, new business margin, economic capital and Solvency II capital ratios over time. - High quality cash generation. The Combined Group will have stronger combined capacity for cash generation, supported by Partnership Assurance's more developed back book and improved operational efficiencies delivered from the combined operating platform, supporting growth and dividend capacity. - Enhanced capital position. The Combined Group's stronger capital position will be enhanced through the intended equity Capital Raise of approximately £150 million, providing the financial flexibility to pursue future growth initiatives and product development.

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