Chaucer refuses to budge over Highway price

Perennial takeover target Highway Insurance remains independent this week after shareholders threw o...

Perennial takeover target Highway Insurance remains independent this week after shareholders threw out an offer from Lloyd's insurer Chaucer.

As predicted in Post Magazine (24 March, p6), the bid - valuing Highway at around £85m - was seen to be below what the insurer's largest shareholders, including hedge fund manager JO Hambro Capital Management, believed it was worth.

Highway's management, led by chief executive Andrew Gibson, stated: "In the absence of any improvement to the previously announced terms, discussions with Chaucer have been terminated."

After talks were called off, a spokesman for Chaucer told PM that it would not be making an increased offer for the motor insurer - the latest chapter in this saga, which included a failed bid last year by Cox, appears to be closed.

A source close to Highway explained shareholder resistance to the deal may have been down to them being happy with the insurer's returns. "Highway is not a growth stock - it's an earnings stock. It has a good return on equity and a dividend yield of 7.5%.

"However, Highway's management did want to do this and showed that by publicly accepting the all-share offer. It shows they also thought the offer was under value, otherwise they simply would have recommended it to shareholders."

Chaucer said it was disappointed not to complete the Highway acquisition but said its strategy to develop its motor and non-motor divisions over their respective cycles remained undiminished. It added that trading in all areas for the first quarter of 2005 had been encouraging.

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