The annuity providers hardest hit by chancellor George Osborne's pension changes - Just Retirement (JRG) and Partnership Assurance (PA) - have proposed a merger after deciding their future is brighter together. As we have written before, the 2014 changes announced in the Budget exploded like a bomb placed in the lobby of the UK's annuity providers, and soon prompted Aviva (AV) and Friends Life to shelter together for cover. Aviva's takeover of its smaller rival was announced in December, just a few months after Friends had revealed the early damage from a drop-off in individual annuity sales.
Under the terms of the all-share merger to form JRP Group, Partnership shareholders will receive 0.834 Just Retirement shares for each Partnership share that they hold. They will end up owning 40 per cent of the combined group, while current Just Retirement shareholders will end up with 60 per cent. The deal values Partnership at £669m, or 166p a share, and provides the beleaguered annuity specialist with a much-needed fillip on the issue of its half-year results. The boards of both companies have unanimously recommended that shareholders approve the deal.
This publication discussed back in March the prospects for a combined group with a lower cost base. "There has to be a point at which Partnership and Just Retirement get together," Shore Capital insurance analyst Eamonn Flanagan prophesied at the time. The Just Retirement board estimates those pre-tax savings to be at least £40m a year, which it should start to achieve from 2018, but they will require about £60m in integration spend spread over two years. The newly created group is expected to have both a stronger cash generation and a better capital position, but only after raising £150m in fresh capital, with more detail on that to be announced.
Just Retirement's chief Rodney Cook will lead the combined group, bringing with him group finance director Simon Thomas. That leaves no place for Partnership's current chief executive Steve Groves, but its chief financial officer David Richardson will become Mr Cook's deputy.
