Legal & General Group Plc, the biggest manager of U.K. pension assets, ruled out bidding for Lloyds Banking Group Plc’s Scottish Widows Investment Partnership as it posted first-quarter cash flow that beat analysts’ estimates.
“It doesn’t really fit with our current strategy for the business,” Chief Executive Officer Nigel Wilson said on a conference call with reporters today, when asked about Scottish Widows. “We won’t be making opportunistic acquisitions.”
Legal & General is seeking to strengthen its position in the U.K.’s long-term savings market through acquisitions as the government encourages Britons to save privately for their pensions. The firm in March agreed to buy Cofunds Holdings Ltd., an electronic savings portal, with the CEO saying today that the insurer has “a large amount of funds available” for purchases.
“The issue is making sure we do the right deals,” Wilson said. “This industry, in its wider sense, is littered with failed acquisitions. We’re very determined not to be part of that very large group.”
Wilson’s comments echo those of Aberdeen Asset Management Plc’s CEO Martin Gilbert, who said Scotland’s largest money manager is “highly unlikely” to buy Scottish Widows. “It would make something especially attractive for us to make a large acquisition,” he said April 29.
Lloyds, Britain’s largest mortgage lender, is weighing a sale of its Scottish Widows unit, which manages about 142 billion pounds ($221 billion) of mainly U.K. insurance and pension assets, four people with knowledge of the matter said last month. With a large amount of index-linked funds, the business would fit with Legal & General’s investment management unit, according to David McCann, an analyst at Numis Corp.
Instead, the insurer is targeting acquisitions that help it profit from global developments including globalization of investment markets, an ageing population, digital lifestyles, welfare reform and retrenching banks, Wilson said. He defined bolt-on acquisitions as those valued less than 5 percent of the company’s market value, or about 500 million pounds.
The stock rose 0.5 percent to 171.50 pence at 8:51 p.m. in London, compared with a 0.2 percent decline in the FTSE 100 Index. Lloyds fell 1.3 percent to 53.48 pence.
Legal & General’s first-quarter operational cash generation rose 13 percent to 281 million pounds as its funds unit had record inflows and annuities sales rose. That beat the 272 million-pound average estimate of 14 analysts surveyed by L&G.
“Legal & General’s strategy has evolved from initially focusing on cash, to focusing on cash plus growth, to now adding bolt-on transactions to the strategy to supplement future growth,” said Alan Devlin, a London-based analyst at Barclays Plc with a buy rating on the stock. “The first quarter showed tangible evidence that L&G is delivering on all three fronts.”
Sales rose 28 percent to 555 million pounds in the first quarter, beating analysts’ estimate of 499 million pounds. That included a 56 percent increase in sales of income protection and annuity products and a 20 percent gain in revenue from savings.
The firm had record international net inflows of 6.7 billion pounds into its investment management division, up from 1.2 billion pounds a year ago. Total assets rose 9 percent to 441 billion pounds in the quarter.