Wesfarmers intends to operate the Lumley Group businesses in parallel with its existing general insurance business.
“The Lumley Group’s focus on intermediary distribution is seen as highly complementary to the direct distribution strategy of Wesfarmers Federation Insurance,” the company says in a statement.
Wesfarmers will pay about A$320 million for the businesses Down Under. This is a premium of about A$110 million over projected net assets at completion. In addition, Wesfarmers will assume the Lumley’s external debt of A$55 million. The price is subject to adjustment for the level of net assets upon settlement of the acquisition.
Lumley’s general insurance business in Australia and New Zealand has gross premiums of A$580 million, and they are expected to increase significantly in the year to 30 June 2003.
Wesfarmers has been attracted by the strong historic and prospective financial performance of the Lumley Group together with its reputation for technical innovation, strong management and controls, reliability and high service standards.
It intends to keep the Lumley brand.
The potential acquisition is subject to approval by the Australian Prudential Regulation Authority, changes to the corporate structure of Edward Lumley Holdings Limited to facilitate Australian ownership and finality of due diligence and contractual terms. It is anticipated that these matters will be resolved early in the financial year commencing July 1.
Wesfarmers is one of Australia's largest public companies with operating revenues of A$7.4 billion in the 2001/02 financial year. The company employs 30,000 people in Australia and New Zealand in a variety of sectors including insurance.
Wesfarmers Federation Insurance, the insurance subsidiary of Wesfarmers, is a specialist rural and small business insurer which operates through 80 branches across Australia.
In the wake of the announcement Standard & Poor’s Ratings Services has placed Lumley on CreditWatch Negative.
It says the change was made as the ratings of Lumley Australia and New Zealand ratings may be lowered from A to A-, the same as Wesfarmers, if the deal goes through.
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