SCOTTISH Amicable's with-profit policyholders will receive benefits worth on average #1400 under the takeover terms from Prudential Corporation, which was confirmed yesterday as the preferred bidder in a ''tight'' contest with Abbey National and Australian Mutual Provident.
There will be cash payouts averaging #550 once the deal is completed to be followed by a series of special bonuses.
But the amount paid to each policyholder will vary according to the type, size and age of their policy. ScotAm intends to demutualise and become a subsidiary of Prudential with future business written by a new company, Scottish Amicable Life.
Prudential, the UK's biggest insurer, will close ScotAm's #14bn life fund to new business and pay out about #1000m of surplus assets in its 1.1 million policyholders. At the same time, it will inject #1300m of commercial loans into the life fund to give it greater flexibility in its investment and bonus policy.
In particular, this will allow a significantly increased level of investment in equities which are expected to provide higher returns to policyholders over the longer term.
The 1500 ScotAm employees at Craigforth, Stirling have been have been guaranteed their jobs for a period of three years. However, there is no such guarantee for the 150 working in the fund management operation in Glasgow. Prudential, which has 10 investment centres around the world, said ''constructive consideration is being given to maintaining an investment management presence in Glasgow''.
Yesterday, Derek Higgs, chairman of Prudential Portfolio Managers, was in talks with fund managers in Glasgow. Sir Peter Davis, the Prudential's group chief executive, suggested it may be possible to have a representation of the Pru fund management in the Scottish city. He said detailed discussions were taking place. The message from ScotAm's managing director Roy Nicolson to the Glasgow operation was more direct: ''Don't Panic.''
Only with-profits policyholders are eligible for the cash and bonus package but all those who submitted policy proposals to ScotAm before the close of business on Monday, March 24, should qualify.
The package is made up of #600m in cash from Prudential shareholders' and policyholders' funds at completion of the transaction in compensation for loss of members' rights. This makes up the cash element. Then there are special reversionary bonuses from ScotAm's own life fund with a total current value of #470m to be added to policies on completion of the transaction.
Finally the remaining capital in the ScotAm life fund, estimated to have a current value of #500m, will be distributed as enhancements to with-profit payouts over the lifetime of those policies.
Under the proposals, existing with-profit policyholders will retain 100% of future profits generated in respect of their policies, rather than selling a 10% interest to shareholders, as has been the case in some other demutualisations.
Circulars will be sent out to policyholders in May which will also reveal the terms which were offered by the other two contenders, Abbey National and Australian Mutual Provident. These remained under wraps yesterday.
In June there will be a special meeting of ScotAm at which members will be asked to approve the proposals by a 75% majority. Assuming this is received, there will be Scottish court hearings in the autumn to formalise the demutualisation and the deal will be completed as soon as practical thereafter.
The headline price of the deal is almost #2900m, compared to #1900m offered publicly by the Pru in February before the auction began. At that time the Pru offered around #760 to each policyholder, with #365 in cash or shares and a similar amount in special bonuses.
The injection into the ScotAm life fund was to be #1100m. But the first bid was a sighting shot without the benefit of inside information on Scottish Amicable. The increase is partly accounted for by a revaluation of surplus assets in ScotAm's lfe fund from #400m to #720m. It now also includes a #170m valuation on other ScotAm businesses such as its 25% holding in J Rothschild Assurance.
ScotAm's board, headed by chairman Sandy Stewart, unanimously concluded that, of the proposals received, the Prudential offered the best immediate and prospective value for members. The independent actuary, Michael Arnold, agreed with the board's conclusions.
Prudential and ScotAm are convinced that Independent Financial Advisors (IFAs) will play an increasingly important part in the UK's evolving financial services market.
The Pru's Sir Peter Davis described the companies as an ''excellent fit''. ScotAm's strength in regular premium pensions, savings and unit-linked investment products, as well as the protection products offered by ScotAm European, contrasts with Prudential's strong position with IFAs in the annuity and single premium with-profits markets.
The combination of fund management operations will take funds under management to over #100bn.