Linklaters cashes in on Royal merger

Linklaters & Paines has won its biggest City deal this year advising Royal Insurance on its proposed merger with Sun Alliance to form a company valued at over £6 billion.

The firm is also representing two US companies, General Public Utilities and Cinergy, which are taking over Midlands Electricity for £1.7 billion.

Other City firms benefiting from these takeovers include Ashurst Morris Crisp, adviser to Sun Alliance, and Slaughter and May which is representing Midlands.

Simon King, corporate partner at Linklaters, points out that the legal structure of the Royal-Sun deal means the merged group will save about £13 million in tax duty.

The transaction will be achieved via an arrangement which will need court approval after shareholder meetings this summer, and is the same method used for the Lloyds-TSB merger two years ago.

Stamp duty will not be paid because the deal does not involve the transfer of shares from one company to another. Instead, Royal's shares will be cancelled and re-issued as Sun Alliance shares. But the company will then change its name to Royal Sun Alliance, to become the UK's largest insurer.

Linklaters' team is led by Jeremy Skinner and Peter King. Ashursts' team includes Mark Wippell and David Macfarlane.

City sources suggest other insurance company takeovers and mergers are in the pipeline. Shares in composite insurers have moved up sharply in expectation of bids at companies including Commercial Union, GRE and General Accident.

Analysts say consolidation has been prompted by moves to cut costs due to competition from rivals such as Direct Line.

Meanwhile, the US offer for Midlands Electricity will leave just five independent electricity companies in the UK.

Slaughter and May's Tim Clarke is acting for Midlands backed by Neil Hyman, Jeremy Cohen, Eddie Codrington and Graham Airs.

Some City analysts still expect a counter bid for Midlands by another US company, Houston Industries, although there was little sign of this at the time of going to press.

In a separate move UK power operator PowerGen, whose bid for Midlands was blocked by the competition authorities, is considering whether to seek a judicial review.