National Westminster Bank hopes to put the final touches this weekend to a £10.7 billion (€16.19 billion) agreed takeover of Legal & General, the life assurance company.
The terms of the deal may, however, have to be changed after a sharp drop in NatWest shares yesterday. The fall will alter the value of its proposed cash and shares offer, expected to be unveiled on Monday.
The London Stock Exchange is also likely to launch an investigation into the 10 per cent increase in Legal & General shares on Thursday which forced the two parties to reveal they were in takeover talks.
Advisers to both companies said large volumes of shares started to be traded in mid-afternoon before rumours circulated in the market. "This looked like substantial insider dealing," said one.
The tie-up would create Britain's third biggest life assurer, fuelling consolidation in the sector and raising hopes in the markets of further deals which allow pensions and other products to be sold through banks.
Shares in Norwich Union, viewed as one of the most attractive remaining independent life assurers, yesterday jumped 11 per cent to 474 1/4p. Shares in Prudential Corporation - Britain's largest life assurer - rose 5 per cent to 998 1/2p.
Mr Youssef Ziai, an insurance analyst with ABN-Amro Hoare Govett, said: "The diminishing number of available companies may push some foreign companies to move faster than expected."
Neither Barclays nor Halifax would comment on their rival's proposed deal but it is thought unlikely that either bank plans to jump in with a higher offer.
NatWest's Mr Derek Wanless will remain as chief executive, with particular responsibility for corporate and investment banking, treasury, cards and e-commerce. Mr David Prosser, Legal & General's chief executive, will take charge of all the bank's retail operations, including NatWest's private banking subsidiary Coutts and its Gartmore fund management unit, as well as its consumer banking and life assurance businesses.
Legal & General, which has pioneered low-cost index-tracking savings products, will fill the savings gap for NatWest, analysts said. Its efforts to build an in-house life business, NatWest Life, have met little success.
For NatWest, the deal is an important strategic move. The group has been slimming down its assets in recent years by selling off unprofitable units and rationalising retail operations. But it has been relatively slow to hit the acquisition trail and its track record has left some analysts less than impressed.
While shares in Legal & General yesterday gained a further 13p to close at 205 1/4p - just below the mooted offer price of 210p - NatWest's shares dropped 6 per cent, which could threaten the terms of the proposed cash and sales offer.
