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The boards of Zurich Insurance Company (Zurich) and B.A.T. Industries plc (B.A.T. Industries) have reached an agree...
The boards of Zurich Insurance Company (Zurich) and B.A.T. Industries plc (B.A.T. Industries) have reached an agreement in principle to merge Zurich with B.A.T. Industries' financial services businesses (BAFS). These businesses are essentially complementary and create a significant new force in insurance, reinsurance and asset management. British American Tobacco plc (British American Tobacco) will become a separately listed company.

The businesses of Zurich and BAFS will be transferred to a new Swiss company headquartered in Zurich called Zurich Financial Services Group (ZF Group). The new financial services group will be owned through a dual holding structure. Zurich shareholders will own shares in Zurich Allied AG, which will own 55 per cent of ZF Group. Current shareholdings in B.A.T. Industries will be replaced by shareholdings in two new companies: Allied Zurich plc, which will own 45 per cent of ZF Group; and British American Tobacco plc.

ZF Group will be one of the largest insurance and asset management groups in the world with total 1996 aggregated gross premium income of US$40 billion (SFr. 54 billion). Combined funds under management at year end 1996 would have totalled US$342 billion (SFr. 459 billion) - including Zurich's pending acquisition of Scudder, Stevens & Clark - of which approximately US$200 billion (SFr. 268 billion) would have been third party assets.

ZF Group will have significant global presence with strong positions in the US, its largest market, Switzerland and the UK, its second largest market. It will operate in selected market segments in over 50 countries worldwide.

ZF Group will conduct its leading international insurance and reinsurance business under the Zurich name. Other key domestic brands will continue, including Farmers, Zurich Kemper Life, Universal Underwriters, Scudder and Kemper in the US; and Allied Dunbar, Eagle Star, Zurich Municipal and Threadneedle Asset Management in the UK.

The management of ZF Group will be led by Rolf Huppi, Chairman and CEO of Zurich Group, and will comprise executives of Zurich and B.A.T. Industries group, Lord Cairns will be Chairman of Allied Zurich plc and Rolf Huppi will be chairman of Zurich Allied AG.

British American Tobacco will be well placed to take advantage of opportunities to build on the growth achieved in recent years. It will be led by Martin Broughton, who will be Chairman, with Ulrich Herter as Managing Director. The Rt. Hon. Kenneth Clarke will join the British American Tobacco Board as non-executive deputy chairman.

Prior to completion, B.A.T. Industries' intra group balances will be settled resulting in ZF Group making a net cash payment to British American Tobacco of£500m and assuming£800m of indebtedness. B.A.T. Industries has arranged a fully underwritten US$8bn (£4.9bn) financing facility for general corporate purposes which will also enable its existing public debt to be refinanced.

The merger is subject to the execution of a definitive agreement. Completion will be subject to regulatory consents, tax clearances and other external approvals, as well as approval by shareholders of each of Zurich and B.A.T. Industries, and is expected to be achieved in the third quarter of 1998.

Zurich Allied AG will be listed on the Swiss Stock Exchange. Allied Zurich plc and British American Tobacco plc will apply for listings on the London Stock Exchange and are both expected to qualify by virtue of their size for inclusion in the FT-SE 100 Index.

Rolf Huppi, chairman and CEO of Zurich Group, said:

'The businesses to be combined are high quality, have significant prospects for growth and are highly complementary. The future position of Zurich Financial Services Group in key segments of personal, commercial and corporate risk and investment management, and its high quality brand portfolio will enable the group to deliver consistent earnings growth, building upon Zurich's financial strength and market strategies and BAFS' strong market positions in the US and the UK.'

Commenting on the proposal today, Lord Cairns, chairman of B.A.T. Industries, said:

'We are confident that the business fit between BAFS and Zurich will create an oustanding worldwide business positioned for rapid growth and that, as a leading international tobacco company, a focused British American Tobacco will continue to make good progress.'

'We believe that there will be improved prospects for capital and income growth as a result of the separate ownership of these two world class businesses, although there will be some initial reduction in the dividend payout for B.A.T. Industries' shareholders.'

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