Making a done deal out of a tentative idea

The notion of a merger between Irish Permanent and Irish Life was fostered almost two years ago by executives at the former building society, who were anxious to have some control over its future ownership structure.

Irish Permanent already had a strategic shareholder. When it floated in 1994, the British bank Abbey National took a 10 per cent stake in the company in what was seen as a predatory move.

Since then, the British institution was viewed as the odds-on favourite to make a full take-over bid for the company after November 1999 once the legislative protection blocking such a move lapsed.

The board and senior management at the State's biggest mortgage lender had other ideas. They were vehemently opposed to becoming part of Abbey National from the outset. Abbey National also seemed to change its tune in relation to its interest in the Irish bank with the appointment of a new chief executive two years ago who was known to be less expansionary in his outlook than his predecessor.

Whatever its misgivings, Irish Permanent quickly realised it was faced with the prospect that Abbey National might never make a bid for the group or that another predator, such as the Halifax or Norwich Union, could emerge from the shadows.

At the same time, Irish Life was losing market share and gradually beginning to realise, that without a strategic partner, it could never aspire to being more than a bit player in the Irish market.

The highly successful foray of the two main banks into life assurance had really hit Irish Life's business and highlighted its deficiency in terms of its distribution network.

The proposals to merge Irish Permanent and Irish Life were drawn up by Irish Permanent's advisers, the London-based corporate finance specialists DLJ Phoenix in 1996, but were not unanimously accepted by the board.

Some directors at the aggressive newly-quoted company were loath to get into bed with what they viewed as a staid and predominantly civil service culture at Irish Life.

The life assurer had been privatised for around six years at that time and while significant changes had been made at senior management level, its mid-management structure was very broad by industry standards.

The proposals were nonetheless approved and were strongly backed by Irish Permanent chief executive, Mr Roy Douglas, and its finance director, Mr Peter Fitzpatrick.

A tentative approach was subsequently made to the Irish Life chairman, Mr Conor McCarthy, and the group's then managing director, Mr David Kingston.

Mr McCarthy gave it some very serious consideration in mid-1996 but would have been constrained from progressing it aggressively at that stage. Mr Kingston was preparing to retire from his position and a long and bitter dispute between the company and its sales force meant it had to be put on the long finger.

Irish Life had also already set its sights on buying New Ireland Assurance to restore its share of the life assurance market in Ireland. It had put a huge amount of effort and resources into that deal.

However, Bank of Ireland reigned on that particular parade, outbidding Irish Life at the auction.

The Irish Permanent proposals were dusted down about a year ago, just before the formal arrival of Irish Life's current managing director, Mr David Went.

Once on board, he viewed the proposition very favourably and began to work with Mr Douglas to secure a future for both organisations.

DLJ Phoenix vice-chairman Mr David Reid Scott says the decision to make the necessary moves to put the merger deal together was taken in late May. "Both sides eventually got comfortable with each other and things began to move swiftly.

"The union with Irish Life was the most agreeable option open to Irish Permanent. It was felt there was relatively little overlap between the two operations and also that the culture at the top of the organisation had greatly changed."