BIG IAG SHAKE-UP ON CARDS

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Big IAG shake-up on cards

By George Lekakis

July 08, 2008 12:00am
Article from: Herald Sun

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LEADING broking analysts believe that Insurance Australia Group is poised for its biggest restructure since it was spun out of the NRMA eight years ago.
New chief executive Mike Wilkins is expected to unveil a wide-ranging overhaul of group operations tomorrow, including big job cuts in the struggling Australian and British businesses.

NOTE: INSURANCE AUSTRALIA GROUP IS A RESPECTABLE GROUP IN THE INSURANCE INDUSTRY.

Speculation is mounting that up to 400 staff will be cut from the group payroll.

Company spokeswoman Carolyn McCann refused to comment on the rumours.

"We have been reviewing every aspect of our businesses to ensure we are operating as efficiently as possible," she said.

"IAG will announce the outcome of the review on Wednesday. Until this announcement it is inappropriate for us to comment."

The staff cuts are likely to raise the ire of the Finance Sector Union.

FSU spokesman Rod Massen said yesterday the company had not briefed the union on its plans.

"The union is concerned that the company does not embark on a slash-and-burn strategy," he said.

Analysts expect Mr Wilkins to clarify IAG's future in Britain, where its recently-acquired motor insurance businesses have failed to deliver value for shareholders.

Macquarie Equities analyst Tony Jackson told clients in a report issued yesterday that the cost-cutting would be "material".

"Expect Mike Wilkins to go public with Michael Hawker's $100 million cost-cutting exercise rumoured to have been announced internally last September," he said.

NOTE: COST CUTTING HAS BEEN A MUST EVEN WITH BIG COMPANIES.

Mr Jackson has forecast the dividend for the half-year to June will be slashed to 13 from 16.5.

He foresaw the 2009 full-year dividend being crunched to 22.

The London-based Insurance Times has reported that IAG appointed corporate advisor Lexicon Partners to identify potential buyers of the British auto insurance arms.

The article said senior managers at the Hastings and Advantage subsidiaries would be given the first opportunity to buy the operations.

Analysts are divided on whether Mr Wilkins has settled on an exit strategy from the British businesses, but most believe he will push ahead with planned expansions in Asia.

"We expect a $200 million writedown to the carrying value of IAG's UK assets, with the prospects of a sale or management buyout viewed to be remote at anything other than a very significant discount to book value - which we are not yet sure IAG is willing to swallow," Mr Jackson said.

However, Citi Smith Barney analysts believe the ailing British arms could be offloaded this year.

"To us, the comments (in Insurance Times) regarding Hastings and Advantage appear to contain a significant degree of plausibility," Citi Smith Barney told clients.

IAG scrip fell 7 yesterday to $3.62.
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