Iag Investors Face Cut In Payout

Sydney Morning Herald

Friday April 18, 2008

Danny John

INSURANCE Australia Group's army of small shareholders could face a cut in their final dividend payment if rival insurer QBE eventually succeeds in taking over the company.

The initial proposal lodged with IAG and a follow-up offer valuing the embattled group at $7.43 billion contain a commitment for its 900,000-plus retail investors to receive a second half payout which would be the lesser of its profits over that period or 15c a share.

But such a move implies a real cut in both its second half dividend and the total payment for the full year after IAG declared an overall 2007 distribution of 29.5c a share.

IAG, the owner of the NRMA Insurance brand, paid a final dividend of 16c a share last October to add to its 13.5c interim payment, despite a second successive fall in annual profits after claims resulting from catastrophic storms ripped through its bottom line.

In its most recent half year results last month, the group decided to maintain the interim dividend at 13.5c despite its net earnings falling even further to just $110 million following an equally heavy hit to its profits.

Faced with growing unease among its shareholder base, IAG chose to maintain the dividend partly to underpin its falling share price and as a sign that it expected second half earnings to stage a recovery - as long as it didn't suffer a recurrence of the bad weather that has plagued it over the last two years.

Analysts interpreted comments by the chief executive, Michael Hawker, at the time as indicating that IAG's board would seek to keep its next dividend payment the same as the corresponding period which, while frozen, would at least ensure shareholders would not suffer a drop in income.

However, analysis by the Herald of QBE's latest informal offer, lodged with IAG on Friday and rejected by its target four days ago, indicates that a dividend cut is in the offing if its takeover bid is successful on the existing terms.

QBE did not respond to the Herald's questions last night about its dividend statement.

A spokeswoman for IAG was unable to comment on the company's dividend plans, saying Mr Hawker had given no indication at his results briefing as to the final payout. Nor would she be drawn on QBE's intentions.

The dividend issue emerged as the two companies appeared no closer to resolving their dispute over the price QBE has offered for the country's largest domestic household and motor vehicle insurer.

Investors continue to underline the need for QBE to come up with better terms than the package of 0.142 of its own shares and 70c cash per security, valuing IAG at $4.06 a share, compared with yesterday's price of $4.30, down 8c on the day.

QBE rose 35c to $23.55 as the market indicated that a sweetened bid of about $8.3 billion - $800 million more than its current offer - might be enough to persuade IAG's board to recommend a bid to shareholders.

© 2008 Sydney Morning Herald

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